Missed Electronics Revolution Bus – Electronics and Semiconductor in India

In his seminal lectures “Free To Choose”, Dr. Milton Friedman explained how Malaysia took advantage of the then emerging technology – Semiconductor electronics – to move people out of poverty. He remarked in “Free To Choose Episode 2 – The Tyranny of Control”:

These women work in an industry that so far hasn’t asked for special protection – the silicon chip industry. Every one of these small squares on this disc is a highly complicated, integrated micro-circuit. An American technician examines them for defects. Its highly skilled work and she’s had a lot of training. When she’s done her job, the rejects will be separated from the rest and the good circuits will be sent half way round the world to Malaysia. The product of American technological skills returns looking like this – each micro-circuit has been enclosed in ceramic by a Malaysian worker who is highly productive at this sort of work. But the Malaysians are not able to test their products. So, back they come here to America to be fed into these machines. American engineers are good at producing sophisticated machines. In an operation that lasts a fraction of second, these machines can test every circuit, can grade it for quality, and then can sort it into one of the 6 different categories of reliability. The invisible hand in this free market has done wonders for both American girls and their Malaysian counterparts. And that’s not the end yet because American silicon chips are exported to many countries where foreign workers assemble them. The final product is then returned to our stores, so that you and I – the consumers – can benefit from ten dollar calculators as well as a lot of other electronic devices that, not long ago, simply did not exist. [Video Link – 22:03 – 23:54]

What Milton Friedman referred to in this lecture when he spoke about Malaysian workers’ contribution in silicon chip manufacturing is the Semiconductor Packaging Industry, also referred to as Semiconductor Finished Goods industry. Countries like Malaysia, Philippines, Indonesia took this industry seriously and produced high quality finished goods that met the requirements of electronic product manufacturers also referred to as Original Equipment Manufacturers (OEM). Today Malaysia stands as one of the largest manufacturer of finished goods in semiconductor industry; the key words – manufacturing and packaging. Major component of 30% of GDP generated by Malaysian exports is because of this industry.

Malaysian government as a part of its Science Policy in 1970s, promoted education and training in semiconductor industry in 1970 – a period of turmoil for Indians when India was searching its own past for an identity and purpose of being India. This was also the period when the world was seeing a new revolution emerge – the electronics revolution. With Intel making 8080 in 1974 and then producing 8086 in 1978, which later became a standard in computing technologies, new window opened to the world where what was impossible a decade earlier became possible and affordable.

Many of the Asian countries took the opportunity presented in the form of Semiconductor industry, opened up themselves to various phases of electronics and semiconductor manufacturing. What was India doing at this time? If we are to believe the “intellectual class” of 1970s and even in the present time, period when Indira Gandhi was PM was the best time India ever had. Many common people who benefitted from her grand schemes like nationalization of banks even worship her, literally! Most of them don’t know even today that they were being denied opportunities similar to the electronics revolution. The question obviously is why she didn’t take an emerging industry – electronics and semiconductor industry – seriously.

It is Elitist said the bureaucrats

Department of Electronics (DoE) was formed in 1973 directly under Prime Minister’s Office (PMO) and was in complete control of PMO till 1985 when Department of Telecommunications was separated from Department of Posts and Ministry of Communication came into existence. Ministry of Posts and Telegraphs (MPT) saw Electronics as elitist[1]. One would be left with awe and a sense of helplessness to find that PMO couldn’t convince MPT to embrace an emerging technology. It would probably be fair to conclude that PMO did not find it worth the effort to leverage on Electronics Revolution.

One of the oft-repeated bullet points in mandatory state sponsored Rajiv Gandhi bhajans these days is that it was Rajiv Gandhi’s PMO that brought telephony to India. As a matter of fact, the statement is true but the key question is why PMO was spearheading it instead of allowing Indian entrepreneurial spirit to bring this technology to people. The C-DoT might have had great achievements to its name but the fact is C-DoT was a State sponsored enterprise. The end result – personal memoirs like this where bureaucrats express their gratitude to the Gandhi family while in reality, government owned enterprises in semiconductor industry have done no good whatsoever! For some reality check, here are a couple of critical commentaries on “achievements” of government owned enterprises in this and other technologies – 12.

The beginnings and thereafter

Despite the fact that a body like DoE, reporting directly to the most powerful central authority in the country, was formed in 1973, it was only in 1985 that a global semiconductor company setup a design centre in the country – Texas Instruments. A casual chat with past generation electronics engineers and some of the first employees of the organization reveals a lot. To give you an idea of what TI went through to successfully establish a design centre in India – TI used to pay an annual fee of Rupees 4 Million every year because they were using a satellite link up to its Head Quarters. They even had to transport the dish antenna for this connection to its office from airport on a bullock cart[2]. Some local veterans even say that there were rumours that TI established its centre close to airport as it is a US government sponsored operation to keep an eye on India.

When TI started operations, 2500 people applied for jobs and 16 were selected[3]. Total number of Indians who moved out of India in search of jobs during 1980-1990 is about 453916 – approximately 125% increase from the preceding decade. Had India taken semiconductor industry seriously and allowed local talent to leverage on this industry back in 1970s, imagine what could have happened!

