Study On Globalization Innovation And Sustainability Business Essay

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Semiconductor industry appeared at the middle of the twentieth century and relatively young especially in comparison with such giants like automobile manufacturing or banking. The industry is international with top manufacturers located in USA, China, Japan, Korea and Europe. Major players according to 2009 data are Intel Corporation, Samsung Electronics, Toshiba Semiconductors, Texas Instruments, Qualcomm, Sony and the set of others. Most of the companies being originally from specific country (like Intel or Sony) now are global international corporations with production facilities located all over the world.

Semiconductor products are divided into two major types: discrete device ' semiconductor that performs predefined electric current transformation (used as a part of different electric circuits) and integrated circuit (also called 'chip') ' set of miniaturized 'discrete devices' placed on small rectangle of silicon, which is able to perform thousands of different electric transformations in a second. Modern semiconductor industry mostly means the industry of chip production as integrated circuit products have a wide variety of usage and penetrate all spheres of modern life: communication, computing, consumer electronics, military applications and many others.

Industry development direction is targeted to three major characteristics of device: processing speed increase, physical size and device cost decrease. Decreasing the size of single electric element allows putting significantly larger number of such elements into same device size making the whole circuit work faster and process larger arrays of information, developing the technological process allows to make the whole electronic product cheaper and penetrate new markets, recently been unprofitable for traditional computing or electronic applications. As a result, the market pressure from chip makers appears. Major players are constantly offering something new, which is faster and more productive, pushing the products, which could be only six-month old, out of market and decreasing the selling price of particular technologies dramatically in very short period. Competitive pressure is very tough and the cost of any mistake could be critical, weak sales in specific season do not excuse the delays with launching new products and technological advantage could easily be lost in a few years. So, the main characteristic of industry is highly innovative approach in both production and marketing segments which causes strong financial and market share result to be influenced by regular R&D investments and professional, well-trained and creative sales force. Others are rapidly changing environment, fast industry broadening with new applications and, as a result, new markets and extremely large entering costs for new players due to complicated technological process with one exception of so called 'fab-less' semiconductor players (e.g. Advanced Micro Devices starting from 2008) which haven't any chip making facilities outsourcing this part to others.

Supply Chain Analysis

Traditional business approach in semiconductors industry was in controlling the whole process from design to manufacturing and selling by the particular chipmaker. But, firstly, the chip itself is not a complete customer-ready device, which could be used by consumer; it's a component that's needed to be integrated into electronic equipment prior to be sold. Due to product popularization and wide spreading traditional methods stops to work as all of manufacturers could not cover the whole market of semiconductors, playing in specific segment and outsourcing production of less-profitable products to 3rd parties focusing on major product list. Secondly, the chip production process consists of several steps (see Exhibit 1), which could be performed at different facilities located all over the world. So, absolutely regular situation for CPU (Central Processing Unit ' the most complicated and the most profitable semiconductor product) looks like following: bare wafer production is done in Mexico, die production in the U.S., die packaging into ready-to-integrate device in Ireland and final box assembling in China. That's only for component, after this it goes to warehouse in Netherlands and waits while it is been sold to complete electronic device manufacturer. Than in goes, for example, to Poland (Dell factory), where it will be integrated into modern notebook, then it comes to Israel to consumer electronics shop and at last, reaches the consumer.

Due to this complicated production and supply process most efforts are now targeted to optimization and controlling of forecast system and customer satisfaction. The production cycle of regular integrated circuit is 12 weeks, not counting the design process (2-3 years from idea to production). Every specific company has their unique approach to supply planning, demand forecasting and production execution which realizes in unique set of requirements for processes. All of these requirements should be incorporated into company supply chain solution for both manufacturers and 'fab-less' companies. There are three major traditional systems appeared due to different approaches and high production costs:

Build-to-order: Semiconductor company collects customers' requests and plan production capacities according to received orders. The simplest system, which gives the maximum mis-forecasting cost economy, but it's effective only at seasonal cycle of work, when orders are placed several, but small number of times during the year and the company product portfolio is not large.

