doc_semiconductor_policy_lit_review
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Government Policies for the
Global Semiconductor
Industry
Amy Turner
July 29, 2016
IntroductionIn 2014, the Chinese government released their new policy regarding the
semiconductor industry. The policy illustrated a market-based approach which would offer
greater autonomy to private entities by allowing them to distribute their government
funding. While this may be an innovative semiconductor policy to the Chinese, it is not
unique in the global community.
In the late 70s and early 80s, Germany maintained a semiconductor strategy almost
identical to the 2014 Chinese policy. The German strategy featured government
investment in a finite number of companies, such that the private enterprise officials were
at liberty to allocate the funds at their own discretion. Despite the risk presented by such
an arrangement, it was under this policy that Germany rose to the top of Europe’s
semiconductor industry. Therefore, it would appear strategic for China to pursue a similar
tactic.
Beyond Germany, similarities to China’s current policy can be found in Korea’s focus
on the elevation of national champions and the European Union’s drive to stimulate
investment through government spending. On the whole, however, most countries merely
offer assistance to industry Research & Development, provided they have any
semiconductor policy at all.
Data has also been included in this review which would suggest that a number of
foreign governments include programs similar to the Committee on Foreign Investment in
the United States. The aim of such programs is to monitor Foreign Direct Investment in
industries where national security could be threatened by a foreign entity gaining control.
The semiconductor industry is, of course, one of these sectors worth monitoring.
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People’s Republic of China
Semiconductor Policy
According to Gordon Orr and Christopher Thomas’ 2014 piece in McKinsey &
Company, China is the world’s largest consumer of semiconductors, with 90% of their
consumption reliant upon imported integrated circuits. 50% of the global market for
Android phones was designed in China, and 30-40% of embedded systems contain content
designed in China. Five years ago, Chinese designs for Android phones were negligible,
but the industry is clearly growing rapidly.
Previous Chinese semiconductor policies were more concerned with research and
academia, but the new 2014 policy allows for a market-based investment approach. The
policy’s framework sets the goal of a 20% compound annual growth rate in the
semiconductor industry between 2014 and 2020. Over the next five to ten years, $170
billion of government financial support has been allotted to the industry. Investments will
be made by the National Industry Investment Fund and provincial-level entities via project
finance, domestic and foreign acquisitions, traditional research, development subsidies,
and tax credit. The Chinese government is choosing to invest almost exclusively in select
companies leading in each critical segment of the semiconductor market, typically within a
few select provinces. In doing so, China hopes to raise up “national champions” to lead the
global semiconductor industry, as well as generate industry clusters within a few choice
provinces.
One significant downside of the new policy is that emerging Chinese companies in
the industry will find it extremely difficult to compete with the government-supported
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national champion firms. Likely, smaller firms will either merge with the larger companies
or fail in the industry.
Breaking it down, there are three notable differences between the former and
current semiconductor policies. First, government investment in the semiconductor
industry is now forty times higher than previously, reserving $170 billion to be invested
over the next five years. Secondly, the primary focus is now to provide government aid to
specific companies, rather than the national industry as a whole. Finally, private-equity
firms now decide where public funds ought to be allocated based upon the markets, which
can either be seen as a risk or a demonstration of trust on the part of the Chinese
government.
Sources:
Ernst, Dieter. From Catching up to Forging Ahead: China’s Policies for Semiconductors.
Honolulu, HI. East-West Center, 2015. Print.
Orr, Gordon, and Christopher Thomas. “Semiconductors in China: Brave New World or
Same Old Story?” McKinsey&Company (June 2014). Web.
Thomas, Christopher. “A New World under Construction: China and Semiconductors.”
McKinsey&Company. McKinsey&Company, Nov. 2015. Web.
Republic of Korea
Semiconductor Policy
Korea is America’s number one competitor in the semiconductor industry, with two
companies in the world’s top ten semiconductor producers (the U.S. holds five spots, with
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Intel as number one). Korea had previously been a fast follower in the semiconductor
industry, but in the 1990s and 2000s the government sought to increase the capacity and
funding for its Research and Development sector, as well as basic science. The result was
greater intensity for R&D, more patents and publications, and more high technology
exports, moving Korea into the semiconductor spotlight.
It would appear that the Republic of Korea does not have an explicit semiconductor
industry policy. Over the past two decades, Korea has built up a globally-savvy brain trust
mainly by sending their students to American universities. Korean R&D has grown
substantially since 2000, but the only similarity between their policy and that of China
seems to be their focus on raising up national champions in the industry, such that now
small and medium firms struggle to acquire funding and grow, as it is predicted will
happen in China.