It has been a slow trek for Indian engineers but there is something distinctive about the way this industry grew from strength to strength in India – there has been no specific government intervention, either in terms of training, education or jobs. This industry grew all by itself in India and that is precisely the reason why Indian engineers in this industry continue to deliver efficiently.

Where does India stand today?

ISA published a report in 2008 which offered some insights into the potential of Indian engineers in this industry. The report projected overall revenue share at 7.37 billion USD in 2008. The report also projected that revenue share would increase in 2009 to 8.97 billion USD. By 2010, this number touched 10.96 billion USD[4][5].

Numbers speak for themselves. Indian engineers have done exceedingly well in understanding and developing know-how and technical skills in the design sector. As it stands today, Indian engineers are in a position to conceptualize, architect, design and physically implement solutions that are required in various fields including automotive, avionics and medical equipment that require high quality and compliance with high standards. Despite the fact that general opinion of education researchers has been that most Indians are unemployable, the semiconductor design and design services industry continues to grow in terms of not just revenues but expertise in areas critical to executing a design cycle efficiently.

However, India falls way behind China in conceptualizing and creating products. Despite the fact that Indian engineers too started creating products, India is not yet on the trajectory to challenge established and growing enterprises, especially those in China and USA.

Number of design and design services companies operating in India as indicated by ISA’s 2011 report to Department of Electronics and Information Technology is 120. India stands at #5 in terms of number of design units. Even countries like Israel and Taiwan house 150 and 256 design units respectively while China competes directly with USA in attracting or establishing enterprises [5].

Where does the future lie?

In its 2011 report in ISA, in exhibit 29, the biggest hindrance that this industry faces in India is infrastructure, academic research and the general business environment. Page number 122 in the report indicates India scores very low in these three areas[6]. The industry depends on high volumes for creating successful products. This doesn’t necessarily translate to having fabrication facilities in the country. One of the oft-repeated myths by even well-educated folks is that fabrication facilities dictate terms in this industry. While fabrication was a very crucial element in this industry in 80s, it changed in early 90s. After Mead and Conway devised a brilliant mechanism to separate design and manufacturing processes, making them almost independent of each other, educating and training professionals for this industry became easier.

As it stands today, it may even be a bad idea to start establishing state owned/sponsored fabrication facilities, unless Indian researchers can hit the next game changer in manufacturing sector. Chinese researchers are very deeply entrenched in research, which could possibly replace silicon and introduce carbon as the basic element in manufacturing electronic devices. For India to take the lead role in manufacturing, Indian researchers have to be the first to commercialize next generation of manufacturing. Looking at the current state of research in India’s premium institutes, there is little chance of that happening.

In recent times, the dynamics of this industry changed. Outsourcing certain aspects of the execution cycle has started giving dividends to product manufacturers in cutting execution time and cost. It is in this area that Indian engineers have a great opportunity. Providing services in areas of physical implementation, testing, front-end support, Indian engineers have been creating new opportunities to contribute.

The real challenge now for Indian engineers is to convert the available talent pool into able product creators and inventors. Often, people tend to argue that government should solve this problem too. There is a fallacy in the argument – when government comes in with investment, it also brings some mechanisms of “social justice” and therefore dictates compromises on quality for “some bigger good” of society. This industry has a great opportunity to set the tone right and show to the government that industries can and should survive without special protection from government. This industry has so far not obtained any special treatment or protection from the government except the tax holidays and tax benefits. Associations like ISA should categorically reject any special treatment including tax holidays from the government. It may not go well with industry giants but it is only logical to do so. Instead of any special treatment, subsidies or incentives, this industry should request governments to deliver on infrastructure (especially electricity), quality of business environment (reduce lethargy in bureaucratic processes) and allow an open collaboration between academia and private institutes, which would naturally include removing controls on funding limits on professors.

References:
  1. From the book “Reinventing Public Service Devliery in India: Selected Case Studies”, Chapter 2, “Promoting Competition in India’s Telecom Sector” by Rahul Mukherjee, http://books.google.co.in/books?id=jZ2Yaz7c7uYC&pg=PA57&dq=promoting+competition+in+telecom+sector+Rahul+Mukherjee&hl=en&sa=X&ei=3lXYUZOoHoy3rAf754CgCg&ved=0CDMQ6AEwAQ#v=onepage&q&f=false
  2. From TI’s CSR documents, on the eve of 25 years of its existence in India http://www.ti.com/corp/docs/csr/feature_india_anniversary.shtml
  3. “TI seeds it”, Forbes in 2006 March. http://www.forbes.com/forbes/2006/0417/066a.html
  4. ISA-IDC 2011 report http://www.isaonline.org/media/indian_esdm_industry.html
  5. Pradeep Chakraborty’s blog https://pradeepchakraborty.wordpress.com/2008/04/24/indian-design-services-to-hit-10-96bn-by-2010/
  6. ISA’s report in 2011 to Department of Electronics and Information Technology http://deity.gov.in/hindi/sites/upload_files/dithindi/files/Semiconductor06April11_020511_0.pdf

 

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