Semiconductor Value Chains Against The Backdrop Of Recent Global Development In ASEAN

Although the US and EU have been trying to further bring back semiconductor manufacturing into their regions, strong underlying economic activities in the semiconductor backend and related segments (e.g., PCB and EMS) in ASEAN countries are expected.

Source: Roland Berger

ASEAN countries have already benefited in the history of their economies from the demand for semiconductors and related sectors — especially Malaysia and Singapore have a strong position in the semiconductor value chain.  Historically, ASEAN countries have already been one of the key semiconductors and PCB suppliers globally.

Further  growth  and  demand  for  semiconductors in ASEAN is expected. The increasing geopolitical tensions threaten Chinese semiconductor and PCB supply chains. For instance, the US has been tightening export controls with stricter licensing policies which jolted and paralyse players in China. Additionally (some) Chinese players have been placed on the US trade blacklist “Entity List”, e.g., SMIC and Huawei, to create “China-free supply chains”. Third countries are pulled into geopolitical competition, Taiwan for instance stopped supplying to Huawei. Current geopolitical tensions around Taiwan could further accelerate the developments.

The US and EU have been trying to further bring back semiconductor manufacturing into their regions. However, for the US and EU the focus is expected to be on the front-end of the semiconductor value chain (i.e., building new fabs in the region) – whereas the backend of the semi supply chain is still expected to remain and be focused in Asia.

This is the case due to the higher share of labour costs in the semi-backend (compared to the semi front-end) – lower labour costs in countries in Asia were one key reason to build up these parts of the value chains in this part of the world. Additionally, the know-how in the backend operations has been in Asia for the last decades and, hence, a potential further near-shoring towards EU and US will also be a challenge from a knowhow-perspective.

“The expected growth and development of the semiconductor market will continue to open attractive opportunities for strategic and financial investors in ASEAN. Private and public investments will continue to flow into the sector”, – says Oliver Holtkemper, Senior Manager Investor Support in Roland Berger Southeast Asia.

ASEAN countries have an increasingly strong manufacturing foundation. The emerging economies of ASEAN have long been a destination for global manufacturers seeking abundant low-cost labour.

Singapore, Thailand, and Vietnam also served as a hub for high-value R&D and trade-supporting services. ASEAN also stands out as a growing and dynamic domestic market, gaining importance not just for the operations but also for the demand in the long run.

The ASEAN region represents one of the world’s most important growth markets with combined population of >660 million. Two-thirds of the population are of working age with number of middle-income and affluent households expected to grow 5 percent per annum.

During the COVID pandemic ASEAN countries were a reliable trade partner for EU and US markets – fewer sudden lockdowns and related challenges than for example in China. The ASEAN governments have made significant progress to reduce barriers to flows of goods and capital in order to incentivise Foreign Direct Investments (FDIs).

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