The Semiconductor Gambit: How India-Japan's Tech Alliance Will Reshape Global Chip Supply Chains

In this explainer, Asia Pacific Analyst Soojin Jang examines how the India-Japan Digital Partnership 2.0 and semiconductor collaboration emerging from PM Modi's recent visit represents a fundamental shift in global chip manufacturing, creating new competitive dynamics and investment opportunities that could challenge existing market leaders. 

Source: The Independent  

Executive Summary 

• The India-Japan semiconductor alliance represents the most significant disruption to global chip supply chains since Taiwan's emergence as a manufacturing hub in the 1990s. Japan's commitment to transfer advanced semiconductor equipment technology to India, combined with India's cost advantages and growing domestic market, creates a new axis that could capture 15-20% of global semiconductor assembly and testing by 2035. 

• With China accounting for 75% of global assembly and testing, the India-Japan corridor offers multinational companies their first viable alternative for large-scale diversification. 

• This shift creates immediate opportunities in equipment supply, materials sourcing, and downstream applications, while forcing strategic recalculations for companies currently dependent on concentrated Asian supply chains. 

  
  

The Strategic Context: Why Semiconductors Matter 

The global semiconductor industry's concentrated geography has become its greatest vulnerability. Taiwan produces 90% of the world's most advanced chips, while China dominates assembly and testing operations. This concentration has created systemic risks that cost global industries over $500 billion in lost revenue during the 2020-2022 supply shortages. Japan and India both, in part, present a strong contender to this supply chain concentration. 

Japan possesses critical upstream capabilities leveraging their expertise in silicon wafers and photoresists; they remain a key contender in the semiconductor supply chain.  However, Japan's domestic chip production has declined from 50% global market share in the 1980s to just 6% today, primarily driven by high labor costs, ageing population and limited domestic demand. Thus, India presents a solution – with its increasingly skilled population and large domestic market. The semiconductor sector gained strategic priority status in India with the December 2021 launch of the India Semiconductor Mission and its accompanying $10 billion PLI scheme, marking a decisive shift toward domestic chip manufacturing. 

The Partnership Framework: Beyond Traditional Tech Transfer 

The India-Japan semiconductor collaboration goes far deeper than typical technology transfer agreements. Modi and Ishiba's visit to Tokyo Electron's semiconductor equipment facility in late August 2025 wasn't ceremonial—it signaled Japan's commitment to relocating critical manufacturing capabilities to India. 

Tokyo Electron and other Japanese equipment manufacturers will establish Indian operations not just for assembly, but for complete production of semiconductor manufacturing tools. Unlike China's model of primarily handling final assembly, the India-Japan partnership creates an integrated supply chain covering raw materials processing, equipment manufacturing, chip fabrication, and final assembly. This vertical integration reduces dependency risks while creating cost efficiencies. 

Both countries are establishing joint intellectual property protection mechanisms and technology sharing protocols that allow for genuine technology transfer rather than mere licensing agreements. This creates sustainable competitive advantages rather than temporary cost arbitrage. Furthermore, deepening ties will ensure that the partnership stays insulated from the changing world order.  

Market Disruption: The New Competitive Landscape 

Global semiconductor companies are already initiating pilot programs to shift assembly and testing operations from China to India. Applied Materials has announced a $97 million Indian facility, while Advanced System in Package Technologies (ASIP) has partnered with South Korean Advanced Packaging and Test (APACT) to establishing operations in Hyderabad. These moves signal the beginning of a broader migration that could relocate the annual production capacity from China to India. India's growing electronics market—expected to reach $300 billion by 2026—creates natural demand for domestically produced semiconductors. This captive market provides revenue security for Japan making large-scale investments economically worthwhile. 

The partnership enables the emergence of new semiconductor champions. Indian companies like Tata Electronics and Vedanta are leveraging Japanese technology to compete directly with established Taiwanese and Korean manufacturers. Companies establishing operations within the India-Japan semiconductor corridor can charge premium prices to customers seeking supply chain diversification. This "resilience premium" will create substantial additional revenue opportunities. 

The India-Japan semiconductor partnership represents more than incremental supply chain diversification—it's a fundamental restructuring of how the global chip industry operates. Companies that recognize this transformation early and position themselves appropriately will capture disproportionate value as new competitive dynamics emerge. 

For business leaders, the question isn't whether this partnership will reshape the semiconductor landscape—it's whether their organizations will be positioned to benefit from or be disrupted by this transformation. The window for strategic positioning is open now, but it won't remain so indefinitely. 

For companies evaluating semiconductor supply chain strategies or investment opportunities within the India-Japan partnership, comprehensive due diligence should incorporate technical feasibility, market positioning, and long-term competitive dynamics specific to their technology requirements and market exposure.  To know more about how we can help you further your objectives, please email us at ceo@northstar-insights.com