With global value and supply chains being disrupted due to geopolitical factors, Invest Taipei Office's executive director explains why being close to TSMC and Taiwan's extended ecosystem can be helpful.
Taiwan is well known as home to the world’s top semiconductor manufacturing company, so it’s no surprise that the electronics industry is also the largest sector for foreign direct investment (FDI) into Taiwan. The electronics sector represented around 16 percent of greenfield FDI projects in Taiwan in 2019–20, more than any other sector, according to GlobalData
I first learned about Taiwan’s ambitions to build upon its strengths and electronics skills base on a visit in 2019. During my time there, I spoke to the minister for the office of science and technology (MOST) and also met with several key players in the electronics ecosystem representing research, industry, startups, accelerators, and government–funded organizations that were keen to highlight how Taiwan is making progress in multiple sectors.
Last September, I spoke with Jiun-Huei Proty Wu, a cosmologist in Taiwan who was on secondment at the time serving as the director of U.K. office for MOST. Leading a Taiwanese delegation into the city for London Tech Week, I could tell Taiwan was keenly encouraging tech startups to set up in Taiwan. As if to endorse that, Bruno Johnson, CEO of Cascoda, also involved in the exchange between British and Taiwanese tech companies, was presented as an example of a startup taking advantage of what Taiwan has to offer for foreign tech companies.
So how exactly can companies in the electronics industry — and particular those involved in the whole of the semiconductor industry ecosystem — benefit from having a base in Taipei and/or Taiwan? While it may have the biggest semiconductor fabrication facilities, presumably companies don’t necessarily have to set up an office or research center in Taiwan.
EE Times posed this question to Robert Lo, executive director of the Invest Taipei Office (ITO), as part of an interview to understand more about why companies might also want to consider a base in Taiwan.
Robert Lo: In the past 20 years, semiconductor manufacturing has been concentrated in Asia including Taiwan and South Korea. The electronics industry in Taiwan, especially the semiconductor ecosystem has a fairly integrated division of labor. The professional division of labor in Taiwan plays a pivotal role in the current global tech sector, and this has attracted many foreign–owned semiconductor companies to set up legal entities so as to integrate into the local semiconductor ecosystem to cooperate with local companies, and jointly conduct innovative research and development in emerging technologies.
In the supply chain, Japanese and German semiconductor companies have controlled key semiconductor materials and chemical gases, and they mainly conduct R&D in Japan and Germany. However, they have successively expanded their production or expanded their R&D center in Taiwan since key steps of foundry include thin film, exposure, etching and other processes. This helps to continuously improve and adopt new technologies and ensure efficient and sustainable use of chemical gases and materials.
Impact of Russia-Ukraine crisis on gases
Taiwanese semiconductor manufacturers like TSMC continually adopt new technologies to drive the purification quality of semiconductor–grade chemicals and key materials, thus driving Japanese and German material manufacturers to expand production in Taiwan and cooperate with TSMC to expand their competitiveness. Since raw materials for semiconductor–grade gas, lasers, and etching gases supplied by Japanese and German material and chemical manufacturers are mainly from Ukraine and Russia, the supply of raw materials is likely to drop sharply because of the Russia–Ukraine crisis.
However, since the Crimea crisis in 2014, Taiwan has targeted upstream international materials and chemical supply chain to be adjusted accordingly. The important EU countries have also successively enlarged production in Taiwan and made relevant resilience response plans. Hence in view of the tension between Ukraine and Russia, the geopolitical crisis has accelerated plans by Japanese and German semiconductor material manufacturers to deploy production capacity and R&D centers in Taiwan to diversify risks.
Quest for regional fabs still requires close cooperation in Taiwan
In view of the current materials shortage in the supply chain and the trend toward regional manufacturing, Japan, the EU, and U.S. are accelerating their independent semiconductor manufacturing supply chains. The key semiconductor material and chemical manufacturers in Japan are gradually expanding production or establishing R&D centers in South Korea and Taiwan in order to be close to Samsung’s high–end memory manufacturing and the advanced wafer foundry process at TSMC.
Taiwan is relatively open. If the key material and chemical manufacturers from Japan, Germany, and France want to improve semiconductor–level purification technology, it is necessary to cooperate with TSMC. Therefore, there will be more material, equipment, and chemical manufacturers expanding production and/or setting up a legal entity in Taiwan in the near future; which will also attract relevant talents to Taiwan.
Silicon wafers, the upstream of the semiconductor industry in Taiwan, regardless of whether 8–inch or 12–inch wafers are in strong demand, are expected to be in short supply from 2022 and prices may continue to rise. TSMC is leading Taiwan’s semiconductor industry, the move towards advanced manufacturing, advanced packaging, and other technologies. This is likely to detonate the next–generation global semiconductor technology war and the rise of related new fields will directly drive the growth momentum of capital expenditure–related manufacturers such as semiconductor equipment and consumables.
In addition, in response to industry trends toward 5G, AI, metaverse, and other applications driving the demand for semiconductor chips, Taiwan’s semiconductor market has also grown more vigorously. The Taiwan government has long supported domestic technical support in the electronics industry and semiconductor industry, producing a creative chip design ecosystem, enabling high customization of chip services, and lowering the design threshold for customers. Alliances with high standards and partners are also present, such as the TSMC Design Center Alliance, coupled with a stable yield rate, a mature technical engineering environment, and excellent and efficient R&D talents that can help international companies greatly reduce costs, overcome barriers, and create much higher revenue.
With many IC design companies currently facing global industrial supply chain disruption and reorganization, they are willing to set up and incorporate in Taiwan to integrate with the semiconductor manufacturing ecosystem, so that they can collaborate with partners to produce chip products and sell to other countries from Taiwan. Taiwan’s integrated semiconductor value chain and high degree of resilience helps these companies to diversify risk and strengthen their resilience.
