Mitigating the Impact of COVID 19 and the RussianUkrainian War on the Semiconductor Industry: Strategy Analysis of Investing in Localizing the Semiconductor Supply Chain in Japan.
Siwar BELGACEM1, Keiji MURAKAMI2
1Student, Graduate School of Management, Kyoto University(Address 606-8397, Shogoin Kawaracho Sakyo ku, Kyoto, Japan)
E-mail: belgacem.siwar.73z@st.kyoto-u.ac.jp
2Member of SGB, Associate Professor, Graduate School of Management, Kyoto University(Address 606-8501, Yoshidahonmachi Sakyo ku Kyoto, Japan)
E-mail: murakami.keiji.3c@kyoto-u.ac.jp

Semiconductors are important and indispensable products driving the technological and industrial
growth. In fact, a single phone has around 169 semiconductors while a car has around 3500 semiconductors.
Thus, the semiconductor industry is a strategic and a key industry.
However, a supply shortage has been witnessed during COVID 19. The semiconductor shortage resulted
in operation suspension, revenue loss and supply instability.
The COVID 19 pandemic has revealed the vulnerability of supply chains caused by globalization. In
addition, the Russian Ukrainian war can also impact the semiconductor industry mainly through Neon supply disruptions.
It is becoming increasingly important to change supply chain strategy trends and to understand the limitsof globalization. Localization strategies have been the center of discussion lately with many countries investing greatly in it in hopes of mitigating these risks. For example, USA is extensively investing in its
semiconductor supply chain.
This research aims to analyze the impact of COVID 19 and the war on the Japanese semiconductor supply
chain. The research aims also to analyze the effectiveness of localization strategy in mitigating these impacts and in improving the competitive advantage of Japan.
The research methodology is to collect and analyze primary data from interviews with Japanese semiconductor companies and secondary data from available public sources.
Key Words : Semiconductors, Supply Chain, Localization, Strategy, COVID 19, Russian- Ukrainian War.

Amidst these issues, the war between Russia andUkraine threatens the stability of Neon gas supply as
they hold around 45%- 55% of global market share.
Neon is a raw material used in the production of semiconductors.
Global events such as the COVID 19 pandemic
and the war have revealed the vulnerability of supply
chains caused by globalization. It is becoming increasingly important to change supply chain strategy
trends and to understand the limits of globalization.
Localization strategies have been the center of discussion lately with many countries investing greatly
in it in hopes of mitigating these risks. For example,
USA is extensively investing in its semiconductor
supply chain.
Thus, this research questions are:

1. INTRODUCTION
Semiconductors are important and indispensable
products driving the technological and industrial
growth. In fact, a single phone has around 169 semiconductors while a car has around 3500 semiconductors. Thus, the semiconductor industry is a strategic
and a key industry.
However, the COVID 19 pandemic has caused unprecedented global supply chain disruptions and an
exponential demand of electronic products that resulted in a shortage of semiconductor products. Several industries were impacted by this shortage. For
example, the automotive industry was hit hard, andmany automotive manufacturers had to scale down
production such as Toyota.
1• What is the impact of the COVID 19 on thesemiconductor industry in Japan?
• What is the possible impact of the RussianUkrainian war on the semiconductor supply chain in
Japan?
• Can investing in localizing the semiconductor
supply chain mitigate supply risks and improve thecompetitive advantage in Japan?
• What are the areas of growth that Japan
should focus on?
Fig.2 Market Size by Device Type.

The research methodology is to collect and analyze
primary data from interviews with Japanese semiconductor companies and secondary data from available
public sources.

(2) Growth Factors
Semiconductors are used in a multitude of devices
across several domains: Networking & Communications, Data Processing, Industrial, Consumer Electronics, Automotive, and Government. Therefore,
growth in any of these applications results in growthof the semiconductor market. The Networking &Communications and Data processing applications
held the highest semiconductor market share in 2021
followed by Consumer Electronics, Automotive, Industrial and Government.
In fact, Networking & Communications segment is
projected to grow as the demand for smartphones andsmart devices keeps increasing.
The Data processing segment is forecasted to keep
growing as the demand for memory storage and processing increases. For example, data generation is estimated to reach 463 exabytes per day as of 2025.
Also, over 70% of GDPs worldwide is expected toundergo some form of digitalization by 2022.
The semiconductor market growth is also driven
by the emergence of Artificial Intelligence AI and Internet of Things IoT. These technologies are used inwide applications such as Industrial Automation,
Smart Cities and Autonomous Driving. For example,
China had 3.17 billion IoT devices in 2020. APAC
region is projected to be the biggest IoT spender by
2030. These technologies require advanced chips
with powerful processors and memories. These requirements are driving chip design and performance.
The emergence of Machine Learning ML is also accelerating growth as it is applied to improve the design process3).

