Semiconductor Industry
Let’s begin with a simple analogy.
Just like the brain controls the human body, semiconductors are the ‘tiny brains’ controlling our modern digital world — from smartphones and laptops to missiles and satellites.
Why is this industry so important?
Because it sits at the core of the global technology ecosystem, powering innovation in sectors like:
- Electronics
- Telecommunications
- Artificial Intelligence
- Robotics
- Space and Defence
And what are these chips made of?
Primarily silicon — the second most abundant element in Earth’s crust (after oxygen). Silicon is cheap, plentiful, and has excellent electrical properties — which makes it the foundation stone of semiconductors.
🔬 The Process of Making a Chip
(From Sand to Silicon Brilliance)
The transformation of ordinary sand into a high-performance microchip involves hundreds of precise and microscopic steps — often taking 2–3 months per chip. Let’s simplify and sequence it:
1. Silicon Wafers
- Begin with sand → Melt it → Crystallize into pure silicon rods → Slice into ultra-thin wafers
2. Polishing
- These wafers are polished to a mirror finish — to remove microscopic defects.
3. Oxidation
- A layer of oxide is applied using oxygen or steam. This acts like a protective coat and helps control electric current flow.
4. Photolithography
- Here’s where circuit designs are printed using light-sensitive materials (photoresist) — like a micro blueprint drawn with light!
5. Etching
- The unwanted parts of the wafer are etched away, either using chemicals (wet etching) or plasma (dry etching).
6. Deposition & Ion Implantation
- Multiple thin layers of materials are deposited.
- Ions (charged particles) are shot into the wafer to control its electrical conductivity — turning it into a smart material.
7. Metal Wiring
- Imagine building roads for electricity to travel!
Thin metal wires (aluminium, tungsten, etc.) are laid down to connect all the micro-circuits.
8. Testing (Energy Dispersive Spectroscopy)
- Every chip is rigorously tested — defective ones are rejected.
9. Cutting & Packaging
- Wafers are cut into individual chips, mounted on Printed Circuit Boards (PCBs), and finally packaged for use.
You can watch the following YouTube video for better insights: Chip Manufacturing – How are Microchips made? | Infineon
📍 Factors Influencing the Location of Semiconductor Firms
Now let’s shift from ‘how chips are made’ to ‘where they are made’. Geography matters — and here’s a structured look at why certain places become semiconductor hubs.
1. Proximity to Markets
- Companies save on logistics and respond faster to consumer demand.
- 📌 Example: Malaysia benefits due to closeness to Southeast Asian tech markets.
2. Availability of Skilled Workforce
- The semiconductor industry demands engineers, physicists, software experts, and clean-room specialists.
- 📌 Example: South Korea’s success rides on its talent pool of high-tech professionals.
3. Government Support
- Policy interventions like subsidies, tax reliefs, and R&D incentives help nurture semiconductor clusters.
- 📌 Example: Taiwan’s Industrial Technology Research Institute (ITRI) laid the foundation for giants like TSMC.
4. Cost-Effectiveness
- Firms seek low-cost production environments without compromising quality.
- 📌 Example: China offers cheap labour, land, and infrastructure — attracting fabs (fabrication units).
5. Infrastructure and Connectivity
- Good power supply, clean water, transport, and global supply chains are non-negotiables.
- 📌 Example: Germany’s efficient infrastructure supports high-end chip manufacturing.
6. Research and Innovation Ecosystem
- Clusters around universities, research labs, and startups encourage continuous improvement.
- 📌 Example: Israel’s semiconductor prowess thrives due to its industry-academia collaboration.
7. Intellectual Property (IP) Protection
- Companies invest heavily in R&D — so they prefer countries where IP rights are legally secure.
- 📌 Example: Switzerland, with its stringent IP laws, offers a safe haven for tech innovators.
✅ So, Remember:
In essence, the semiconductor industry is not just about manufacturing chips — it’s about strategic geography, technological sophistication, and policy precision.
