ASEAN Overtakes Global Electronics Parts Manufacturing

The semiconductor and electronics parts manufacturing market is poised for a compound annual growth rate (CAGR) of 7.1% from 2024 to 2029. This growth is fueled by several key trends: the miniaturization of components, the integration of emerging technologies in the Industrial Internet of Things (IIoT), and the advancements in communication enabled by 5G. These factors have revolutionized electronic component design and assembly. Furthermore, the widespread adoption of smartphones, driven by the increasing availability of 5G and growing consumer demand for digital technologies, presents new opportunities for market participants. For example, smartphone penetration, as a percentage of total mobile connections, is projected to rise from 75% in 2021 to 84% by 2025, highlighting the significant growth potential in this segment.

In recent years, under the influence of factors such as China’s weakening demographic dividend, rising labor costs, industrial upgrading, and Sino-US trade frictions, companies from various countries have begun to gradually shift their production capacity in China to Southeast Asia, where costs are lower. In terms of consumer electronics, among the major countries in Southeast Asia, Samsung mobile phones occupy a leading position and have a strong influence in the Southeast Asian market. Among them, Samsung Group’s investment in Vietnam has exceeded 20 billion US dollars, and it has built Samsung’s largest production base in the world locally, contributing 1/3 of Samsung’s global electronic product shipments.

The Southeast Asian market has witnessed a surge in the presence of major consumer electronics companies. This trend has been particularly evident since the 2018 US-China trade tensions. Apple, for example, has significantly expanded its manufacturing footprint in the region, with the number of plants in Vietnam, Malaysia, Singapore, and Thailand increasing from 62 to 97. This expansion reflects a broader shift towards diversification of production locations. Beyond Southeast Asia, India’s young and growing population, often referred to as the “demographic dividend,” has made it an attractive destination for Apple. The number of Apple factories in India has grown from 7 to 11, with production already reaching 6.5 million iPhones in 2022. Estimates suggest that by 2025, India could account for as much as 25% of Apple’s global iPhone production.

The trend extends beyond smartphones. Electric vehicle (EV) manufacturers are also establishing a foothold in Southeast Asia. Tesla has entered the Singapore and Thailand markets and is reportedly close to securing a deal with Indonesia for a new production plant with a projected annual capacity of one million units. Similarly, BYD has confirmed plans for a new factory in Thailand, scheduled to begin operations in 2024 with a production capacity of 150,000 electric vehicles per year. This influx of global brands highlights Southeast Asia’s growing importance in the global electronics manufacturing landscape. The region’s favorable demographics, skilled workforce, and strategic location are attracting major players across various electronics segments.

So, what makes the ASEAN supply chain so special? ASEAN countries choose FDI-driven industrialization and can be categorized into 3 groups. Tier-1 is Singapore acting as the technology node. Tier-2 is ASEAN-4 (Malaysia, Thailand, Indonesia, and the Philippines) as newly industrializing economies with a mixture of competitiveness. Tier-3 is CLMV (Cambodia, Laos, Myanmar, and Vietnam), which is attractive for companies focusing mainly on cost reduction. The electronics industry is internationally fragmented but well integrated in global and regional networks. ASEAN becomes a perfect match. It is the largest export industry accounting for 29% of the total exports in the region in 2022, varying between 20 to 50 percent per ASEAN country. The industry drives regional economic growth by contributing approximately USD 268 billion to regional GDP (8.5% of GDP), creating more than 2.4 million jobs in 2021.

The current supply chain reconfigurations are driven by two factors, one is political and refers to high-tech decoupling and trade barriers due to the US-China trade war. The other is economic, relating to cost increases in China. Accordingly, MNEs look at different categories of ASEAN countries to more broadly diversify their own competitive advantages. To adapt to high -tech decoupling, chip companies increased their investment mainly in the Singapore-Malaysia-Indonesia triangle. During chip fabrication shortages due to the coronavirus pandemic, American American companies Global Foundries and Micron, Germany’s Infineon and Siltronic, and the Taiwanese Semiconductor Manufacturing Company have quickly and greatly expanded to those countries. By contrast, to reduce production costs, other leading firms moved to CLMV (Cambodia, Laos, Myanmar and Vietnam). For instance, Taiwanese company Foxconn and Chinese CoreTek, major electronics manufacturing services provider for Apple, are relocating to Vietnam.

Article by: Prof. Suwan Juntiwasarakij, Ph.D., Senior Editor & MEGA Tech