2. GLOBAL SEMICONDUCTOR MARKET(1) Market Growth
The global semiconductor market was growing
steadily from 2015 to 2018 by 8.7% CAGR1).
However, due to COVID 19 in 2019, the global
market shrank by 12% compared to 2018 with all regions registering a growth drop. The market witnessed a slow recovery in 2020 by 6.8% but grewstrongly by 26.2% in 2021.
The semiconductor market is forecasted to continue growing through 2022 by 16% due to high demand for semiconductor products and exceeding preCOVID levels. The market is estimated to reach$679.65 billion in 20232).
China and the rest of Asia Pacific are the biggest
markets for semiconductor products demand. In fact,
they held 78% of global sales in 2020 with China accounting for over one-third of worldwide sales. 25%
of sales revenue of major American semiconductor
companies comes from China.
Semiconductor products can be divided into Discrete, Optoelectronics, Sensors, and Integrated Circuit IC. If we analyze the market by semiconductor
device type, we can observe that the IC is the dominant type with over 80% market share.

3. JAPAN’S SEMICONDUCTOR MARKET(1) Japan’s Semiconductor Industry History4) 5)
Japan has a long history in the semiconductor industry. Since the 1950s Japan was a player in thismarket competing with USA. After dominating thetransistor radio market in 1960s, USA overtook themarket with the invention of Germanium transistors

Fig.1 Semiconductor’s Global Market Size.

2

and ICs. Japan’s market share fell to 30% in the early
80s however it succeeded to increase it to 52% in thelate 80s and exceeding the American market. By the
1990s, Japan’s market declined again to never retakeits leading position till now. While 6 Japanese companies were in the top 10 semiconductor companies
in 1989, that number dropped to 2 in 2006 and to 0 asof 2021. Several factors contributed to Japan losing
its competitive advantage in the semiconductor industry.
a) Semiconductor Technology and Demand Shift
While Japan was a leader in DRAM Memory, demand started to shift to microprocessors and Logic
LSI fueled by the demand for PC. Thus, DRAM market shrank.
b) Lack of Investment in R&D
After the “VLSI Project” that ended in 1980, The
Japanese government did not take any initiatives togrow the semiconductor industry and to invest in it.
No research projects or actions were initiated until
1995. The 1980-1995 period was dubbed ’15 years inblank’ where Japan did not pursue any growth initiatives. Meanwhile, other countries were investingheavily in this industry and creating research centersand collaborations between universities and industry
players.
c) Business Model Change
Semiconductor companies at the time followed avertically integrated model (IDM model) where allbusiness operations were conducted in house. However, in 1990 TSMC revolutionized the industry byadopting a horizontally integrated model focusing
only on the manufacturing operations (Foundrymodel). American companies such as Qualcomm
started to focus on the design process (Fabless companies) and outsourcing production to foundries. This
allowed TSMC to produce chips for different customers and to expand their operations.
However, Japanese companies did not change theirbusiness model. While Japanese companies such as
Toshiba and Hitachi were world leaders in the 1980s,
they were only using their semiconductors in theirown products. As a result, with the decline of theelectronic market the semiconductor market also declined, and they could not compete with TSMC.
d) Capacity Expansion Plans
Japan had a bad timing with its expansion plans.
While Japan expanded their 6-inch wafer capacity in
1991, Korea opened 8-inch lines in 1993 enabling it
to be more cost efficient.
e) US-Japan Semiconductor Agreement in 1986
The agreement consisted of increasing foreign
semiconductor products in Japan from less than 10%
to 20%. This decreased the domestic market significantly and allowed the entry of Korean made DRAM