To summarise:
- Sand → Silicon → Circuit → Chip → Device → Digital World
- And behind this, lies an intricate web of location factors, skilled people, and nation-level strategies.
🗺️ Major Centres of Semiconductor Manufacturing in the World
When we talk about semiconductors, it’s not just about the technology, it’s about where that technology is created. Let’s begin with a bird’s eye view.
🧭 Global Distribution: Who Makes the Chips?
Think of the semiconductor world as a relay race — where different regions specialise in different stages:
🌏 East Asia — The Manufacturing Giant
- This region is the epicentre of semiconductor production, especially the fabrication (fab) stage.
- Countries like:
- Taiwan (home to TSMC, the largest contract chipmaker globally),
- South Korea (Samsung Electronics – a leader in memory chips), and
- China (aggressively expanding production),
- Together, these countries account for over 70% of global semiconductor manufacturing.
👉 In simple terms, East Asia is the factory of the digital world.
🇺🇸 United States — The Innovation Hub
- The US still dominates chip design and R&D.
- Key players: Intel, Qualcomm, NVIDIA, AMD.
- However, much of the actual chip fabrication has shifted overseas — primarily to Asia.
👉 Think of the US as the brain that conceptualises the chip, but the hands (factories) lie elsewhere.
🇪🇺 Europe — The Specialist Player
- Europe focuses on niche segments like:
- Automotive chips (Germany)
- Photolithography machinery (Netherlands – home to ASML)
- While not a volume leader, Europe plays a strategic role in the global value chain.
👉 Europe is like a high-end artisan, crafting specialised components and tools essential to the industry.
⚖️ Comparative Analysis: East Asia vs USA vs Europe
Now let’s analyse the geographical location factors shaping semiconductor production across these regions.
We’ll take each factor and compare how these regions fare.
🏗️ Infrastructure
| Factor | Description |
|---|---|
| East Asia | High-quality infrastructure in Taiwan, South Korea, Japan. Dedicated technology parks, industrial zones, and export corridors support manufacturing. |
| USA | Advanced infrastructure in Silicon Valley, Austin, etc., but rising concerns about manufacturing capacity gaps. |
| Europe | Strong industrial infrastructure, especially in Germany and Netherlands, but less concentration compared to Asia. |
👨🔬 Labour Availability
| Factor | Description |
|---|---|
| East Asia | Large pool of technicians and engineers, particularly in China, Taiwan, and South Korea. |
| USA | World-class engineering talent from Ivy League and top public universities. Also attracts global talent. |
| Europe | Strong tradition in engineering education, especially in Germany, but facing an aging workforce. |
📦 Market Proximity
| Factor | Description |
|---|---|
| East Asia | Close to large electronics markets like China, Japan, South Korea, which ensures steady demand. |
| USA | Proximity to North American market, including its own strong consumer base. |
| Europe | Access to a stable EU market, though smaller than Asia or North America in semiconductor demand. |
🏛️ Government Policies
| Factor | Description |
|---|---|
| East Asia | Highly supportive policies, subsidies, and long-term planning (e.g., Taiwan’s ITRI, China’s “Made in China 2025”). |
| USA | New initiatives like the CHIPS and Science Act (2022) aim to restore domestic manufacturing. Strong national security motivations. |
| Europe | Mixed approach — some governments offer support (e.g., Germany), but regulatory hurdles exist. |
🧪 Research and Innovation Ecosystem
| Factor | Description |
|---|---|
| East Asia | Increasing investments in R&D and strong collaboration between industry, academia, and state. |
| USA | Global leader in chip design and patents. Also leads in innovation of semiconductor architecture. |
| Europe | Focus on cutting-edge technologies, such as automotive chips, renewable tech, and AI-integrated circuits. |
🔗 Supply Chain Integration
| Factor | Description |
|---|---|
| East Asia | Exceptionally well-integrated supply chains — fabs, packaging, testing units often located within proximity. |
| USA | Complex supply chains, with heavy reliance on international suppliers for components. |
| Europe | Ongoing efforts to localise supply chains and build regional semiconductor resilience (e.g., EU Chips Act). |
🧱 Raw Materials Access
| Factor | Description |
|---|---|
| East Asia | Close to sources of rare earths, silicon, and chemical suppliers in Asia-Pacific. |
| USA | Relies on global imports, though domestic mining is expanding. |
| Europe | Partial access within the EU, but still dependent on imports for critical minerals. |
💰 Cost-Effectiveness
| Factor | Description |
|---|---|
| East Asia | Highly cost-effective, especially in China and parts of Southeast Asia. |
| USA | High costs, but offset by high productivity and technological edge. |
| Europe | Mixed profile — Germany is efficient, but labour and compliance costs can be high elsewhere. |
So, in conclusion:
- East Asia = The factory floor of the world’s chips
- USA = The design board and innovation engine
- Europe = The specialised craftsman, producing high-end tools and automotive solutions
In the era of AI, 5G, and IoT, semiconductors are the new oil — and just like oil shaped geopolitics in the 20th century, chips will shape global power in the 21st.
