In the past few years, growth of the global semiconductor industry has been driven largely by demand from electronics such as smartphones and the proliferation of applications including the Internet of Things and cloud computing. The global semiconductor industry is dominated by companies from the United States, Taiwan, South Korea, Japan and Netherlands. Factors affecting the location of semiconductor and electronic chip making industry:

• Skilled workforce and Innovation ecosystem: The first and foremost requirement of this hightech industry is availability of skilled workforce i.e., qualified engineers. Other than that, countries with strong IPR regimes and ecosystem of R&D attract these industries.
• Availability of infrastructure: This industry requires a huge amount of uninterrupted electric and water supply. The transportation ecosystem also needs to be advanced.
• Market: Availability of local customer community also impacts the location of industry. The growth of East Asia as a manufacturing hub of the semiconductor sector is partly due to availability of a huge Asian market.
• Raw materials: Availability of Electronics Grade Single cell purified silica is critical for manufacturing wafers.
• Cost of production: It is a capital-intensive industry. So, location depends upon the cost of skilled labour, operations and incentives provided by the local government. Countries with huge subsidies and capital support are able to attract the companies to invest and set up plants in their country.

Currently, the world is witnessing a global chip shortage due to the following reasons

• Impact of Covid
  • Manufacturing came to a standstill as most of the foundries had to work at severely reduced capacities. This created a backlog of pending orders.
  • Lack of supply chain resilience: Since, most of the capacity is located in limited geographies and the world has less capacity elsewhere, any disruption in the region has a negative impact everywhere.
  • Due to a sudden shift in demand, the cost of shipping and air freight have both risen.
• US-China trade war: US Sanctions on Chinese companies like SMIC and Huawei have exacerbated the crisis.
• Other events: In 2021, Texas faced a severe winter storm, which led to shut down of Samsung’s plant and Taiwan experienced its worst drought in the last 50 years, which impacted the production of its leading semiconductor industry TSMC. Other than that, fire broke out at a Japanese Chip-making factory, Renesas electronics.

Expecting an increase in the global semiconductor market to $650 billion by 2025, India has launched National Policy on Electronics 2019 (NPE 2019) to position itself as a global hub for Electronics System Design and Manufacturing (ESDM). Under this policy

• The government has launched several schemes such as Scheme for Promotion of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Cluster Scheme (EMC) 2.0.
• Other than that, 100% FDI is allowed in ESDM and an Electronic Development Fund (EDF) is created.
• Incentives are also provided up to Rs 10,000 crore through Modified Special Incentive Package Scheme (M-SIPS) and Production Linked Incentives (PLIs).

Development of semiconductor industry is part of global strategic competition. Given its long gestation period efforts need to be made to exacerbate the process through exploring possibilities of joint ventures with Japan, South Korea and USA.