memory. The agreement helped boost Korean’s market share and Korea overthrew Japan as the DRAM
leader in 1998 until this day.
In conclusion, Japan did not adapt to the industry
changes, and it was passive in strengthening its industry since the 1990s. Japan’s Industry Ministry described the 1990-2022 as the ‘3 lost decades’ and is
finally ready to invest in revitalizing the industry.
(2) Japan’s Market Growth
Japan’s global semiconductor market share in
2021 was $43.69 billion, a 7.9% share from which
6% was for Integrated Circuit IC. Compared to Asia
Pacific APAC, America, and Europe, Japan constantly ranked last since 2015 slightly trailing behind
Europe with 8% to 10% share. APAC successfully
held to 60-62% of semiconductor market share. The
second largest market share holder is America with
16-22%6).
Before COVID 19, from 2015 to 2018, Japan’s
market grew by 6.5% CAGR. America, APAC, andEurope were growing at 10.6%, 9%, and 5.8%
CAGR, respectively. This leaves Japan in the third
place slightly in the lead of Europe1).
The semiconductor market started to recoverslowly after COVID 19. From 2019 to 2021, Japangrew by 10% CAGR same as Europe and ranking last
behind America and APAC with 21.6% and 12.9%
CAGR, respectively. In 2021, Japan showed a belowaverage growth rate at 19.8% while other regions
were witnessing a growth more than 26%.
Japan’s market is estimated to reach $47.93 billion
in 2022, first time surpassing $45.4 billion since20082).
In conclusion, Japan was always ranked in the bottom in terms of market share as well as growthwhether before COVID 19 or after. Japan’s position
was remarkably close to Europe, but never really exceeding it. That said, Japan and Europe hold very low
positions compared to America and APAC. In termsof growth, we can conclude that America has thehighest growth rate, threatening APAC region share.

Fig.3 Semiconductor Market Share by Region 2015-2023.
3

4. SEMICONDUCTOR SUPPLY CHAINOVERVIEW

5. JAPAN’S SEMICONDUCTOR VALUE
CHAIN

The semiconductor value chain consists of 3 main
activities: Design, Front End Manufacturing (Wafer
Fabrication) and Back End Manufacturing (Assembly & Test). 7)
In the Foundry business model, the production
value chain is broken down between several players:
Fabless, Foundry, OSAT (Outsourced Semiconductor Assembly & Test) and OEM (Original Equipment
Manufacturers) companies.
• Fabless semiconductor companies and electronics manufacturers (and independent design companies): create the design and specifications required
for the chips using Electronic Design Automation &Intellectual Property (EDA & IP).
• Foundries also called Fab: manufacture the designed chips with several equipment and materials.
• OSAT companies: assemble, package, and test
the chips.
• OEM and contracted EMS (Electronics Manufacturing Service) companies: integrate the packaged
chip into final products such as smartphones and laptops.
In the IDM (Integrated Device Manufacturer) business model, one company designs, manufactures andsells their own chips without outsourcing the activities8).
The semiconductor value chain segments represent
different added values to the final ready- to- use manufactured chip. The design segment creates the mostvalue accounting for 50% of total industry in 2019.
Followed by wafer fabrication and Equipment with
24% and 11% respectively. OSAT, materials and
EDA & IP segments have similar added values with
6%, 5% and 4% respectively7).

(1) Design Segment
Japan has a weak global presence in the semiconductor design. In fact, Japan held a weak presence inthe design of Memory. Also held a low share in Logic
and faced competition from Taiwan, South Korea,
and Europe. Japan better performed in DAO (Discrete, Analog and Other) design. The Design market
is dominated by USA with around 70% Fabless market share9).

Fig.5 Design Market Share by Device in 2019.

(2) EDA & IP Segment
Japan does not have a presence in this value chain.
In fact, USA dominates the EDA market with 3 companies: Cadence Design Systems, Synopsys, andMentor. EDA vendors are concentrated in USA, controlling a 74% market share of EDA & IP in 2019
followed by Europe with 20%10).
Key IP players are from the UK (Arm, Imagination
Technologies, Alphawave) and the US (Ceva, Silicon
Storage Technology SST, Rambus)7).
(3) Front End Segment
Japan has a weak presence in the Front-End segment.
Asian countries dominate around 87% of the market in terms of semiconductor manufacturing(foundry market). Taiwan accounts for 63% of thefoundry market. The Taiwanese company Taiwan
Semiconductor Manufacturing Company TSMC is
the largest chip manufacturer holding up to 54%
global foundry market share and supplies to big companies such as Apple, Intel, and Nvidia. The second
foundry market share holder is South Korea with
18% in which Samsung dominates by 17%.

Fig.4 Semiconductor’s Production Business Model.