Sources:
Gupta, Nayanee, David M. Healey, Aliza M. Stein, and Stephanie S. Shipp. “Innovation
Policies of South Korea.” Institute for Defense Analysis (August 2013). Web.
United States. U.S. Department of Commerce. International Trade Administration. 2016
Top Markets Report Semiconductors and Semiconductor Manufacturing Equipment
Country Case Study. Washington DC. 2016. Web.
Japan
Semiconductor Policy
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Also a leader in the semiconductor industry, Japan’s standing in the global markets
for semiconductors has fallen somewhat significantly since it directed the industry in 1990.
The cause of their decline is a combination of their slow adaptation to emerging markets
and the country’s various economic crises during the past two decades. The government
does not seem to have a specific policy laid out for the semiconductor industry at the
moment, but expects GDP growth to stimulate the industry’s continued development.
Sources:
“Seven Facts about Japan Semiconductor Manufacturing Supply Chain.” SEMI.ORG. SEMI,
04 Nov. 2014. Web. 21 July 2016.
Tanner, Paige. “Growth to Revive in Japan’s Semiconductor Industry.” Market Realist.
Market Realist, Inc. 24 Dec. 2015. Web. 21 July 2016.
Tanner, Paige. “Why Did Japan’s Semiconductor Industry Fall?” Market Realist. Market
Realist, Inc. 10 Sept. 2015. Web. 21 July 2016.
Taiwan
Semiconductor Policy
Taiwan is a close follower of the leaders in the semiconductor industry. The
government’s 2002 policy took a seemingly contradictory stance as they furthered
international interactions with advanced countries while also encouraging domestic
innovation and development of local technology. The Taiwanese government established
their companies to be “strategic suppliers” of international companies by focusing on
meeting the demands of large MNCs and gleaning technological and informational
spillover along the way. Taiwanese companies also utilized multiple technological channels
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and tolerated the presence of foreign multinational firms in the domestic economy. All of
this interaction with foreign industry players has provided low-cost research and
competency building, such that Taiwan has kept themselves apprised of the leaders’ new
technology and maintained their position as third or fourth in the industry.
One pitfall of the Taiwanese strategy is their tendency toward full-setism. This is the
idea that a nation should produce every kind of component in a given sector, ultimately
causing inefficiencies when companies do not absorb the economic benefits of outsourcing
or engaging with comparative advantage.
Sources:
Fuller, Douglas B. “Globalization for Nation Building: Industrial Policy for High-Technology
Products in Taiwan.” MIT Japan Program. Massachusetts Institute of Technology, 10
Jan. 2002. Web.
Wang, Jyun-Cheng. “Upgrading the Economy: Industrial Policy and Taiwan’s
Semiconductor Industry.” Social Science Research Network. National Tsing Hua
University, 14 Dec. 2010. Web. 20 July 2016.
Shih, Willy C, and Jyun-Cheng Wang. “Upgrading the Economy: Industrial Policy and
Taiwan’s Semiconductor Industry.” Harvard Business School Case 609-089, Feb,
2009. (Revised Dec. 2010). Web.
Tanner, Paige. “Factors Driving the Semiconductor Industry in Taiwan.” Market Realist.
Market Realist, Inc. 10 Sept. 2015. Web. 21 July 2016.
The European Union
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Semiconductor Policy
In 2013, the European Commission launched its 10|100|20 semiconductor industry
strategy to reverse Europe’s decline in the market. During the 1990s, Europe held a 15%
share of semiconductor production, but this has fallen to below 10% in the last decade.
The premise of the 2013 strategy is that the EC will provide $10 billion of public or private
funding to generate $100 billion of industry spending, ultimately increasing Europe’s
control of the global semiconductor industry to 20% by 2020. The EC credits the decline of
Europe’s semiconductor industry to a drop in investment, construction of new fabs in Asia
as electronics manufacturing shifts to that region, and the inclination of semiconductor
companies to adopt a fab-light business model. Thus, heightened spending is expected to
stimulate investment and improve Europe’s standing in the semiconductor industry.
Sources:
Georgoutsakou, Rania, comp. “Single European Semiconductor Strategy for Europe.” Semi
Europe (2012): 1-5. Semi. Web.
Tanner, Paige. “Germany to Drive Growth in European Semiconductor Industry.” Market
Realist. Market Realist, Inc. 24 Dec. 2015. Web. 22 July 2016.
“EU 10-100-20.” Semi.org. SEMI. Web.