Taiwan’s Dominance in the Semiconductor Industry
When we talk about chips, we are talking about power — not just electrical, but economic and geopolitical. And standing at the heart of this power is a small island with outsized influence: Taiwan.
🇹🇼 Taiwan: The Silicon Shield
Let us begin with the core fact:
Taiwan produces a significant share of the world’s advanced semiconductor chips, particularly through TSMC (Taiwan Semiconductor Manufacturing Company), the world’s most valuable semiconductor foundry.
You can think of Taiwan as the “workshop of the world’s brain.” It doesn’t design the chips (that’s mostly done in the US), but it fabricates them with unmatched precision and efficiency.
🧭 How Did Taiwan Reach This Pinnacle?
To understand Taiwan’s rise, let’s trace it like a UPSC-worthy case study:
1. Early Government Vision (1970s)
- While many countries were still focused on heavy industries, Taiwan identified semiconductors as the future.
- The government invested heavily in:
- Research & Development (R&D)
- Human capital
- Creating a supportive industrial policy environment
2. Contract Manufacturing Model
- Taiwan didn’t compete with the West in design. Instead, it offered itself as a reliable partner for manufacturing chips designed by others.
- This is called the foundry model — and Taiwan perfected it.
3. Flagship Firms
- TSMC (1987) and UMC (United Microelectronics Corporation) were established.
- These companies standardised chip fabrication, achieving scale, speed, and cost-efficiency unmatched anywhere else.
4. Geostrategic Diplomacy
- Taiwan used its semiconductor dominance as a diplomatic tool.
- By integrating itself into global tech supply chains, it built economic alliances that also served as political safeguards.
🌐 Why Does Taiwan’s Dominance Matter?
Taiwan is irreplaceable in the current semiconductor ecosystem. Here’s why:
1. Systemic Dependence
- From your smartphone and laptop to hospital equipment and cars — almost everything depends on chips made in Taiwan.
- Any disruption (due to war, pandemic, natural disaster) could cripple global tech industries.
2. US–China Rivalry
- Taiwan finds itself in a strategic chokepoint:
- The US depends on Taiwan for advanced chips and wants to protect this supply.
- China sees Taiwan as part of its territory and also wants chip supremacy.
- Thus, semiconductors have become a key flashpoint in global geopolitics.
3. R&D Race
- The chip world is driven by miniaturisation — smaller, faster, more efficient chips.
- Taiwan stays ahead through constant innovation, investing in next-gen technologies like 2-nanometre chips, AI chips, and quantum computing circuits.