Fig.6 Foundry Market Share, 2021.
4

Japan has many semiconductor plants. The total
number of major semiconductor plants in Japan in
2021 was 146. Japanese companies manufacture Sensors, Discrete and Optical Devices, Microprocessors,
Memory, Logic, and Analog ICs. However, theseplants are old and do not produce advanced semiconductors. In fact, of 146, 110 were built before the1990s11). Currently, only TSMC and Samsung manufacture the most advanced 5-nanometer chips used in
iPhones12).
Japan’s strongest areas are Discrete Power Semiconductors and NAND Flash Memory. In the 2nd
quarter of 2021, Kioxia had an 18.3% NAND market
share ranking second after Samsung (34%). However, in terms of regional market share Japan ranks
3rd with 23% after Korea (46.3%) and USA (32.4%).
Japan is among the leading Automotive IC suppliers (Digital and Analog ICs for Automotive Industry). In fact, 2 Japanese companies Renesas andRohm ranked respectively 3rd and 10th in the top Automotive IC suppliers in 2019. However, this market
is dominated by Europe13).

which had over 100 Assembly & Test facilities, Japan’s presence is very low.
Taiwan dominated the OSAT market with a 20%
global market share in 2021, ranking first in theworld, followed by China14).
(5) Equipment Segment
Japan is strong in this segment of the value chain.
It ranked second with 23.2% equipment manufacturing market share in 2020 following USA (39%) andwith Europe in 3rd position (18.3%).
The largest SME vendors are Applied Materials(USA), ASML (Netherlands), Tokyo Electron (Japan), Lam Research (USA) and KLA (USA) 15).
7 Japanese companies were in the top 15 SME.
(Tech Insights, 2022) SMEs specialize in different
segments of the value chain so each company has adifferent product portfolio. Tokyo Electron has a
100% share of the market for in-line coaters/ developers for extreme ultraviolet (EUV) lithography11).
(6) Material Segment
Japan is strong as a Material supplier. The Material
market is competitive but not as condensed as othermarkets. Several companies are players such as
Kyocera Corporation (Japan) Showa Denko (Japan)
Sumitomo Chemical Co. Ltd (Japan), BASF SE(Germany), Indium Corporation (USA) DuPont deNemours Inc. (USA) etc.
For example, around 500 chemicals are used in thewafer fabrication process. Japanese companies aremajor suppliers. European companies are also important chemicals suppliers8).
In terms of Silicon wafer, 5 companies control
90% of the market and Japanese companies dominate
with over 50% market share.

Fig.7 NAND Market Share 2018-2021.

6. INTERVIEW RESULTS
During this research period, interviews have been
conducted with 3 Japanese Semiconductor Companies managers to assess the situation. The results offer insights on the Japanese companies’ strategies
and intake on the current semiconductor market difficulties and opportunities.
Fig.8 Top 5 Foundries, 2019.

(1) Impact of COVID 19 on Japan’s Semiconductor Supply Chain
According to the managers, there is no major effectof COVID 19 on domestic operations. This is thanks
to the Japanese Government Anti-COVID measuresthat did not restrict mobility so much.
However, there are minor disruptions in global operations such as production suspension, supply disruptions and price increase. For example, delivery(4) Back End Segment
Japan is weak in the OSAT (Packaging & Testing)segment. It had only 23 Assembly & Test facilities asof 2021 similarly to Europe (20 facilities) and South
Korea (21 facilities). Thus, making it in the bottom
rank of countries. Compared to Taiwan and China

5Japan’s market share and growth is insignificant
compared to USA and APAC.
As a result, Japan will face several challenges inpursuit of revitalizing its semiconductor industry andin increasing its global presence.
First, Japan should build a more resilient supply
chain by minimizing the vulnerabilities unveiled by
COVID 19 disruptions. While localizing the supply
chain would deem unfeasible, a partial localization
can help strengthen it.
Second, Japan should set its ambitions and growthobjectives. Based on that, Japan should consider what
semiconductor technologies to invest in. Disregarding the advanced technologies will not allow Japan togain any significant role in the global value chain.
The continuity of this research will delve into moredetails about the best course of action to be taken to
improve the competitive advantage of Japan.
This research focuses on Japan’s semiconductor
market, its strengths, and weaknesses amidst global
disruptions. It gives insights on Japanese Semiconductor companies’ strategies as well as the strengths
of Japanese semiconductor supply chains and how it
can be improved.

time of Silicon carbide Sic went up from 1 year to 4
years.
(2) Possible Impact of the Russian- Ukrainian
War Japan’s Semiconductor Supply Chain
According to the managers, there is no immediate
disruptions. First, this is thanks to strategic Neon inventory. Second, Japanese companies diversified
from Ukrainian suppliers after some Neon supply
disruptions around 2016. Currently, Japanese Neon
Supplier Portfolio consists mainly of USA and China.
However, if the war continues around more than a
year, then the inventory will not be enough, and someissues might rise. Besides, despite not being too dependent on Ukraine, the war is affecting the Japanesecompanies indirectly through impacting their suppliers. For instance, the price increase due to the war.
(3) Semiconductor Supply Chain Localization Intentions
According to the managers, it is difficult to localize the supply chain due to several challenges such ascost. Localization would require a huge amount of investment. Another challenge is the unavailability ofan adequate talent pool. The Semiconductor Industry
requires specific technical knowledge and skill. Moreissues include the company’s global strategy, government support, land availability etc.