India
Semiconductor Policy
India’s 2013 semiconductor policy was merely an incentives package to attract
investment in the industry. There are two options of SEZ (Special Economic Zone) or non-
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SEZ for each type of unit, being Fab or Eco-system. The only significant difference
amongst the four types is the threshold NPV of investments in 2500 crore (about 371.4
million usd) for Fab units versus 1000 crore (about 148.6 million usd) for Eco-system units.
There are no notable similarities between the Indian and Chinese semiconductor policies.
Sources:
“Semiconductor Industry in India.” India Brand Equity Foundation. Ministry of Commerce &
Industry, Government of India, Jan. 2016. Web. 20 July 2016.
“Semiconductor Policy.” India Electronics & Semiconductor Association. Briskon
Consulting, 2013. Web. 26 July 2016.
Canada
Semiconductor Policy
In 2007, Canada released their R&D Strategy, not specific to semiconductors. The
three main objectives of the strategy were to galvanize Canada’s private sector to turn
knowledge into products, expand Canada’s technological knowledge base, and transform
Canada into a magnet for trade. The strategy gave Canada the lowest tax rate on new
business investment in G-7 and improved government aid to R&D by establishing the
Networks of Centres of Excellence Program and improving the R&D assistance program,
orienting research towards areas of national interest (such as environmental sciences and
technology, natural resources and energy, health and related life sciences, information
and communication technology), developing hands-on research internships for students,
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and conducting a periodic review of the industry’s research priorities. The policy also
lowered personal income tax within the sector so as to attract skilled labor.
The main focus of most articles regarding Canada’s semiconductor industry was
that productivity had diminished as of late, but invigorated R&D is expected to breathe
new life into the industry. There are very few similarities between Canada and China’s
industry policies, especially since Canada’s policy is not specific to semiconductors.
Sources:
Canada. Mobilizing Science and Technology to Canada’s Advantage. Ottawa, 2007. Web.
Canada. Mobilizing Science and Technology to Canada’s Advantage: Progress Report 2009.
Ottawa: 9-11, 45, 2009. Web.
“About the Networks of Centres of Excellence.” Networks of Centres of Excellence of
Canada. Government of Canada, 11 July 2016. Web. 22 July 2016.
Italy
Semiconductor Policy
The Italian government has apparently never had a policy specific to
semiconductors, but offers the industry R&D subsidies and funding. One could argue that
they also chose a market driven strategy, but ultimately the Italian government has
merely been uninvolved. Italy’s semiconductor industry falls under the European
Commission’s 2013 policy, as described on page 3.
Sources:
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Malerba, Franco. “5.4 Italy.” The Semiconductor Business: The Economics of Rapid Growth
and Decline. Madison: U of Wisconsin, 1985. 198-200. Web.
Germany
Semiconductor Policy
Germany is the beating heart of the European semiconductor industry. In the 70s
and 80s, the German government chose to implement a market driven policy which
allowed firms to pursue whatever research and development avenues they saw fit,
however risky or unproductive they may initially appear. Policymakers gave funding to a
limited number of industry leaders (namely Siemens, AEG-Telefunken, Valvo, and
Intermetall), creating a finite number of market-dominating companies. Their progress was
monitored by a handful of independent experts, and the policy has resulted in expansive
productivity for Germany’s semiconductor sector.
There are numerous similarities between Germany’s policy of the 70s and 80s and
that of the Chinese government now, which is not surprising if one can imagine that China
chose to formulate a policy similar to that of the European semiconductor industry leader.
Both policies choose to finance a few specific companies to develop industry leaders
(national champions) rather than primarily fund the sector as a whole. Likewise, both plans
allow private businessmen to allocate public funds, allowing the companies to focus on
what the market prioritizes rather than what the government considers most useful. This
includes an element of risk on the part of the government, but has historically paid off.
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Currently, the German semiconductor industry has plans to abandon nuclear energy
in 2022 and solely pursue renewable energy sources. This will require vast research and
investment efforts, such that Europe and Germany are expected to drive the market
demands for power semiconductors in the coming years, despite North America’s market
maturity. Germany will also fall under the European Commission’s semiconductor policy,
as described on page 3.
Sources:
Malerba, Franco. “5.1 West Germany.” The Semiconductor Business: The Economics of
Rapid Growth and Decline. Madison: U of Wisconsin, 1985. 189-192. Web.
“Semiconductor Industry in Germany.” Germany Trade & Invest. Federal Republic of
Germany, October 2012. Web.
