• We assess ASEAN’s potential in semiconductor manufacturing, in the context of the Covid pandemic, China-US tensions, global semiconductor race, and regional free trade expansion

• Singapore is best positioned in this region to attract semiconductor FDI • Malaysia has the potential to move up the value chain, from chip assembly and testing to fabrication

• American firms currently are the main investors in ASEAN’s semiconductor industry

• South Korean and Taiwanese firms are likely to expand their footprints in the years ahead



Covid pandemic: The Covid pandemic has exposed the vulnerability of global production networks during crisis, prompting companies to strengthen their supply chains. According to a survey conducted by McKinsey in 2Q 2020, 93% of companies plan to increase the resilience of their supply chains after the pandemic, including dual sourcing of raw materials (53%), increasing inventory of critical products (47%), near-shoring (40%), and regionalizing supply chains (38%).

The impact of Covid on global semiconductor supply chains is relatively moderate. Taiwan and South Korea, the world’s major chip production bases, have managed the Covid crisis relatively well and avoided serious disruptions in their supply chains. Still, considering the risks of other future shocks, the fact that global semiconductor production is highly concentrated in a handful of countries warrants a strategic review.

China-US tensions: The geopolitical tensions between China and the US also prompt companies to reassess supply chains. Some companies seek to adopt the ‘China+1’ strategy, maintaining China as the
primary production base, while increasingly looking for additional production locations. A survey by PwC and AmCham in 2019 showed that 64% companies plan to diversify their supply bases due to the China-US trade dispute. Semiconductors are a focus area of China-US tensions. The US raised tariffs on the imports of China-made semiconductors during the first phase of the trade war in 2018. It also restricted
the key technology supply to Huawei and SMIC through the entity list. These measures affected the foreign semiconductor firms that produce in or export to China. TSMC, UMC, Samsung, SK Hynix, Intel, Micron all have production facilities in China. According to IC Insights, of the USD22.7bn worth of ICs manufactured in China in 2020, foreign companies produced USD14.4bn, accounting for 64%.


Global semiconductor race: The major countries including China and the US are racing to increase semiconductor investment, in the context of the surge in global chip demand and growing importance of the semiconductor sector. In Southeast Asia, Thailand approved tax incentives for semiconductor investment in July, granting a 10-year corporate income tax exemption for investment in wafer fabs, and an 8-year tax exemption for the assembly, testing, and advanced printed circuit board projects
with machinery investment of at least THB1.5bn. Vietnam has set ambitious targets for building a digital economy, increasing its GDP contribution to 20% by 2025 and 30% by 2030. To achieve these targets, part of the plan is to shift into the high value-added electronics manufacturing, including semiconductors.

Regional free trade: Free trade continues to be promoted in Asia. The Regional Comprehensive Economic Partnership (RCEP), which covers the ASEAN-10 countries, China, Japan, South Korea, Australia and New Zealand, was signed in November 2020 and is expected to take effect next year. Measures under the RCEP, such as unified rules of origin and common rules on intellectual property, will help to further lower
the costs of sourcing and exports and reduce the uncertainties on high tech investment. This will likely make it easier for MNCs to build regional supply chains that leverage each country’s advantages, e.g., distributing wafer fabrication in countries with mature manufacturing capabilities like Singapore, and distributing chip assembly and testing in countries with low labor costs like Vietnam.