How tier-2,-3 Indian cities are poised to become hubs for semiconductor design shops

In an effort to decentralise and expand operations, semiconductor design companies are exploring opportunities beyond traditional metropolitan hubs. This shift is driven by factors such as government incentives, talent availability, and lower administration costs.

For instance, Tessolve, a Bengaluru-headquartered chip design and testing company, plans to establish offices in Tier-2 cities across every state, co-founder and CEO Srini Chinamilli said in an earlier interview with TechCircle. The company already operates in smaller cities like Coimbatore, Visakhapatnam, Bhubaneswar, and Hubli. Additionally, global firm Synopsys announced a new chip design facility in Bhubaneswar in November 2023, aiming to employ 300 highly skilled design engineers in phases.

India hosts 20% of the global semiconductor design workforce and expects to need 2.5-3 lakh skilled professionals by 2027 across R&D, design, manufacturing, and packaging. The demand for skilled professions is growing by 30-40% year by year, especially for roles such as ASIC Engineer, Verification & Validation Engineer, and VLSI Design Engineer, among others, said Krishna Vij, Vice President — IT Staffing at Teamlease Digital. “India's semiconductor talent landscape is rapidly evolving with Tier-2 and Tier-3 cities (Coimbatore, Bhubaneswar, Cochin, Hubli, and Vizag etc.) emerging as key hubs.”

While Tier-2 and Tier-3 cities may not immediately compete with Bengaluru and other major metros for mega semiconductor investments and core IP work, they hold significant potential for developing robust semiconductor ecosystems, according to V Veerappan, Chairman of the Indian Electronics and Semiconductor Association (IESA).

“Cost is a major driving factor, with expenses up to 30% lower than in Tier-1 cities, including employee salaries, real estate, and administrative costs. Not just for employers, these factors make it an attractive option for job seekers who prefer staying closer to their hometowns, leading to lower attrition rates.” Veerappan, who is also one of the co-founders of Tessolve, said that his company’s attrition in Tier-2 offices has been less than 10%. 

In 2022, the government launched semiconductor design linked incentive which to offer financial incentives as well as design infrastructure support across various stages of development and deployment of semiconductor design. The beneficiaries of the scheme include Thiruvanathapuarm-based NetraSemi, Hubli-based Semiksha, and Noida-based Vervesemi.

Additionally, state governments are actively promoting a strong Semiconductor Design Ecosystem with targeted policies, subsidies, industry-academia collaboration, and other strategic initiatives. It includes Gujarat Semiconductor Policy, Odisha Semiconductor Manufacturing & Fabless Policy, and Electronics System Design and Manufacturing (ESDM) Policy, Karnataka.

It may be noted that the number of semiconductor Global Capability Centers (GCCs) in India has increased significantly in recent years. According to Nasscom-Zinnov's Q4CY23 report, 30% of the new GCCs established during this period were in the semiconductor sector, bringing the total to over 55. 

According to Nasscom’s blog, companies worldwide are recognising India as a strategic partner due to its emphasis on talent development and investment in semiconductor manufacturing. India has a large pool of semiconductor design engineers, demonstrating expertise in areas like functional testing, simulation, emulation, and physical verification during the design testing phase, as well as firmware integration, driver development, and post-silicon validation during the system integration phase.

However, most of these GCCs remain concentrated in Tier-1 cities, particularly Bengaluru and Hyderabad and only about 3% of the semiconductor GCCs have been set up in other smaller cities and towns. “Steady investment from private players and governments initiatives, along with local demand and creation of an ecosystem have the potential to attract a significant number of semiconductor firms to locate their GCCs in Tier-2,-3 in the next 6 years,” said Vijaykumar Hegde, Partner, Zinnov.

As semiconductor ecosystems take root in smaller cities, India is set to enhance its position in the global semiconductor landscape, generating jobs and driving innovation beyond traditional metropolitan hubs.