Build-to-forecast: Company has its own forecasting system and products produced according to historical data of different product types and price demand, put into warehouse and sold from the point 'what is available' instead of 'what is needed'. System work when the product is unique and highly demanded, production cycle is long and complicated.

Build-to-Forecast-to-Die-Bank: Company forecast not the specific product demand, but the family, which is built from one type of wafers. So warehouses store not the complete ready-to-integrate devices, but the interim product which then could be used for building specific product in significantly shorter time, than starting from the beginning. This process is more simple and cost effective than forecasting the exact product demand and is widely used by companies producing the wide list of products with defined product families.

But, as whole industry performing transformations regularly supply chains are to be in alignment with today's market conditions. The great example here is Intel Corporation and its' recent launch of Intel' Atom' product.

Atom ' Chip Market penetration case

Intel Corporation is the leading company in semiconductor industry and the major focus of company is high-profitable segment of personal computing, server and telecommunications technologies. Company supplies most of today's OEMs with CPUs, chipsets and communication devices paying large attention to technological progress and development of whole-industry global standards. Being on top company regularly searches for new application opportunities and discovers new markets.

Recently, the average costs related to supply chain expenses were on 5.5 U.S. dollar per CPU level (according to Jim Kellso, Senior 'Supply Chain Master' at Intel). With average cost of traditional Intel chip near 100 U.S. dollar ' 5.5% supply chain cost looks reasonable and not critical. However, company launched new product called Intel' Atom' processor that was not targeted to traditional PCs usage models, but low-cost consumer electronics and mobile devices, web only computing, emerging markets, and some other applications with total estimated business volume of $10 billion or more. The challenge company faced was the product price, Atom' planned to be sold initially at 20$ price level with decrease to 10$ at nearest few years. 5.5 dollar supply expenses for 20-dollar chip were unacceptable, but the production process for such product is similar to traditional 100-dollar chip. Company had to reduce cost to 1$ per chip (up to 80% from traditional chip) what was impossible using the traditional cost-cut measures. Analyzing the supply chain cost, Intel task force investigated that most of expenses are related to inventory costs. Intel traditionally works with its' customers on 9-week pre-order cycle time and during the first 7 week order could be cancelled or changed. First investigation made ' 90% of such orders are changed during the cycle after the initial order was placed. This led to large inventory production and cost for factory production optimizations.

The solution was in changing the order cycle from nine week to two and implement truly 'build-to-order' model (instead of traditional forecasting model), which made small hit to factory utilization, but made significant economy in inventory, storage and handling. Intel made set of small steps to convert the situation, majority of them were targeted to work with customers planning and supply structures to convert them to new two-week process. This allowed reaching 1.40 dollar per chip expense level and company claims to reduce it to 1 dollar till end of 2010. [3]

So, from this example we can conclude that traditional systems of supply planning could be changed according to current market conditions and as the whole industry is highly innovative these changes are regularly implemented by players, including major ones with highly developed supply chains.

Innovation Opportunities

The question of innovations in semiconductor industry is the question of business itself as the whole industry is making profit on innovations, developing and selling new technologies. The problem of low product life period and fast product replacement led to the situation when currently developing products are intended for the markets that are still not exist. So innovations should be implemented not only by engineering staff, who developing new technologies, but by entire company including marketing people, sales force and operations. So, it is better to divide the innovations into two major parts:

Technology innovations related to inventions of new products, optimization of previous products, production technologies development, technical characteristics etc.

Application or market innovations related to development of new usage models and opening of new markets.

Technological Innovations at Semiconductor Industry

Semiconductor producers are working in high-technological sphere and all innovative solutions are extremely demanded by them as any invention provides competitive advantage for some period of time allowing collecting funds to be invested to further research. So, all companies are hunting for all recent scientific discoveries and trying to implement them to current business processes. Today's development direction is the miniaturizing of existing devices, enlargement of transistor quantities per square unit and inventing special technologies to improve existing power consumption, performance or temperature characteristics of integrated circuits.