France
Semiconductor Policy
Historically, the strength of the French public bureaucracy allowed consumers and
government policymakers to direct technological production within the semiconductor
industry. Government officials encouraged acquisitions between domestic firms and joint
ventures with foreign firms. After 1978, the French government established specific
programs to support the domestic technology industry, such as VI Plan, VII Plan, and Plan
Calcul. Private businessmen have had very little autonomy in the French semiconductor
industry, directly contrasting the current Chinese policy. France was a leader in the
semiconductor industry for some time, but was never particularly competitive since they
lacked a coherent semiconductor strategy. Thus, French companies will merely fall under
the European Commission’s policy, described on page 3.
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Sources:
Botelho, Antonio José J. “The Industrial Policy That Never Was: French Semiconductor
Policy, 1945-1966.” Taylor & Francis Online. Taylor & Francis Group, 30 June 2008.
Web. 21 July 2016.
Malerba, Franco. “5.2 France.” The Semiconductor Business: The Economics of Rapid
Growth and Decline. Madison: U of Wisconsin, 1985. 193-194. Web.
The Netherlands
Semiconductor Policy
Chinese and Dutch semiconductor companies began collaborating in 2015. The
semiconductor industry is vital, yet proportionally small, in both countries’ economies, and
this offered a common point of interest between the two nations. The Holland Innovation
Network hosted a seminar between Chinese and Dutch companies during the 2015
Semicon China at the Consolate-General in Shanghai. The seminar allowed time for
company heads to network and mingle, building relationships between the two nations.
Business Cluster Semiconductors Netherlands and Suzhou IC Industry Association later
signed a Memorandum of Understanding at the Semicon China exhibition, agreeing to
strengthen the international scope of their members’ portfolios, as well as to support and
facilitate further collaboration amongst their members.
Sources:
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Hezewijk, Bart van. “Opportunities for Dutch Semiconductor Equipment Companies in
China.” Netherlands Enterprise Agency, 22 Mar. 2016. Web. 25 July 2016.
United States. US Department of Commerce. International Trade Administration. 2016 Top
Markets Report: Semiconductors and Related Equipment. By Dorothea Blouin.
Washington, DC: 31-34, July 2016. Web.
The United Kingdom
Semiconductor Policy
Previously, the UK fell under the European Commission’s semiconductor policy, but
due to Brexit that relationship will likely be terminated. The only other notable policy was
the BIS 2011 Strategy for Success within the Power Electronics sector. This policy laid out
five challenges to UK competitiveness and five approaches to resolve each of them. Most
of the challenges would be resolved by the National Forum for Power Electronics, which
would monitor the industry’s progress, identify experts in each sector to maintain the
Smart Grid, and promote Power Electronics education at every stage of UK schooling. This
strategy was not specific to the semiconductor industry, and the UK will likely need to
rethink their semiconductor policy separate from the EU in the aftermath of Brexit.
Sources:
United Kingdom. Department for Business, Innovation and Skills. Power Electronics: A
Strategy for Success. London: Crown, 2011. Web.
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Israel
Semiconductor Policy
Israel continues to be a competitor in the semiconductor industry, with the second
or third highest concentration of design houses and semiconductors accounting for 22% of
their exports in 2010. However, the Israeli government does not have an explicit
semiconductor policy of note.
Sources:
Getz, Daphne, and Itzhak Goldberg. “Best Practices and Lessons Learned in ICT Sector
Innovation: A Case Study of Israel.” Comp. Eliezer Shein, Bahina Eidelman, and Ella
Barzani. Digital Dividends (2016). World Development Report 2016. Web. 25 July
2016.
Gradman, Sol. “An Overview of the Israeli Semiconductor Industry.” TapeOut Magazine.
Oct. 2011. Web.
Singapore
Semiconductor Policy
As of 2002, the semiconductor industry accounted for 28% of Singapore’s
electronics industry output. The sector’s recent growth was largely attributed to an
increased market demand and expansion in the manufacturing operations of wafer fabs,
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assembly, and testing. Singapore prides itself on having a wide range of government
programs to facilitate semiconductor industry development which offer incentives for
locally conducted R&D and support for infrastructure and human resources development.
The government’s main objective is to train highly-skilled workers to continue
strengthening the industry, but they do not appear to have a current semiconductor
industry policy available for evaluation.
Sources:
Thai, Leong Keng. “Infocomm 21L Singapore’s Vision of the Digital Future.” IDA Singapore.
Singapore Government, 05 June 2000. Web. 25 July 2016.
“Singapore Semiconductor Industry Report.” Singapore Ic Report. Meta. Web. 25 July
2016.
*Notable semiconductor-related policies could not be found for Sweden,
Liechtenstein, Finland, Austria, Belgium, or Switzerland—however, all of
these except Liechtenstein and Switzerland fall under the EU’s policy on
page 7.
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