EE Times: Can you give a summary of the key electronics vertical industry sub–sectors that are strong in Taipei, indicating links to both research capability and availability of skills?
Robert Lo: The most important R&D bases are mostly established in Taipei City and focus on the development of high value–added products. Neihu Science Park, Nangang Software Park, Nangang Bioinnovation Park have already attracted many domestic and foreign–owned enterprises to setup R&D centers here in order to actively conduct research and development. Taipei City also provides various smart verification fields for enterprises to collaborate for their products.
Surrounding areas like New Taipei City, Keelung, Taoyuan, and Hsinchu as satellite cities of Taipei City have also established supply manufacturing plants and produce key electronic product components. This highlights an integrated electronics vertical industrial supply chain, allowing enterprises to collaborate and strengthen the whole value chain from product design, R&D, manufacturing, and market verification.
Existing well–known semiconductor companies such as Nvidia, Intel, Arm, and Micron have established their headquarters within Taipei City, and built production teams or development centers outside the Taipei Administrative Territory. In each science park (Hsinchu or Tainan Science Park) it is possible to have a local supply chain with an abundance of tier 1 or 2 suppliers who can deliver semi–finished products within one day.
EE Times: As a foreign electronics company, what would be the main reason I would think about establishing a base in Taipei? Is it because of market opportunity, access to specific knowledge or skills, or is it to address the wider Asian market?
Robert Lo: The main reasons are a complete industrial cluster, excellent talent in Taipei, and aiming for the larger Asian market.
As the industrial cluster center, Taipei City connects New Taipei City, Keelung, Taoyuan, Hsinchu, and Taichung to create an integrated value chain for electronics–related industry, and as a base for research and development in high value–added products, with an integrated supply and value chain.
From Taipei City, it only takes a few hours to reach important cities in Asia like Tokyo, Seoul, Singapore, Hong Kong, and so on, which makes Asian market expansion much easier. Hence many foreign–owned companies choose Taipei as their R&D center and operation headquarters to actively leverage this value chain to develop and test their respective products. They can also conduct pilot projects in specific domains and test the market, allowing them to adjust and refine their business model and products.
In terms of talent, Taipei City has academic research institutions such as Academia Sinica and 29 public and private universities established in Taipei City. There are also a number of top universities around the extended electronics value chain. Sixty percent of the workforce in Taipei has a tertiary educational background. As a result, international companies such as Google, Facebook, Amazon, Microsoft, Intel, and so on have all come to Taiwan to leverage this talent and also support growth of a local industrial ecosystem.
EE Times: What kind of support does ITO provide to help international electronics/semiconductor businesses establish a base in Taipei?
Robert Lo: A key challenge in the global market is the imbalance between supply and demand due to the pandemic and the industry having been shut down due to the pandemic. The latter exacerbated the degree of uneven supply and demand, even changing the global supply chain somewhat. As a result, the semiconductor industry has developed rapidly and continued to thrive in Taiwan, increasing production capacity and consequently driving demand for related materials and equipment.
Taipei City has supported the development of advanced research and development, including the semiconductor industry, electronics technology, information and communication, biotechnology, and deep technology. Even the sustainable circular economy industry, creative industry, and fashion industry and so on are also the key industries in Taipei.
The role of ITO, as the governmental investment attraction agency, is to actively promote investment from overseas, scout companies with innovative technology, business model and solutions, and assist them to explore the Taiwan/Asian market. ITO will also assist international companies to leverage the talents resources and promote the bilateral cooperation with academic and research institutions to accelerate the speed of international companies entering the Taiwan and Asian market and overcome key barriers.
In 2022, in addition to semiconductors, new areas like 5G and electric vehicles will also be a key focus for industrial development in Taipei City. Therefore, ITO will actively seek to attract investment from innovative companies in these areas and assist them in working with the local industrial ecosystem. The central government has built the largest 5G AIoT test field in Taiwan, so ITO could assist international companies to carry out proof of concept in Taipei City, support the acquisition of international certification, attract them to set up legal entities in Taipei City, recruit outstanding talent, and collaborate with academic and research organizations.
With respect to global sustainability development goals and the trend toward carbon neutrality, ITO will assist enterprises to make the connection from the perspective of the overall value chain, so as to carry out the transformation and optimization, reduce carbon emissions effectively, and achieve their ESG goals.
EE Times: Can you provide examples of electronics/semiconductor companies that have established in Taipei in the last 2–3 years. Can you indicate what they managed to achieve by doing so which they may not have been able to without setting up in Taipei?
Robert Lo: Companies like Intel, Nvidia, Arm, AMD, Micron, STMicroelectronics, Qualcomm, Cadence, Nordic Semiconductor, Samsung, and others have established their headquarters within Taipei City.
In the last 2–3 years, more and more international electronics/semiconductor companies have been establishing their legal entity in Taipei or reinvesting in Taipei. We can broadly split these into four categories, with the reasons they choose Taipei as follows:
EE Times: Thank you Robert.
This article was originally published on EE Times.
Nitin Dahad is a correspondent for EE Times, EE Times Europe and also Editor-in-Chief of embedded.com. With 35 years in the electronics industry, he’s had many different roles: from engineer to journalist, and from entrepreneur to startup mentor and government advisor. He was part of the startup team that launched 32-bit microprocessor company ARC International in the US in the late 1990s and took it public, and co-founder of The Chilli, which influenced much of the tech startup scene in the early 2000s. He’s also worked with many of the big names—including National Semiconductor, GEC Plessey Semiconductors, Dialog Semiconductor and Marconi Instruments.