📊 Location Factors Behind Taiwan’s Semiconductor Success
Let’s now examine the Geographical and Economic Factors that explain Taiwan’s strategic advantage — a classic topic in Industrial Geography.
| Factor | Explanation |
|---|---|
| 🌏 Location | Taiwan is near major electronics markets: China, Japan, South Korea. This ensures fast turnaround, lower shipping costs, and supply chain synergy. |
| 🧱 Access to Key Resources | The availability of natural silicon in the region provides a reliable base material for chip fabrication. |
| 🌡️ Climate | Taiwan’s subtropical climate has moderate temperatures, reducing energy costs needed for temperature control in cleanrooms. |
| 👨🔬 Skilled Workforce | The country has prioritised STEM education, creating a pipeline of engineers, technicians, and researchers. |
| 🚚 Infrastructure | Taiwan has invested in port connectivity, highways, and logistics systems. Also, disaster preparedness (e.g., seismic-resistant fabs) protects critical facilities. |
| 🧠 Growth Poles / Industrial Clusters | Cities like Hsinchu are tech hubs, housing TSMC, UMC, and their ecosystem. This cluster encourages collaboration and innovation. |
| 🏛️ Government Policy | The state plays an active role: offering subsidies, R&D grants, and infrastructure support to private firms. |
| 💰 Competitive Edge | Taiwan offers cost-effective manufacturing due to: Government incentives Stable currency High manufacturing productivity | |
| 🌍 Geopolitical Strategy | Taiwan has leveraged its chip supremacy to build strategic alliances, especially with the US, Japan, and EU — ensuring long-term security and investment |
In summary:
- Taiwan’s dominance is not accidental. It is the result of visionary planning, state support, geographical advantages, and strategic diplomacy.
- In the 21st century, a country’s chip power equals strategic power. And Taiwan holds that Silicon Sceptre firmly in its grasp.
🇮🇳 Semiconductor Industry in India
Let’s begin with a reality check:
India is a major consumer but a minor producer of semiconductors.
But this gap is not a weakness — rather, it is being transformed into an opportunity.
📈 India’s Growing Semiconductor Market
- In 2023, India’s semiconductor market touched USD 34.3 billion.
- By 2032, it is projected to nearly triple to USD 100.2 billion — a clear signal of the digital surge in the country.
- Consumption is also expected to hit USD 110 billion by 2030, driven by:
- Smartphones
- 5G rollout
- AI-powered services
- IoT and digital infrastructure
🔁 Think of this as a ‘demand-pull effect’ — India’s domestic appetite is pulling investment into chip manufacturing.
🏭 Strategic Focus: From Consumption to Production
The Government of India (GoI) is not merely reacting to demand. It is strategically shaping supply.
Let’s break this into major thrust areas:
1. Budgetary Push
- Budget 2025 continued semiconductor expansion, reinforcing the ₹76,000 crore PLI scheme and accelerating domestic chip fabrication with new investments.
- Under MeitY (Ministry of Electronics & IT), the India Semiconductor Mission (ISM) is steering this effort.
2. Ripple Effect on Jobs and Industries
- Semiconductor manufacturing is labour-intensive and skill-intensive.
- By 2026, it’s expected to create over 3 lakh jobs, especially in:
- Automotive electronics
- Telecom
- Consumer electronics
- Industrial automation
3. Export-Oriented Manufacturing
- The goal isn’t just to make chips for India, but to become a global export hub.
- This means scaling up:
- R&D
- Testing and verification
- Backend services like Assembly, Testing, and Packaging (ATP)
India already has over 125,000 engineers in IC design, which forms the intellectual backbone of chip development.
🛠️ Key Government Initiatives
✅ Program for Development of Semiconductors and Display Ecosystem
- Aim: Build hi-tech clusters, fab facilities, and research ecosystems.
- Strategy: Offer financial incentives to attract global giants and startups.
✅ Design Linked Incentive (DLI) Scheme
- Focus: Support Indian startups and companies in semiconductor design.
- Scope: Covers everything from ICs, SoCs, to semiconductor-linked IP.
- Duration: 5 years of sustained support.
🏗️ Semiconductor Units Approved (under this program)
| Company | Collaboration | Location |
|---|---|---|
| Tata Electronics (TEPL) | With PSMC (Taiwan) | Dholera, Gujarat |
| Tata TSAT | Independent unit | Morigaon, Assam |
| CG Power | With Renesas (Japan) & Stars Microelectronics (Thailand) | Sanand, Gujarat |
🧭 These units are located across Western (Gujarat) and Northeastern (Assam) India — signifying balanced regional industrialisation.
