How TSMC's Japan Factory Completed in 2 Years, Achieving Speed Samsung and Hynix Couldn’t [Business & Issues]

28 months. When Taiwan's TSMC, the world's largest foundry (semiconductor contract manufacturing) company, unveiled its 'first' factory in Kumamoto Prefecture, Japan, on the 24th of last month, the world was captivated by the unprecedented 'speed.' It took only 28 months from TSMC's initial announcement of the factory construction plan in Japan in October 2021 to the opening ceremony last month. Considering that building a semiconductor factory usually takes more than five years, this was truly 'lightning speed.' The global semiconductor industry praised this achievement as a result of TSMC, Sony, the central government, and local governments like Kumamoto Prefecture all coming together as one team, and began benchmarking it.

[Image source=Reuters Yonhap News]

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TSMC announced plans to build a foundry factory in Kumamoto Prefecture, Japan, in October 2021 and started construction just six months later in April 2022. Generally, building a semiconductor factory requires securing land, government ministries and local governments to establish infrastructure plans, and time for stakeholder consultations. The industry usually estimates this period to be about two years, but only if there are no obstacles.

SK Hynix announced in February 2019 that it would invest 120 trillion won to build a factory in the Yongin semiconductor cluster, but groundbreaking was postponed more than five times. Ultimately, the factory has not started construction for five years due to issues such as power and water supply.

TSMC was able to start construction faster than expected because the Japanese government and local governments focused on 'speed' and exerted strong momentum. The government and parliament eased regulations and drastically reduced permit procedures to prioritize TSMC's factory construction. In particular, the government quickly resolved financial issues by including subsidies for TSMC in the budget before construction began. They promptly prepared a semiconductor support law, passed amendments at the December 2021 extraordinary Diet session, and implemented it from March 1, 2022, just before construction started, based on which they provided subsidies exceeding 600 billion yen to TSMC.

The first TSMC factory in Kumamoto, Japan
[Image source=AP Yonhap News]

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Local governments also responded swiftly. Kumamoto Governor Ikio Kabashima said in a January 2022 interview with Nihon Keizai Shimbun, just before construction began, "In November 2021, I directly requested Prime Minister Fumio Kishida and Economy Minister Koichi Hagiuda to prepare measures for securing manpower and traffic congestion," adding, "The prefecture has also established a semiconductor industry strengthening promotion headquarters led by me to ensure all agencies can respond quickly to challenges."

TSMC also plans to build a second factory in Japan. Based on rapid support from the government and local governments, construction is scheduled to start within this year, aiming for operation by the end of 2027. Drawing on experience from building the first factory, the Japanese government decided in October last year to ease regulations by shortening the usual one-year procedure for converting farmland for semiconductor factories to four months. This measure was taken to address complaints that securing industrial land in farmland-rich Kumamoto was difficult and procedures took too long.

Kumamoto City also reportedly moved busily to secure industrial land last year when another Taiwanese company requested it while TSMC was still considering building the second factory. In April last year, when representatives from the Taiwan Electronic Equipment Industry Association (TEEIA) visited Kumamoto City and complained, "We want to enter the market but there is no land," the city directly confirmed industrial land demand and created an environment to allow factory construction, according to Japanese media reports.

The construction site of TSMC's Kumamoto factory operated virtually 24/7, 365 days a year, bustling day and night. On-site workers worked in three shifts, with as many as over 7,000 people involved in the work. Asahi Shimbun reported, "Locals even said the only day construction stopped was New Year's Day."

The industry generally agrees that such a large-scale speed race in semiconductor factory construction is not easy. In South Korea, working more than 52 hours per week is illegal under the Labor Standards Act, and under the Serious Accident Punishment Act, if a death occurs during overnight work, the project owner and construction company can face criminal charges, so construction sites operate with these considerations. In the case of TSMC's other factory construction site in Arizona, USA, completion was originally planned for this year but was delayed by one year due to worker shortages and management issues.

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During this speed race, TSMC again received support from the government and local governments. The government, led by the Minister of Economy, Trade and Industry, reportedly frequently checked whether the Kumamoto factory construction was proceeding as planned and if there were any setbacks. In October 2022, Economy Minister Yasushi Nishimura inspected the construction site. At that time, Yuichi Horita, president of TSMC's local subsidiary JASM, said, "The foundation work is almost complete, and fab construction is progressing rapidly," adding, "We plan to complete the construction, which usually takes 2-3 years, within 1.5 years, and it is proceeding as scheduled."

Infrastructure development around the factory must also proceed simultaneously during construction. From transportation infrastructure such as roads, railways, and airports to industrial complex development and housing for factory workers, all must be developed together to avoid delays during construction and enable immediate operation after completion. The surrounding area undergoes comprehensive changes. When traffic congestion occurred due to construction site vehicles and local residents' cars crowding narrow roads, local governments quickly expanded roads. Some local governments like Tanamashi outsourced industrial complex maintenance to the private sector to speed up progress, and Kumamoto City sold public land to the private sector for housing sites for employees of TSMC-related companies.

TSMC's establishment of the joint venture JASM with Japan's leading companies Sony and Toyota Motor for the Japanese factory construction is also credited with helping build the factory quickly. According to Bloomberg News, TSMC expressed its intention to enter Japan on the condition of collaborating with Sony to the Ministry of Economy, Trade and Industry, which was trying to attract the factory, in 2021. Both the ministry and TSMC persuaded Sony simultaneously, leading Sony to join the project.

[Image source=AFP Yonhap News]

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Kumamoto, where TSMC's first Japanese factory was built, is a region where Sony has operated a semiconductor factory since 2001. Sony was the first to identify the site for TSMC's Kumamoto factory. Three months before TSMC announced its factory construction plan, in July 2021, Sony expressed its intention to purchase land in Kikuyo Town, Kumamoto Prefecture, and reportedly began preparing the land for the factory site from September of the same year. Japanese media reported that local residents initially thought the land was for a Sony factory and only learned about TSMC's factory about two months later.

Sony's local public-private infrastructure also proved effective during factory design and construction. The know-how gained from operating Sony's factory in the Kumamoto industrial complex, including development, building permits, water intake, and drainage issues, was incorporated into the TSMC Kumamoto factory construction site.

Water supply, a key issue in semiconductor factory construction, also adopted Sony's established approach. Since 2003, Sony has resolved water conflicts by cooperating with local governments and farmers through the 'Groundwater Recharge Project.' Because Kumamoto is a farmland-rich area, conflicts with farmers over groundwater use were likely, but during the off-season, Sony bore the costs to supply water to rice paddies, resolving the issue. Based on this, TSMC was able to secure Kumamoto's volcanic bedrock water, advantageous for ultrapure water production.

Nihon Keizai stated, "Sony's long-standing trust and know-how with the local community support the semiconductor industry's agglomeration."

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