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Why TSMC and Taiwan Lead Digital Transformation for Semiconductor Manufacturing

Taiwan's Economic Success is Tied to Leadership in Semiconductors

Author: Jerry Huang, Profet AI Co-founder & CEO Originally published on Industrial Automation Asia (IAA) 2023 Sep. Ed.

Semiconductor industry in Taiwan utilizes AI to fundamentally upgrade

Taiwan's economy relies heavily on the semiconductor industry, which contributes to approximately 15% of the country's GDP. As a global leader in semiconductor production, Taiwan manufactures over 60% of the world's semiconductors and more than 90% of the most sophisticated ones.

The significance of Taiwan's global leadership in semiconductor innovation is reflected in its industrial policy, which in recent years, places primary emphasis on the digital transformation of the sector.

But the drive for innovation is not limited to the public sector. Taiwan's private industry is also actively collaborating to foster cross-industry partnerships and drive industry-wide advancements.

Working under the pressures of the ODM/contract manufacturing model, the semiconductor industry in Taiwan was forced to embrace digitization early as a means to work more efficiently and effectively with a larger number of customers. Taiwan manufacturers embraced digital transformation earlier in order to "standardize" and "equalize" processes and recipes.

There is no better example of this than Taiwan Semiconductor Manufacturing Company (TSMC), the breakaway global leader in semiconductor manufacturing. Using recent impressive profits, TSMC continually invests in advanced processes and technologies, setting standards that reverberate throughout the island.

This article takes a closer look at the role of industrial policy and cross-industry cooperation in cultivating Taiwan's lead in semiconductor manufacturing digital transformation and also the successful practices of the private sector, highlighting TSMC as a top case study.

Industrial Policy 4.0: Maintaining Manufacturing Competitiveness

Industrial policy has long been the bedrock of the development of semiconductor manufacturing in Taiwan. This was led by the Industrial Technology Research Institute (ITRI), which was established in 1973, to promote technological advancement and economic growth. ITRI has played a crucial role in the development of the semiconductor industry in Taiwan, particularly in the growth of the TSMC.


To this day ITRI has a pivotal position in the digital transformation of the country's semiconductor industry, ensuring a global competitive edge. For example in 2022, ITRI developed its Smart Process System for Advanced Semiconductor Thin Film Equipment. By generating precise data-driven forecasts, the system streamlines semiconductor fabrication by reducing the need for worker expertise when determining optimal parameters. Already implemented by Taiwan industry, the system reduces the adjustment time for semiconductor thin-film manufacturing from one week to two hours, and the development time for new products from three months to one.

Beyond ITRI there is a whole network of other units that aid semiconductor innovation:


National Applied Research Laboratories (NARLabs), is a government-funded research organization that provides R&D services to the semiconductor industry. NARLabs has collaborated with TSMC to introduce the TSMC N16 ADFP (Academic Design Foster Package), a virtual chip design education training kit that is the world's first to be able to connect with FinFET technology in the industry. The training kit can enhance the quality of advanced chip design personnel training in Taiwan.


Under the auspices of SEMI Taiwan, the Taiwan High-Tech Facility Association was created in 2017 to foster collaboration among manufacturers in order to enhance the technical level of high-tech factory facilities and equipment in Taiwan. From an initial 45, it has grown to 129 members, spanning academics, think tanks, and representatives from industry leaders such as TSMC, Winbond, UMC, and AUO.

Since 2021, the organization has held the "Digital Transformation for High-Tech Facilities" forum, to share cross-industry best practices and know-how semiconductor manufacturers can leverage technology like AI and Big Data to improve efficiency, value, and innovation.

Dancing with 400 Partners: Why Taiwan’s Model Digitized Earlier

During a recent semiconductor forum hosted by CommonWealth magazine, TSMC founder Morris Chang was asked about his company's advantage over American rival Intel. His response was simple: "TSMC has learned to dance with 400 partners. Intel has always danced alone."

The reason for this advantage is that TSMC operates as a pure foundry, providing contract manufacturing services to hundreds of different clients. In contrast, Intel has opted for the fabless model, which means they have to handle everything themselves. To remain competitive and continue winning business, TSMC needs to drive for efficiency and maintain a high level of standardization and equalization of processes.

This contract manufacturing model is what Taiwan is known for, and it requires aggressive standardization of processes to keep customers happy. To achieve this, Taiwan IC players embraced digitization at an early stage. They began their digital transformation before competitors and developed their own best practices to match the requirements of their customers.

Fostering a Next Generation of Dance Partners

For decades, Taiwan has been dedicated to nurturing the most exceptional talent in semiconductor engineering, thereby providing local manufacturers with a significant advantage in their digital transformation endeavors. The semiconductor industry has long been considered the top career path and the industry is able to attract the island’s top talent.

In order to rapidly adapt to working with numerous clients and vast amounts of data, Taiwanese semiconductor talent are trained to excel in digitalization, so that they are quickly able to "dance with 400 partners".

"Best in Class" Student: TSMC

TSMC is the "best-in-class" student of the "Taiwan Model," and is clearly at the apex of semiconductor innovation and digital transformation. A rising tide lifts all boats and the whole industry in Taiwan benefits from following the industry leader.

TSMC focuses on five major transformation directions: smart manufacturing, digital supply chain management, high-performance hybrid cloud computing and services, workplace modernization, and team collaboration.

A key component in TSMC's digital transformation is its focus on organizational restructuring and process change. The company has established a fluid organization where employees at each level can directly contact any level of other units to change the transmission method that can only be transferred upwards or downwards based on the organizational level.

TSMC has also been working on developing intelligent management technology to improve decision-making speed. The TSMC digital decision-making platform ranks decisions like transactions in the financial market, where stock transactions are automatically matched on the centralized market trading platform.

They have also introduced technologies such as artificial intelligence, big data analysis, and high-performance computing to upgrade the existing manufacturing system to a smart and precise manufacturing system.

Another key aspect of TSMC's digital transformation is its Open Innovation Platform (OIP), which was launched in 2008. The OIP is an ecosystem that enables silicon innovations worldwide by providing more than 40,000 IP titles, over 38,000 technology files, and over 2,600 process design kits spanning 0.5-micron to 3-nanometer to customers. TSMC works with its partners to address mounting design challenges at advanced technology nodes through early and deep collaboration. The OIP alliance includes 16 EDA partners, six Cloud partners, 37 IP partners, 21 design center alliance (DCA) partners, and eight value chain aggregator (VCA) partners.


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