In the midst of persistent Sino-U.S. trade tensions and a growing need to divert Foreign Direct Investment (FDI) away from China, Southeast Asian economies find themselves in a promising position, offering a unique perspective into the evolving landscape of the tech supply chain.
The protracted U.S.-China trade tensions have evolved into a race for technological dominance, prompting significant shifts in FDI flows. Notably, the ASEAN region is witnessing accelerated capacity building in emerging sectors like electric vehicles and the digital economy. What began as a China-plus diversification strategy by multinational corporations (MNCs) seems to be transforming into an ASEAN-centric approach.
ASEAN economies are gaining strategic significance in the evolving trade rivalry, marked by an upsurge in high-profile investments in newer industries. While this presents an opportunity, there is a caveat. The region may face increased scrutiny, making it more susceptible to adverse effects from protectionist policies and tightening rules of origin in free trade agreements by trade rivals.
Presently, ASEAN firms predominantly serve as electronic manufacturing services (EMS) providers in the tech value chain, covering low to medium-tech assembly to high value-added R&D and design. The region’s influence is expanding, especially in high-end tech supply chain activities, as demonstrated by recent investments.
GlobalFoundries inaugurated a microchip fabrication plant in Singapore in September 2023, while Malaysia is set to host the world’s largest 200-millimeter Silicon Carbide (SiC) power fab through Infineon Technologies’ investment over the next five years. Additionally, the ASEAN region’s advanced chip packaging capabilities are gaining importance, offering an attractive alternative for China in the pursuit of smaller and more powerful chips.
Recent announcements, such as Nvidia’s major investments in Malaysia and Vietnam to boost Artificial Intelligence (AI) capabilities, indicate a growing interest in the ASEAN region. This influx of investments has the potential to strengthen the high-end electronics industry ecosystem. Tech giants like AMD also express intentions to invest in AI and diversify supplier concentration beyond Taiwan, highlighting the ASEAN region’s role in this dynamic landscape.
Despite potential exposure to protectionist policies, ASEAN economies welcome positive spillovers from MNC diversification. Survey data reflects a mutual benefit, with companies redirecting investments away from China due to uncertainties stemming from geopolitical tensions. Notably, 40% of surveyed U.S. MNCs express intentions to redirect investments to the ASEAN region. Chinese firms, even with a strong presence in Southeast Asia, view the region strategically, with a significant percentage planning to increase investments.
The State of Southeast Asia Survey suggests that both governments and private sector players recognize the economic potential in maintaining neutrality amid U.S.-China trade tensions. This presents an opportunity for ASEAN economies to thrive in the current tech-focused environment, positioning themselves strategically in the intermediate part of the supply chain—a potential “ASEAN Shield” amidst uncertainties.