Leveraging the strengths of Asia’s two superpowers

India and China have shared a rich history. Two of the world’s oldest civilizations, today they rival each other in terms of production, economic growth, population, even real estate prices. From the semiconductor perspective, China has taken the manufacturing route while India has built up its core in design services and R&D. Both China and India have their unique ecosystems and distinct advantages when it comes to the semiconductor industry and chip design. The factors that have helped shape this ecosystem are many – economic, political, social and even geographic.

Both these nations have some commonalities. For instance, the economic fundamentals of both nations are driven by their large populations of young workers and consumers and their growing local economies. But most of the other influencing factors are a study in contrast. Both have distinct advantages from a business perspective. Some of them are discussed below.

India’s strengths
Over the course of the last two decades, Indian design services companies and MNC India Design Centers (IDC) have moved up the value chain and now do end-to-end chip design in India, moving on from the block designs of yesterday. In addition, other links of the semiconductor ecosystem have also matured in India. All of these factors have contributed to putting India firmly on the semiconductor design map.

According to the ISA E&Y Benchmarking Study 2007, India is rated highly on several factors that contribute to its being recognized as a global chip design hub, including quality and scalability of talent, quality of technical education, and favorable IP laws.

India has a wealth of technical expertise and a proven delivery record in the embedded software and VLSI design space. With its strong focus on technical education, India also has a great intellectual capital advantage, along with a wealth of skilled English language speakers.

The IPR regime in India is considered to be just and favorable for business. After agreeing to move towards TRIPs compliance, India has made several amendments to its Patents and Copyrights laws and has significantly improved its IPR laws with the introduction of the new Patents legislation in 2005. These changes have significantly ramped up the enforcement provisions. Operation of patent offices has improved in India, thanks to the focus given by the Government.

Another one of India’s strengths is its large domestic market for electronics and consumer goods—both high end and low end—which presents a huge opportunity for the semiconductor industry. The middle class in India with increasing disposable incomes is expected to drive domestic electronics consumption. According to the ISA F&S report 2008-10, domestic consumption opportunities exist for semiconductors in set top boxes, LCD TVs, digital cameras, and storage flash memory devices

While the urban demand for electronic gadgets is a mammoth opportunity in itself, there is also an untapped and vast opportunity for locally made products in the rural, semi-urban and BOP market, especially in the areas of communications, healthcare, education, energy and entertainment.

In addition, national drivers in the form of country-wide projects such as the Unique Identification (UID) cards, policies on universal healthcare and education, and the National Solar Mission promoted by the Ministry of New & Renewable Energy will also present tremendous local opportunities for electronics and semiconductor companies.

Challenges for India
The overall infrastructure – be it physical connectivity or basic utilities like power and water – in India is inadequate and presents limitations in some way or the other to all businesses including the semiconductor industry.

In order to leapfrog to the next level, we need to see more IP being developed in India and more investments in R&D. Increasing competitive pressure has also made patenting and IP protection of innovations from Indian R&D centers imperative.

While Indian universities churn out basic engineering graduates by the thousands every year, the challenge for the semiconductor industry is to train and ramp up raw talent in order for them to be “design aware”. Often this takes six months to one year, which is a lot of investment in terms of time and money for semiconductor companies. The need of the hour is to provide VLSI training at the University level, so that graduating students already have a level of expertise. For this, greater industry-academia partnership is essential. In addition, for a high level innovation to happen, we need to encourage more students to pursue PhD studies.

Government support is essential to nurture and encourage the semiconductor ecosystem to grow. Bodies like the ISA (India Semiconductor Association) have aggressively promoted the need for a definitive policy on semiconductor manufacturing and worked closely with the Indian government to represent the interests of the sector, and the recently announced Karnataka Semiconductor policy is a step in the right direction. However, Government support for VLSI-specific education, local product development and entrepreneurship will give the boost that is needed to push the industry beyond its current boundaries.

China’s Strengths
China’s biggest advantage is the political will and Government support for developing the semiconductor ecosystem. China has invested billions of dollars in cutting-edge fabs. The supply chain logistics in China for every sector, including that for the semiconductor industry, are highly evolved. With the Government’s increased support towards promoting R&D, the market is growing rapidly – as of January 2009, 920 MNCs had established 1,100 R&D centers in China (Source: Zinnov Management Consultancy report on “R&D Globalization: A China Perspective”). The Chinese government provides excellent support for semiconductors in the form of subsidies for high-tech companies.

Add to this a world-class infrastructure in the large cities. The Chinese government has made a conscious choice to develop centers of economic and industrial activity. It has made sizable investments in developing physical infrastructure in identified cities to world-class standards, which makes working and living in these areas more comfortable.

According to the National Science Foundation Report 2007, “the government also recognizes that education and science and technology are the strategic engines of sustainable economic development.” It is widely recognized that there will be substantially more Ph.D. engineers and scientists in China by the end of 2010 than in the United States, as China produces three times the number of engineers per year (Source: National Science Foundation Report 2007). While China has been accused in the press of focusing on quantity vs. quality, Chinese universities have been put under pressure by the government to constantly improve their global rankings (Source: Vox Report, 2008) and therefore are paying more attention to quality of research, publishing of papers in respected journals, and global collaborations.

Strong government backing, regulatory influence, focus on education, and support for design, manufacturing, assembly and delivery of products for global markets are China’s key strengths.

Challenges for China
One challenge is that China’s overall economy is heavily export dependent, though there is a huge opportunity to tap the local market. This is true of the manufacturing sector as well. As a result, according to a report by Real Instituto Elcano in September 2009, China’s manufacturing sector across the board faced a slump in demand and a decline in investment in 2008-2009 due to the global economic downturn.

Secondly, it is well recognized that China’s IP laws need to be strengthened to build more confidence in multinationals setting up base in China. Though China has strengthened its legal framework and amended its IPR and related laws and regulations to comply with TRIPs, according to the US Department of Commerce website, “…Despite stronger statutory protection, China continues to be a haven for counterfeiters and pirates. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90 percent) and U.S. companies lose over one billion dollar in legitimate business each year to piracy. On average, 20 percent of all consumer products in the Chinese market are counterfeit. If a product sells, it is likely to be illegally duplicated. U.S. companies are not alone, as pirates and counterfeiters target both foreign and domestic companies.”

Finally, while China has a strong focus on education, the constraint faced by most graduates from China is the lack of a functional knowledge of English, which is the language of choice in an increasingly globalized world. However, it should be noted that the government has recognized this as a hurdle and is aggressively focusing on promoting English in educational institutions and the workplace.

Key to success
The key to success for semiconductor companies is to leverage each region’s strengths to the company’s advantage. Cadence, for instance, has made investments in both countries over the years and today has significant presence in both regions.

Each of these regions has historically taken on different roles in the semiconductor value chain with China focusing on manufacturing and India on software and services. Each region has different infrastructure, government support and economic growth drivers that impact the way the rest of the world does business with them. The companies that can skillfully manage their investments in both countries are the ones that will reap the greatest benefits.


Author Information
Jaswinder Ahuja is the Corporate Vice President and Managing Director of Cadence Design Systems (I) Pvt Ltd.

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