🌐 Driving Factors Behind India’s Semiconductor Ambition
Let’s explore the geography of demand and digital transformation in India:
| Driving Factor | Explanation |
|---|---|
| 📱 Consumer Electronics Boom | Rising incomes, digital lifestyles, and smartphone penetration create massive demand. |
| 🌐 IoT Adoption | Smart cities, healthcare tech, and precision agriculture are driving chip-based applications. |
| 📶 5G Rollout | Demands low-latency, high-speed chips — vital for telecom and data-based services. |
| 🤖 AI Integration | AI needs specialised chips (e.g. GPUs, NPUs) across sectors like finance, education, and logistics. |
| 🏛️ Digital India Push | Government schemes like Digital India, Smart Cities, e-Governance stimulate infrastructure-led demand. |
| 💳 Digital Economy Growth | e-Commerce, UPI, and digital payments also demand secure and reliable semiconductor systems. |
🧭 India’s Challenges & Way Forward
While the progress is promising, challenges persist:
- No full-fledged semiconductor fab yet.
- High capital costs and technological entry barriers.
- Need for reliable water and power, critical for chip fabs.
- Global competition (esp. from East Asia) remains intense.
🛤️ But India is building a long-term strategy — balancing:
- Indigenous R&D
- FDI attraction
- Strategic partnerships
Huawei’s Ban in the West: Tech and Geopolitics Collide
Let’s now connect semiconductors with geopolitics, using the case of Huawei — China’s telecom and tech giant.
🚫 What Happened?
In 2019, the US banned Huawei citing national security threats.
Allegation: Huawei’s equipment could allow the Chinese government to spy or sabotage using backdoor access.
- Many Western countries (like UK, Australia, New Zealand, etc.) followed suit.
- Huawei was also banned from participating in 5G infrastructure development in these countries.
🗺️ Geographical and Geopolitical Implications
| Implication | Explanation |
|---|---|
| 📉 Reduced Competition | Excluding Huawei means fewer 5G providers → higher costs, slower rollout. |
| 🧱 Tech Decoupling | US-China rivalry spills into technology ecosystems → fragmented global markets. |
| ⚖️ Regulatory Patchwork | EU nations differ in Huawei stance → makes data interoperability more complex. |
| 🔁 Supply Chain Disruptions | Chip bans disrupted Huawei’s supply of critical components → forced redesigns and delays. |
| 🌍 Shift in Market Geography | Huawei shifted focus to Africa and Latin America — realigning global tech alliances. |
| 🚧 Digital Divide Risk | Developing nations relying on Huawei may face 5G delays, worsening the digital divide. |
🔚 Conclusion: India’s Rise, China’s Isolation, and the New Chip Order
We now live in a world where technology = sovereignty.
- India is trying to build sovereign semiconductor capability, backed by its large market and digital transformation.
- China faces containment and exclusion, especially in critical sectors like 5G and advanced chips.
- The US, EU, and East Asia are reconfiguring supply chains and alliances to reduce dependencies.
The semiconductor industry is no longer just an economic sector — it is the new arena of global power politics.
📱Apple Electronics and iPhone Manufacturing
Apple is not just a company; it is a global production system.
Its devices are not “Made in one place,” but rather Assembled from Everywhere.
🌏 Global Value Chain of Apple
- From raw material mining (e.g., lithium, cobalt) to chip design (US), component manufacturing (South Korea, Japan), assembly (China, India), and distribution (worldwide) — Apple’s operations represent the globalisation of electronics.
