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South Korean chaebol Samsung Electronics’s chipmaking division Samsung Foundry needs more government support if it is to effectively compete with the Taiwan Semiconductor Manufacturing Company (TSMC) according to a research report published in Korea. Samsung and TSMC are the only two contract chip manufacturers in the world that are capable of manufacturing semiconductors with advanced manufacturing technologies, and the latter has a commanding lead in the market, with the bulk of global orders flowing through its facilities.
The report was released by the Korea Economic Research Institute which is associated with a business federation, and it pointed out key differences between South Korea and Taiwan such as low tax rates and low salaries to build the argument that Samsung needs help to compete with TSMC.
TSMC Pays Lesser Salaries & Has Lower Tax Rates Than Samsung Outlines Research Report
The report focuses its attention on taking stock of the differences between TSMC and South Korea, to analyze the advantages that the Taiwanese company has due to its location. Its conclusions outline several factors that are advantageous to TSMC, such as employee salaries, tax rates and a steady pool of engineers to choose from.
Over the years TSMC has managed to grow its technological prowess and market share considerably when compared to peers, and it has a significant edge over Samsung especially since the latter entered the chip manufacturing area after TSMC.
The Korea Economic Research Institute argues that the corporate tax rate of 25% in South Korea is significantly higher than the 20% that TSMC has to contend with in Taiwan, and it will still remain higher despite lobbying efforts to bring it down to 22%. The high tax rate is only of Samsung’s problems, as it also faces an unfavorable environment for research and development spending says the research firm.
To build this argument, it says that while TSMC receives a 15% tax credit for R&D investment, a 40% credit for packaging costs and more benefits for grooming engineers within its ranks, Samsung has to satisfy itself with a 2% tax credit for R&D and 1% tax credit for facility investment.
However, the firm notes that while these tax credits are the current scenario, the passage of the National Advanced Strategy Industry Act which will come into effect this month will level the playing field for the tax credits. This Act will increase the research and development tax credits to 30% to 40% and facility investment credits to 6%. As a result, it will provide South Korean firms with significant advantages over their Taiwanese counterparts.
Yet, even though the tax rates will become favorable, TSMC has other advantages that have helped it excel in its industry. According to the research firm, the average wage of a TSMC employee stood at 95 million won last year, while the average wage of a Samsung employee was 144 million won. Additionally, TSMC has access to a strong labor pool, as 10,000 semiconductor engineers were trained in Taiwan last year, compared to the measly 1,400 for South Korea.
Samsung and TSMC are currently racing to bring the 3-nanometer chip manufacturing process node to the market, and while the former was quick to announce mass production earlier this year, it is uncertain if it has managed to secure any major orders for the technology. Manufacturing chips is a costly process and large order sizes allow firms to recover their costs quickly and turn their investments into a profit.