Offshoring in the Semiconductor Industry: A Historical Perspective

Abstract

Abstract:Semiconductor design is a frequently-cited example of the new wave of offshoring and foreign-outsourcing of service sector jobs.1 It is certainly a concern to U.S. design engineers themselves. 2In addition to the current wave of white-collar outsourcing, the industry also has a rich experience with offshoring of manufacturing activity. Semiconductor companies were among the first to invest in offshore facilities to manufacture goods for imports back to the U.S. A brief review of these earlier manufacturing experiences and their impact on the fortunes of the domestic industry and its workers can help to illuminate the current debates over offshoring in services.Because meaningful data about the impact of the offshoring of chip design (and even manufacturing) are limited, we rely on a more qualitative analysis for our key points. We have conducted dozens of interviews with engineers and managers at numerous semiconductor and related companies in the United States, Asia, and Europe over the past six years. Our research also incorporates the rich store of publicly available information in trade journals and company reports.This paper describes the two previous stages of offshoring semiconductor assembly jobs and of outsourcing semiconductor manufacturing and the impact they had on the U.S. semiconductor industry. We argue that the initial concern about losing domestic jobs in both stages turned out to be unfounded as the industry used the situation to its competitive advantage by becoming cost competitive (assembly stage) and by developing the fabless sector (manufacturing stage). We then analyze the on-going stage of offshoring design jobs, and compare this stage to the two that came before in order to explore the possible impact on domestic jobs and the U.S. semiconductor industry. We begin in section one with a brief description of the stages of semiconductor production and our analytical framework. Section two looks at the offshoring of assembly jobs, and section three analyzes the foreign outsourcing of manufacturing. Section four explores the offshoring of design jobs, and concludes with a discussion of what this means for the U.S.

Production Networks, Profits, and Innovative Activity: Evidence from Malaysia and Thailand

“…Subsequently, final testing facilities were established in Asia which is the final destination of some of the products anyhow. Hence, Asia's share of semi-conductor sales has almost doubled between 1984 and 2004 (Brown and Linden 2005).…”

Life-Cycle Assessment of Semiconductors

“…The dominant model of operation among US-based manufacturers is to locate research and design activities in the US, wafer manufacturing at another site, and chip and component assembly in a location with a low cost of labor. The location of wafer manufacturing is usually not based on labor costs, but rather a combination of factors, including tax incentives, availability and cost of capital, access to reliable power and water supplies and the ease of the regulatory environment [14].…”

“…Chips are typically cut and packaged at a facility separate from the wafer fabrication site, often in a different country or on a separate continent altogether [14]. Semiconductor products therefore travel twice within the production phase: wafers are transported from the fab to an assembly plant, where they are cut into die, packaged into chips and tested and finished chips are then transported to the place of eventual use.…”

The gains from trade in intermediate goods: A Ricardo-Sraffa-Samuelson model

“…Sturgeon (2002) documents this trend in modular production networks, while Brown and Linden (2005) discuss offshoring in the semiconductor industry. Offshoring has been the topic of a US Government Accountability Office Report to Congressional Committees (US Government Accountability Office, 2006).…”