The strategy encourages global companies to gradually diversify their supply chains and manufacturing activities away from China. As frontline MNCs started looking for alternative manufacturing and sourcing options, Asian economies like India, Vietnam, Cambodia and Malaysia came up as prominent alternatives.

Mexico, too, was seen as an appealing option due to its proximity to the US market, as was Poland for its Euro-proximity.

One of the prominent sectors where India clearly wishes to exploit the C+1 strategy of MNCs is semiconductors. India aims to become a global powerhouse in chip manufacturing and design. India’s semiconductor market was valued at US$ 34.5 billion in 2023, but is projected to grow at a CAGR (compound annual growth rate) of more than 20 per cent to touch US$ 100.2 billion by 2032.

India's Semiconductor Leap Plans

India has a traditional strength in chip design, with around 20 per cent of the world’s design workforce. However, the country now wants to leapfrog into building a full-scale semiconductor manufacturing ecosystem.

Only 9 per cent of all semiconductor components used in India in 2021 were locally sourced. The country plans to raise this to 17 per cent by 2026.

However, right now, India does not have any operational commercial fabrication (or fab) facilities. There is one semiconductor laboratory, which had been operating for the last 48 years in Mohali. However, it is a state-owned facility producing chips for strategic and defence purposes, including applications for space exploration.

Most of the proposed upcoming fabs are works-in-progress. Prominent among these are Tata Electronics’ fabs in Dholera, Gujarat. The first one is under progress in partnership with Taiwan’s PSMC (Powerchip Semiconductor Manufacturing Corporation). Reportedly, it will begin by manufacturing a first batch of 28 nanometres (nm) chips by December 2026. Two more fabs in the next 5-7 years are proposed to be followed.

Tata Electronics plans to build another semiconductor assembly and testing facility in the Morigaon district of Assam by next year. Sanand in Gujarat will host multiple semiconductor facilities — CG Power’s fab (expected to be operational in the next 2-3 years), as well as two OSAT (outsourced semiconductor assembly and testing) facilities by Micron and Kaynes respectively.

On top of all these, the government is about to launch the next phase of the India Semiconductor Mission within six months. These endeavours are expected to push India's semiconductor journey further ahead, along with production-linked incentives (PLI) and other initiatives of Make In India and Digital India.

Challenges To The Chip Dream

While total approved semiconductor investment in India amounts to around Rs 1.5 lakh crore (US$ 18.15 billion), challenges remain in front of India's ambition to be a global player.

First and foremost, the persistent lack of infrastructure to support high-tech manufacturing needs to be addressed immediately. Chip manufacturing requires an uninterrupted power supply, and many regions in India struggle to provide that. During the recent 2024 heatwave, power shortages negatively affected industrial activities across regions.

A running semiconductor fab consumes millions of gallons of water as coolant every day. In a country like India, where water-scarce regions are located all over, the availability of water can pose a big challenge. So, for the Indian semiconductor ecosystem to be successful in the long run, there is a need to develop a sustainable model for resource consumption, including water recycling and usage of energy-efficient technologies.

Attention of governments across the world to the semiconductor supply chains as available to the businesses and citizens’ ability to access critical and advanced emerging technologies, from biopharmaceuticals and information and communications technology (ICT) products to advanced batteries and critical minerals, has dramatically increased. This requires rebalancing of semiconductor supply chain for any country, and India is no exception.

Transportation, logistics and land acquisition are other teething troubles that need to be addressed to fulfil India’s C+1 strategy in semiconductors. The fledgling industry also has to address the shortage of qualified professionals. Though India has an annual pool of over 800,000 fresh engineers, only a very small fraction of this pipeline are industry-ready given the cutting edge nature of semiconductor sector. Better courses and training and to increase job preparedness are the need of the hour.

From C+1 To 'China Plus Many'

As things stand now, Malaysia has emerged as the frontrunner in attracting semiconductor investment, as multinationals begin to diversify their supply chains under the C+1 strategy. With the upcoming Trump second term, and US-China tension likely to rise, countries like Malaysia and Singapore are expected to consolidate their early advantage in the value chain.

Malaysia’s strategic geographical position is an obvious advantage. The country’s shipping and logistics hubs, diversified economic sectors and proximity to China and other important ASEAN nations (including Singapore) are adding to that advantage. The country, in recent times, has done well to develop a skilled workforce, necessary infrastructure and ease of doing business.

There is another broader realisation setting in the arena of global business and trade. Companies are increasingly reconciling to the fact that China’s well-nurtured manufacturing capability cannot be dethroned by any specific country in the immediate future.

In the absence of a single obvious country that can replace China, most companies are unlikely to move their manufacturing en masse to any specific country. So, the logical conclusion of this broad realisation is that companies have to engage with different geographies according to their evolving supply-chain needs.

This is gradually evolving into a replacement of the C+1 strategy with a “China Plus Many” approach. This can be viewed as “multi-aligned corporate strategies with both the US and China, seeking to benefit from both, and alienating neither”.

As a result of this visible shift, apart from Malaysia, several other countries, including India, Indonesia, Thailand, Vietnam, Mexico and Poland, are gaining some fraction of the manufacturing share from China.

So, the nascent Indian semiconductor industry is indeed going through an intersection of key opportunities. However, without sufficiently addressing dependence on imported raw materials and equipment (supply chain issues), lack of infrastructure, skill gaps and required policy alignments, those opportunities may not take much time to slip out of hand.