APPENDIX A INTERVIEW QUESTIONS• What is the business model of the company?
• What is the approximate percentage of local
production in Japan and outsourced production?
• How did Covid 19 impact the production capacity of semiconductors?
• What are the reasons for the impact?
• What is the approximate (before Covid 19)
production lead time?
• How did Covid 19 impact the production leadtime of semiconductors?
• What is the loss incurred by the change in production capacity and lead time of semiconductors?
• Were there any disruptions in material/equipment supply because of Covid 19?
• If yes, what type of disruptions?
• If yes, how did these disruptions impact production?
• Were there any transportation disruptions because of Covid 19? If yes, how?
• Were there any disruptions in Neon supply
caused by the Russian- Ukrainian war?
• How do you evaluate this supply risk?
• How do you position Ukrainian Neon suppliers in the Supplier Positioning Matrix?
• How would you evaluate Japanese Semiconductor Supply Chain vulnerability to global disruptions?

(4) Growth Areas to focus on
According to the managers, Japan should focus onits strong presence as an Equipment Manufacturer,
Material Supplier, and Classical Semiconductor
Manufacturer (Power semiconductors, Memory, Discrete, Analog, Optoelectronics, Sensors). The managers believe that strengthening Japan’s position inthese areas is feasible compared to investing in advanced nodes and innovative technology.

7. CONCLUSION
The semiconductor market is forecasted to keep
growing as demand increases making it an attractive
market to invest in. It will be a key market levering
future innovation. That is why countries are racing tobe global leaders in this market. The value chain ismainly controlled by USA, Taiwan, South Korea, andChina with each region specializing in at least one
segment of the value chain.
While Japan is strong as an Equipment Manufacturer, Material Supplier, these segments do not contribute as much to the added value as of the rest. Japan is strong as Classical Semiconductor Manufacturer, but these products do not hold a large share ofsemiconductor demand.
6• What are the challenges for shifting the semiconductor supply chain activities to Japan?
• What area should Japan focus on to improveits competitive advantage?
• Does the company have any intentions to localize its supply chain/ part of it in Japan?
• If yes, what is the value chain segment that thecompany is considering?

[7] Semiconductor Industry Association & BCG, Strengthening
the global semiconductor supply chain in an uncertain era, 2021.
[8] Kleinhans J. P. & Baisakova N., The global semiconductor
value chain A technology primer for policy makers, 2020.
[9] Semiconductor Industry Association, State of the US Semiconductor Industry, 2021.
[10] Statista, Semiconductor supply chain activity market shareworldwide in 2019, by region, 2022.
[11] Kamakura Natsuki, From globalising to regionalising toreshoring value chains? The case of Japan’s semiconductor industry. Cambridge Journal of Regions, Economy and Society, 15,
261–277, 2022.
[12] Bhutada, G., The Top 10 Semiconductor Companies by Market Share, 2021.
[13] Mordor Intelligence, Semiconductor Materials Market growth, trends, COVID-19 impact, and forecasts (2022 - 2027),
2021.
[14] Design and Reuse, Localization of Chip Manufacturing Rising. Taiwan to Control 48% of Global Foundry Capacity in 2022,
Says TrendForce, 2022.
[15] Deloitte, Rise of the "Big 4" The semiconductor industry in
Asia Pacific, 2020.

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[2] World Semiconductor Trade Statistics WSTS, Semiconductor
Market Forecast Spring 2022, 2022.
[3] Fortune Business Insights, Semiconductor market size, share& COVID 19 impact analysis, by component (Memory devices,
Logic devices, Analog IC, MPU, Discrete Power devices, MCU,
Sensors, and Others), by application (Networking & Communications, Data Processing, Industrial, Consumer Electronics, Automotive, and Government), and Regional Forecast, 2022-2029,
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[4] Kazuto Suzuki, Japan's Economic Security and Semiconductor Industry, 2022.
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(Received April 1, 2020)(Accepted July 1, 2020)7