KEY DRIVERS OF GLOBALIZATION

Detailed Transcript:
Semiconductor industry is a pioneer in globalization. Since its inception in 1960s, this industry had a global outlook for operations and markets. Though the manufacturing was the initial activity in this industry to be globalized, in the past few years, we have seen an increased activity in their R&D and engineering activities globalization.

Large and small companies have global operations to grow in this highly competitive industry. We are Zinnov have been closely following these trends for the past 8+ years. Periodically we undertake the surveys to understand the key drivers for globalization. In late 2011, we undertook an exercise to understand the globalization drivers and compared the results with a similar survey from 2009.

We observed that though the importance of cost for global operations has slipped by few points, it is still the domain driver for globalization. 60% of the surveyed companies mentioned it to be the most important driver for globalization, especially for offshoring to an emerging country. All 100% of the surveyed companies rated cost as a key driver, if not most important one, for their global operations.

Access to talent has been rated as the 2nd most important driver for these companies. The existing talent crunch in the developed countries, competition across technology segment for this high end talent is also driving these companies to scout for locations with availability of talent. We have observed that the importance of this driver has remained statistically the same across the past 2 years.

Access to market has been stated as a critical factor in determining the optimal location in the merging countries. This has gained more prominence in the industry as most companies have seen their international markets grow at a significantly higher rate compared to their domestic markets.

Though it is still consider nice to have, Innovation from global locations is gaining traction as companies evaluate their global operations. Some of the companies have mentioned that they will fail as a company if their resources in these emerging locations do not participate in the innovation activities. For some companies with 30-70% of their talent outside their HQ countries, this is a critical factor.
Though the global sourcing of R&D and engineering activities began in the 1990s, it gained full steam after 2000. Our analysis of the top 10 players in the semiconductor segment shows that these companies have setup large number of centers in the new emerging cities such as Bangalore, Beijing, Shanghai, Taipei etc.

Further evaluation of the data across the cities shows that, Bangalore, India has been the biggest beneficiary of this trend. Bangalore, which had only one of this top 10 semiconductor companies till 1995 has become host to 90% of the top 10 companies. Bangalore center for these companies have between few hundreds to few thousands of employees working in their engineering and R&D activities.

Major cities in China, South Korea and Taiwan have also seen their share of success in attracting and growing the engineering centers for the leading companies in this segment. Availability of high end talent has also prompted these companies to set up new operations in high cost locations such as United Kingdom, France, Israel and Singapore.

Outside the top 10 companies, we have observed similar trends in the semiconductor industry. Many small and mid-size companies have followed these industry titans in chasing the talent or in optimizing their cost of operations.

We believe that the globalization has just started in many of these companies and the trend to grow into global locations for talent, market, cost or innovation will be the norm rather than an short term trend.
For more information on this report or other global talent, cost and peer group benchmarking details, visit www.zinnov.com.

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