Here's a look at India's ESDM industry, challenges, strengths, and opportunities that would propel the country's industry forward.
When we look at the electronic system design and manufacturing (ESDM) as an industry, it has two independent industries in it that are distinctly different in terms of technology complexity, investment, and productization.
One of the two distinct industries is system design (or electronic product design), which deals with marketable end-product manufacturing (using components bought from different sources across the world), its distribution, support system, and upgradation.
The other industry is semiconductor components design and manufacturing, which forms the core part of the electronic product. Semiconductor components form the core part because they contribute to the major cost part—close to about 70% of cost—of the electronic product, as well as from a technological upgradation perspective as technological advancement is part and parcel of this industry to grow and survive against global competition.
So, semiconductor design and manufacturing industry is distinctively different from electronics product manufacturing industry and needs different types of government initiatives and policies to bring indigenous technology into these two industries.
When I talk of indigenous technology, I mean that the industry shall help to reduce imports, thereby reducing foreign exchange spending; shall generate wealth within India, thereby generating more taxable income; shall help a generation of employment opportunities, especially for semi-skilled and unskilled people, if possible; and shall be able to export over time, thereby earning foreign exchange income. Essentially, when we say indigenous technology, it must be synonymous with the economic well-being of the people of the country and the government.
The second industry we are talking about, semiconductor design and manufacturing, again consists of two distinct industries in it. One industry is semiconductor design and the other is semiconductor manufacturing. Semiconductor manufacturing, also known widely as fab, is a purely economic proposition involving huge investment and attracting global orders while competing against established global players like Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung, United Microelectronics Corp. (UMC), and GlobalFoundries, to name a few.
The semiconductor design industry is a pure technology play requiring much lesser investment, encouraging the growth of the ecosystem to sustain this industry. Even today, semiconductor design and IP development is a task only a handful of Indian companies—maybe about 10—are participating in. With innovative policies and the right mindset, this number can be pushed to 50 within the next five years by the government.
Addressing semiconductor design industry challenges
There are two main challenges we see for the growth of this industry.
The first challenge is the absence of proper policies from the government that helps in bringing up indigenous technology. A push to startups and SMEs helps when there are larger companies locally that can support them. In the absence of big domestic companies, the startups and SMEs end up serving larger global players for service money against selling their intellectual talent.
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In post-independence days, government investments in public sectors, defense, and space programs helped the growth of many startups and SMEs in those sectors. We do not see such initiatives in semiconductor from the government except ECIL (Electronics Corporation of India Ltd) and SCL (Semi-Conductor Laboratory) which, for some unknown reasons, were not able to create the impact that has been created by the Indian Space Research Organization (ISRO) or the Defense Research and Development Organization (DRDO).
BEL (Bharat Electronics Ltd) and Hindustan Aeronautics Ltd (HAL), though, created with the same idea to develop electronic products, have become more system companies catering to assembly, support, and maintenance than semiconductor development required for their market segment. All these examples point to the fact that we failed to understand how to bring indigenous technology into the IC productization process. So, it is even more necessary for the government to bring in the right set of technocrats to help them to frame and make decisions than to leave it to bureaucracy.
The second challenge is the mindset of the technocrats in this semiconductor domain. Due to the failure of government initiatives to create a rallying point, the semiconductor market in India is drawn more toward service models for global players. They became more and more the extended arms of the biggest global brands.
From a societal perspective, there is a perception of pride in working for an MNC company, which is deemed to have a greater virtue than for an Indian company because of the differences in pay packages, work environment, and flexible work conditions, to name a few. The MNC, naturally, can afford higher pay packages because of the brand value they have globally, and Indian companies cannot compete with them. The engineers working in these global companies feel more pride rather than thinking about how to build an ecosystem that will help build the Indian semiconductor market.
Many startups and SMEs that have come up in this space got used to scaling up to a level that attracts global players’ attention and then selling them the expertise and talent built to make good money for themselves. This is the main reason why we do not see any public limited companies in this space.
A total shift in the mindset of the technocrats is required. This is not an easy task for the government. Technocrats must be encouraged to convert their companies to publicly listed companies with government investment without any bureaucratic interference. They must be encouraged to develop products of medium-range complexity for the Indian market. They must be encouraged to raise money from the public and be given preference to develop ICs and IP for all space, defense, infrastructure, power generation and distribution, home appliances, and medical electronics markets. Government participation in a handful of identified technically talented companies that are capable of developing semiconductor IC and IP in multiple market segments is an experiment worth doing.
Local ecosystem needed
IC manufacturing needs the establishment of a fab that needs huge investment, say, roughly INR1,00,000 crores. If an investment of that magnitude must turn profitable, it needs continuous orders utilizing its full capacity. This essentially means there must be a homegrown ecosystem that is strong enough to utilize the fab at full capacity or it must be able to win orders from globally established markets against stiff competition.
Winning global competition needs technology research and IP innovation, which is a different kind of ecosystem that does not exist presently in India. Growing the local market needs a lot of changes to existing government policies and initiatives—but it is doable. The Indian government needs the right kind of advisors who know the industry very well and are patriotic enough to make the right recommendations. The transfer of decision-making on incentives and investments from the bureaucracy to the technical body is essential.
So, there will be a lag between growing the ecosystem and then making the investment in a fab. In the semiconductor industry, a fab may not be a precondition for self-reliance, especially in the commercial market area. It is a pre-condition from the defense research and space research angle, which need a captive fab with public and private partnerships with much lesser investment.
When it comes to manufacturing an electronics product, it consists of many items, and an IC is only one of them. The cost of an IC in a product may vary from 10% to 50%, depending on the compactness of the product and how many components got integrated into the IC. Much of the cost of the product may go into the PCB, the plastic or outer body, and the interface components. The cost-effectiveness needed to compete in the global market for a product comes from automation and mass production.
India, at this point, has not invested in automation in manufacturing. This needs more investment to be pumped in—and is not a difficult task to do as it is not a high-tech area. We see in recent times an investment of INR94,000 crores for a display manufacturing plant by Vedanta and Foxconn. Similarly, the Apple iPhone manufacturing facility at Hosur with Tata Electronics’ participation, hosting 60,000 employees, is another example. This is the third iPhone facility, with the first two being Wistron in Narasapura, Bengaluru, and Foxconn in Sriperumbudur, Chennai. These two examples indicate that bringing up manufacturing of electronics products is relatively easy and quick compared to the realization of IC as a product.
About the Author
Venkata Simhadri is the MD & CEO of MosChip Technologies Ltd.