Southeast Asia emerges as chip hotspot amid US-China tensions

There is growing excitement in the semiconductor industry in Southeast Asia.

 Several countries in the region, including Malaysia, Vietnam, Thailand, Singapore, and India, are trying to boost their profiles and climb up the value chain in the global chip industry. Investment is largely a side-effect of US-China tensions and a widespread move to diversify the chip supply chain. 

The region is witnessing the introduction of several government initiatives and investments from prominent global chip companies.  Malaysia recently announced plans to build a 1 million square foot IC design park in Penang.  Singapore is investing in building a semiconductor ecosystem in an effort to grow its manufacturing by 50% by 2030. Indonesia is offering tax benefits to semiconductor players, which it has classified as a priority area. India launched India Semiconductor Mission to “build a vibrant semiconductor and display ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design.”

This investment by different governments is complemented by the investments by several major semiconductor companies. Two years ago, Intel announced an investment of $7 billion in Malaysia to grow its already existing operations in the country. In addition, Neways, partner to ASML, a prominent chip gear maker, recently announced that it will build a new manufacturing unit in Klang in Malaysia. Samsung invested $3.3 bn in Vietnam to manufacture chip components in 2022. These investments, along with the countries offering significant benefits, are likely to alter the balance of the global chipmaking ecosystem. 

“Southeast Asian nations like Malaysia, India, and Vietnam are increasingly focusing on the chip industry, leveraging their growing populations and economic potential,” says Ivan Lam, Senior Analyst at Counterpoint Research. 

Growing opportunities 

Several market forces are aligning to create never-before semiconductor opportunities for countries in the region. The changing geopolitical equation between the US and China is arguably the biggest opportunity as the countries look to diversify the chip supply chain away from China. 

The two countries are in a race to develop advanced chips required for new technologies, like AI. Both countries are spending heavily on developing their domestic chip markets and adding resilience to their global supply chains. The countries in the SEA region hope to benefit from the growing geopolitical tensions and growing realization in several countries to bring down dependence on Taiwan for chips.

The growing demand in the post-COVID-19 pandemic world revealed weaknesses in the global supply chains, which led to a keen desire in several countries to develop their own supply chains. Rising adoption of new technologies like generative AI and the expanding 5G coverage is also likely to fuel the demand for chips for several years.

The SEA region offers several advantages, including the growing digital economy, which is driving the demand for more advanced chips. The tax benefits offered by several governments in the region, along with low labor costs, make SEA an attractive destination for companies to set up chip units.

Who’s the fairest of them all?

While the global semiconductor market is massive and arguably has space for everyone, some countries in the region are ahead of others. “Vietnam, with its export-oriented manufacturing focus and proximity to China's industry chain, stands out. To capitalize on this, it needs to enhance its infrastructure and stable policies,” says Lam. 

“India, on the other hand, is unique with its large domestic market, but needs to address economic and infrastructural challenges to attract more suppliers. Geopolitical factors undoubtedly play a significant role in shaping India's manufacturing landscape. This includes considerations such as trade relations, geopolitical tensions, and global supply chain dynamics. India's strategic positioning amidst evolving geopolitical scenarios influences decisions regarding trade policies, international alliances, and investments. Navigating these factors effectively is critical for India to assert its position in the global manufacturing arena and capitalize on emerging opportunities while mitigating potential risks,” adds Lam.

Singapore also comes with formidable strengths which are helping it to position itself as a chipmaking destination. “If we just focus on chip ‘making,’ then Singapore is the one to provide a more well-established environment for chipmaking. Building chips needs stable water and power supply; it also needs various component/materials suppliers. Compared to other countries in SEA, Singapore has more strength in it,” says Helen Chiang, Semiconductor Research Lead, IDC Asia Pacific.

Malaysia already has a significant presence in the semiconductor industry, especially in packaging, assembly, and testing services. It is also the world’s sixth-largest exporter of semiconductors. Now, it looks to grow its capabilities in other more lucrative areas of the chip industry. 

“Malaysia and Vietnam have built some foundations in developing semiconductor assembly and testing. In order to build more opportunities, both of them are investing in the IC design sector,” says Chiang. On the other hand, India is in the initial stage of the market. The country has come up with a $10 billion incentive for chip makers to set up manufacturing units in the country. 

Close to Southeast Asia, Japan recently approved an additional $3.9 billion as a subsidy for Rapidus, a startup established in 2022 by the Japanese Government and several companies, including Toyota and Sony, among others. The company is on track to start producing 2nm process node advanced chip in 2027. Several prominent chip manufacturers, like TSMC and Micron, have recently announced plans to start producing chips in the country.

Speed breakers

Even as the chipmaking industry continues to grow, the SEA countries face several challenges. “Challenges such as legal frameworks, regulatory stability, and infrastructure development remain,” says Lam of Counterpoint Research. Another major issue is a lack of skilled professionals, which is likely to impact the growth of the chip industry in the region.

The growth of the semiconductor industry in the region is largely dependent on large chip manufacturers like Intel investing and setting up units here. This is not true for South Korea, which is home to Samsung and SK Hynix, both major players in the global chip industry.

“SEA faces great opportunity in the semiconductor market after geopolitical tension, but building the full supply chain is still a challenge for the region,” says Chiang of IDC. 

Impact on Taiwan

Taiwan is the world’s largest producer of chips and opinions are divided whether the growth of the chips ecosystem in the SEA region will impact Taiwan’s growth.

“Strategic collaborations with Southeast Asian countries could benefit Taiwan through a diversified talent pool, while these nations could gain from technology transfer, increased employment, and upskilling of their workforce. Such collaborations could lead to stronger economic ties and mutual growth in semiconductor expertise and infrastructure development,” says Lam. 

“We believe Taiwan will lead the semiconductor industry for a long time. Semiconductor is a capital-intensive and tech-intensive industry; the entry level is very high, especially on the foundry side. SEA will play a more important role in the assembly/testing sector after the geopolitical tension, but the portion is still small, also, in terms of technology, SEA cannot cover much on advanced packaging technology so far, we believe it still takes time for SEA to grow its semiconductor industry,” says Chiang of IDC.

Gagandeep Kaur is an independent journalist and founder of Deepworkz Media Services.

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