🐉 China’s Dominance in Apple’s Supply Chain
| Strengths | Explanation |
|---|---|
| 💰 Cheap Labour | Large, skilled, and relatively low-cost workforce. |
| 🏭 Established Infrastructure | Presence of highly integrated industrial parks. |
| 🔋 Rare Earth Control | Critical for magnets, batteries, and display technologies. |
| 🔧 Component Suppliers | Major players like BOE (displays), Sunny Optical (cameras). |
This proximity to suppliers and assemblers enables:
- Efficient logistics
- Cost control
- Faster production cycles
⚠️ Emerging Challenges to China’s Dominance
- US-China Trade Tensions: Risk of tariffs, restrictions, and regulatory uncertainty.
- Labour & Environmental Issues: Global scrutiny on worker rights and eco-friendliness.
- Rising Wages: China’s cost advantage is eroding, making diversification necessary.
🇮🇳 India’s Rise as a Manufacturing Hub
India is now becoming a strategic alternative for Apple. Here’s how:
| Enabler | Explanation |
|---|---|
| 💵 PLI Scheme | Financial incentives linked to production and exports. |
| 🧾 SEZs & Tax Breaks | Make manufacturing more cost-competitive. |
| 📈 Large Domestic Market | Aspirational middle class = long-term demand. |
| 🧠 Skilled IT Workforce | For backend, software, and even chip-related assembly. |
🔄 Apple’s Shift Towards India
- Foxconn has iPhone assembly plants in Tamil Nadu and Andhra Pradesh.
- India is also producing components like AirPods, not just assembling.
- The aim is to create a full-stack electronics ecosystem, including:
- Local suppliers
- Component manufacturers
- Skilled service providers
📌 Implication: India is not just a market for Apple, but a strategic node in its global supply chain.
📊 Semiconductor Industry — Global Facts Snapshot
| Category | Top Countries |
|---|---|
| Producer | Taiwan, South Korea, China, Japan |
| Consumer | China, USA, Taiwan, South Korea |
| Exporter | China, Japan, Malaysia, Singapore |
| Importer | China, Singapore, Hong Kong, Malaysia |
🔁 This reflects a tight East Asian concentration, especially in production and trade.
🏭 PLI Scheme — A Game-Changer for Indian Electronics
Let’s decode the Production Linked Incentive (PLI) Scheme, launched under National Policy on Electronics 2019 (NPE 2019).
Vision: Make India a global hub for Electronic System Design and Manufacturing (ESDM).
🎯 Key Features of the PLI Scheme
| Feature | Explanation |
|---|---|
| 📈 Incentives | 4–6% of incremental sales over base year. |
| 🧩 Scope | Includes mobile phones, components, and ATMP (Assembly, Testing, Marking, Packaging). |
| 🧲 Objective | Attract large-scale investments, promote Make in India, and boost exports. |
| 🌐 Target | Global players + Indian firms looking to scale up. |
⚠️ Challenges Faced by India’s Semiconductor Industry
Despite promising initiatives, major roadblocks persist:
| Challenge | Explanation |
|---|---|
| 💰 Capital Intensive | Each fab requires USD 3–5 billion. |
| 🚿 Water Requirement | Each fab consumes 2–4 million gallons/day of ultrapure water. |
| ⚡ Energy Demand | Needs uninterrupted, clean electricity — a logistical challenge. |
| 🧪 Tech Complexity | Requires extreme precision, cleanrooms, and continuous R&D. |
| 🌱 Sustainability Concerns | Must manage e-waste, chemical discharge, and maintain social acceptance. |
🧩 CONCLUDING FRAMEWORK: Connecting the Dots
Let’s bring together all five dimensions we’ve covered:
| Dimension | Summary Insight |
|---|---|
| 🌏 Global | Semiconductor geography is concentrated in East Asia (Taiwan, South Korea, China). |
| 🇨🇳 China | Dominates production and Apple’s supply chain but is under geopolitical stress. |
| 🇮🇳 India | Rising as a hub via PLI, ISM, DLI; focus on backend and full-stack ecosystem. |
| 🏛️ Policy Support | Government-led initiatives are catalysing investments and partnerships. |
| 🔗 Geopolitics | Huawei ban, chip wars, and supply disruptions are redrawing industrial geographies. |