Can Southeast Asia pitch itself as an ‘all-in-one’ chip hub?

Two forces are driving this surge: the AI wave and an intensifying rivalry between Washington and Beijing that has firms scrambling to diversify the place they make issues. Together, these traits are constructing a regional chip export trade price roughly $258 billion.

But Southeast Asian governments aren’t happy with simply housing a chip foundry or a packaging facility. The area needs to be a single, built-in provide chain proper because the U.S.-China rivalry threatens to separate the sector in two.

In 2025, the Association of Southeast Asian Nations (ASEAN) launched the ASEAN Framework for an Integrated Semiconductor Supply Chain (AFISS). The initiative—a signature deliverable of Malaysia’s 2025 chairship—hinges on every nation enjoying a specialised, complementary position to maneuver up the chip worth chain. 

Now Southeast Asia can cement its position within the world provide chain for semiconductors, particularly as AI demand makes the area’s place extra priceless than ever. “Cultivation of semiconductor provide chains has put the area in the suitable place on the proper time,” says Robert Walker, a analysis fellow on the Lowy Institute’s Indo-Pacific Development Centre. 

Malaysia, Singapore, Vietnam, Thailand and the Philippines have all benefited from the chip surge: Exports of semiconductors and semiconductor elements and parts from Southeast Asia to China and the U.S. reached $42.2 billion and $15.1 billion respectively in 2023.

“Southeast Asia has emerged as a important semiconductor manufacturing hub, notably for meeting, testing and packaging. The area has attracted substantial capital allocation because the pandemic as firms search to diversify provide chains, handle publicity to U.S.-China tensions and construct higher resilience,” Piriya Piriyakrit, senior analyst at BowerGroupAsia, says.

Walker thinks AI provide chains are “hitting their productive limits”—and that the capability crunch that may observe provides Southeast Asia a gap. “As demand outpaces provide, new manufacturing capability will likely be required, and Southeast Asia is effectively positioned to drive that growth throughout semiconductor provide chains, serving to the area transfer up the worth chain and enhance its exports,” he says.

A framework, not a bloc

Southeast Asia is an apparent different for firms pursuing a “China plus one” technique, diversifying their provide chains away from China. 

That is the hole AFISS is supposed to fill. Walker argues that whereas the framework gained’t set up ASEAN as a “unified manufacturing base or single capital allocation vacation spot,” it may nonetheless deepen regional integration and enhance total competitiveness in chips.

Yet ASEAN shouldn’t be the European Union. The bloc emphasizes nationwide sovereignty and non-interference, which implies any framework—even a well-intentioned one—is just pretty much as good as every member’s option to acknowledge it, not to mention implement it.

Chandra Putra, a Jakarta-based economist who has researched the area’s semiconductor sector, calls AFISS a “essentially good thought” to harmonize nationwide agendas and construct a extra clear regional ecosystem. But he cautions that its feasibility “hinges on nations diverging from their nationwide pursuits.”

But Southeast Asian coordination might occur with out ASEAN’s steerage, argues Hans Vriens, co-founder and managing associate of presidency affairs consultancy Vriens & Partners.

“If you take a look at the totally different elements of the availability chain, they’re current in numerous nations. In that sense, Southeast Asia is already taking good care of the entire provide chain as a result of the nations are complementary as capital allocation locations,” he says. Singapore, for instance, focuses on analysis and improvement; meeting, testing, and packaging is extra widespread in Malaysia and the Philippines. 

What issues extra is driving down the prices firms face after they produce throughout borders inside ASEAN, by means of sooner customs clearance, mutual recognition of technical requirements {and professional} {qualifications}, and simpler motion of expert staff, says Arata Kuno, professor of global economics at Asia University in Japan.

The framework may work, Kuno suggests, if the goal is to create a community that hyperlinks members’ strengths whereas staying plugged into world provide chains as a substitute of constructing a self-sufficient bloc. “Insisting on protecting each stage of chipmaking inside ASEAN may backfire and erode competitiveness,” Kuno cautions.

Japan is a warning. Its chipmakers as soon as led the globe in market share, but it held onto a vertically-integrated corporate affairs mannequin, protecting every thing from design to manufacturing in-house.

“That mannequin is commonly cited as one cause their share later declined: it made them slower to reply as demand shifted from reminiscence to logic chips, and to maintain up with hovering capital allocation prices and the rising global division of labor,” Kuno says.

Still, there may be worth in concerted regional coordination. Individually, Southeast Asian nations “can’t match the depth of capital, specialised expertise and the proprietary expertise in locations such because the U.S., China, Europe, and Northeast Asia,” says Andrew Chan Yik Hong, former founding government director of the Malaysia Semiconductor Industry Association.

Beyond wafer fabs

Singapore is the regional chief in semiconductors, internet hosting fabrication vegetation for firms like Micron Technology and GlobalFoundries.

Now Malaysia and the Philippines wish to observe the city-state’s lead and transfer up the worth chain, after many years specializing in back-end manufacturing—meeting, testing and packaging.

Malaysia has been transitioning towards front-end manufacturing and chip design because it launched its National Semiconductor Strategy in 2024.

In September, Manila unveiled a roadmap with bold targets to develop its annual chips and electronics exports to $110 billion by 2030, and transfer past manufacturing and meeting into higher-end operations.

Yet on-the-ground proof of success is slim. Malaysia’s $250 million cope with British chip designer Arm introduced the nation nearer to creating its personal chips, however is at the moment being probed by the nation’s anti-corruption company. A expertise crunch can be a barrier.

On Oct. 26, Reuters reported that Vietnam’s first semiconductor plant will seemingly miss its 2027 goal to start out a trial manufacturing run, with sources citing an absence of expertise on the plant’s proprietor, Viettel.

Fortunately, shifting up the worth chain “doesn’t should imply constructing cutting-edge front-end fabs, which require monumental capital, dependable energy and water, and extremely expert staff,” Kuno says.

The most promising alternative is superior packaging, which has change into more and more central to the efficiency of AI chips, Kuno provides. The outdated view that back-end actions in chipmaking are uniformly low value-added “is not correct,” as superior packaging instructions a lot greater margins than standard meeting and testing.

Piriya argues that the area’s core benefit isn’t from attempting to duplicate Taiwan or South Korea, “however its position as a connector throughout world provide chains.”

“Southeast Asia combines scale, manufacturing expertise, strategic geography and a various set of capital allocation locations. Importantly, shifting up the semiconductor worth chain doesn’t essentially require nations to develop superior chip fabrication capabilities,” she added.

Yet defending the area’s world chip market share is simply the naked minimal, Chan says.

While Micron, Intel, and different firms have had many years to develop their footprint within the area, the higher ambition for the area must be to construct stronger Southeast Asian firms with their very own expertise and regional or world attain.

“Multinational firms introduced capital allocation, expertise and buyer relationships, and supplied a considerable portion of workforce coaching…But attracting FDI and bringing expertise into a rustic doesn’t mechanically generate technological spillovers to native firms,” he says.

“That requires substantial affected person capital, sustained analysis and improvement, entry to clients, and insurance policies that survive adjustments in political management.”