The main technological issue faced by all manufacturers is close approach to physical limits of integrated circuit building blocks. In case of CPUs it is the size of transistor's gate which is measured in nanometers ' the smallest physical element that should be plotted to semiconductor crystal. Modern CPUs are produced with the usage of 32 nm technology, and there are working engineering samples built with 25 nm process. As such size is close to laser beam (which is used to plot circuit layout to silicon) wave length the next miniaturization looks problematic and some innovative approaches are highly demanded.

Second development direction is integrated circuit heat dissipation. All efforts are targeted to performance (operations per second rate improvement) increasing but with using of air cooling as the cheapest and most available method. This led to development of such technologies like parallel computing ' when several program threads are working simultaneously, cloud computing ' when large arrays of computers perform different tasks and automatically distribute computing recourses according to the task load.

Next innovative opportunity is development of alternative methods of integrated circuit production or production of different device with such features. Modern chips are produced by the method of lithography, which was invented tens of years ago, only the dimensions are decreased since that time. So all semiconductor industry players are looking for modern solutions and make experiments with alternatives like liquid crystals and molecular transistors.

New Markets Development

Due to chips applications booming now all companies are looking for new methods of integrated circuits usage and penetration of non-traditional life spheres. Everybody remember that cellular phones became popular not so far ago and now it's absolutely regular thing. So, semiconductor manufacturers produce large number of devices that are used in cell phones, which made the market profitable and development of cell phone devices very fast. Now the idea of personal assistant device is in development stage. Lots of new markets are now penetrated with electronics, such as health care, scientific research, engineering, entertainment - all of them very non-traditional ten years ago for integrated circuit usage.

All of chip producers now have some different inventions in their labs, that are not known how to be used and, what is more important, how they will become profitable for companies. That's why marketing engineers are working hard on investigating new opportunities to enter with specific product. Situation with launching of Atom processor by Intel is the successful example how company is looking for new usage models for their products launching absolutely new device called 'netbook' ' small PC with limited capabilities (in comparison with traditional powerful PCs) targeted to low-cost, communication and Internet surfing applications to the market. Similar example is Sony with Play Station Portable ' gaming system, that could be brought with gamer everywhere.

Sustainable Entrepreneurship Opportunities

Chip production is characterized as highly technological process with the usage of significant resources and hazardous materials. The investigation made in 1997 shows that the resources used to manufacture one 6-inch wafer (the initial silicon layer which will be used for plotting further) consists of significant number of hazardous gases, pure water and hundreds of kilowatts of electricity. The waste generated by the process consists but not limited by chemical of sodium hydroxide, and thousands of gallons of waste water [1]

So, the whole industry provides wide opportunities to implement sustainable solutions. Since the mentioned investigation lots of changes was made. As the industry has transferred from 200mm wafers to 300 mm wafers and decreasing die sizes, manufacturing efficiency increased greatly and resulted in larger number of semiconductor chips made per wafer. This has enabled the industry to reduce the amount of resources and energy needed to manufacture semiconductors. By 2003, energy requirement was reduced by almost 30% per die in comparison with 1997. Even larger improvements were seen with water use. More than 40% reduction of pure water usage was reached since 1997. [6] These results were based on eight-inch wafer data. The conversion from 6-inch wafers to 8-inch wafers helped enable these reductions in materials and energy use. Now the industry uses 12-inch wafers, and these improvements in manufacturing efficiencies are expected to continue.

So, major efforts in implementing sustainable solutions are targeted to reduce usage of hazardous or non-nature friendly materials. For example, starting from 2006 usage of lead is stopped in integrated circuit production by most of companies and the process of sustainability is still ongoing. Companies pay much attention and promote their 'green' attitude widely.


Semiconductor manufacturing is relatively young but rapidly developing industry. Due to fast rate of changes and dynamic environment all companies playing at semiconductors market have to track all new solutions in technologies, management, operations to stay competitive and make profits. Innovations are the key of the business, so all companies are looking for non-standard technological solutions as well as new marketing approaches and business management methods. This opens wide opportunities for creative and energetic people to implement new ideas. Sustainability problem is also extremely important as the production process itself is hazardous and nature-damaging, but due to innovative and fast-changing structure of the semiconductor business it's easy to implement what is performed starting the late 1990s.