• Many ASEAN countries are offering incentives for companies that invest in the semiconductor value chain
• Global semiconductor sales surpassed USD630 billion in 2024 and will keep growing due to increasing demand
• There are a few challenges to market entrance in ASEAN, such as a lack of regulatory clarity in select markets

ASEAN is collectively the largest global exporter of integrated circuits, although some markets have struggled to move away from assembly-testing-packaging operations which are labour-intensive and offer lower profit margins. Several countries are now investing heavily in the semiconductor value chain in an attempt to attract higher value-add activities. Asian Insiders Managing Partner Jari Hietala examines the opportunities this presents for overseas businesses.

Countries in Southeast Asia have long been integral to the global semiconductor value chain with some nations being involved as early as the 1970s. The sector has also attracted notable foreign investment. For instance, Taiwan’s Advanced Semiconductor Engineering has had a presence in Malaysia since the early 1990s.  

China, Taiwan and South Korea now account for more than half of global integrated circuit exports. Those three countries and Japan hold the majority of the global foundry market share for advanced and mature process technologies. Further down the value chain, the ten ASEAN members play a crucial role in supporting the industry.

The main contribution has been in the form of assembly-testing-packaging (ATP) operations or the manufacturing of less advanced components. Moving away from ATP and up the value chain is necessary to avoid the risk of being left out of the sector entirely.

Foundries are now taking on a greater role in ATP meaning ASEAN-based firms may face declining demand. Meanwhile, changing needs will likely see certain lower-tech components phased out or eliminated in favour of more advanced semiconductors required by AI, IoT and other usage-intensive fields.

Successfully managing this shift will enable ASEAN to capture a larger share of the global semiconductor sales market, which surpassed USD630 billion last year. Some countries are well on their way to advancing up the value chain while others are now making the transition.

What are countries doing?

Singapore

Singapore has successfully incorporated higher value-add capabilities into its value chain and continues to be an attractive destination for foreign investment thanks to incentives, development of key areas and conditions that provide operational stability.  

The country offers tax exemptions for capital expenditure and a concessionary tax rate as well as generous tax deductions for research and development projects. Additionally, Singapore ranks as a global leader in ease of doing business and offers robust intellectual property protection.

A strategic location has also aided Singapore’s efforts to establish itself as a semiconductor hub. These factors have led to it welcoming more manufacturing activities.

Malaysia

Malaysia and Singapore have utilised their complementary strengths as a way to become more attractive. While the latter has built up manufacturing capabilities, the former has become a hub for APT. This has allowed chips to be made and then packaged in relatively close quarters with minimal disruptions.  

The country has begun developing capabilities in both wafer fabrication and chip design, but further investment is needed to make these competitive globally. Developing talent has become a priority for the government if it is to bring in more overseas firms.

A key win for Malaysia came when Infineon Technologies opened the first phase of the world’s largest 200-mm silicon carbide semiconductor plant in Kulim last year. Several incentives are available for foreign companies with a 10-year full tax exemption and partial income tax exemptions potentially available.

Indonesia

A little over a year ago, the Indonesian government announced a desire to become Asia’s next semiconductor hub. A roadmap has since been released by the Coordinating Ministry for Economic Affairs outlining various needs. Overseas knowledge transfers and investment in advanced technologies were mentioned as vital to success.

Developing semiconductor manufacturing capabilities is seen as a way for the country to further its desire to keep downstream processing of natural resources within the country. Indonesia has an abundance of silica sand with this being a major component in silicon wafer production.

The government is set to ban exports of silica sand in 2027, and it is now encouraging investment in domestic semiconductor production facilities.

Thailand

After years of focusing on manufacturing products that are likely to become obsolete in the near future, such as hard drives, the government has rolled out a raft of incentives to attract upstream activities. Corporate tax breaks of up to 13 years can be accessed while the Board of Investment (BOI) is exploring ways to fast-track investments.

These efforts have already paid dividends. The BOI approved 20 new semiconductor investment projects from Taiwanese firms earlier this year.

The Philippines

Semiconductors are the Philippines’ largest export, but most of this still comes in the form of ATP activities. There is potential for the country to move up the value chain and several collaborative initiatives have been launched.

Positive progress is a start, but more work is needed to eliminate challenges that sometimes deter overseas companies from investing. Regulatory challenges, in addition to infrastructure concerns, remain. Incentives for foreign companies are not as attractive as some of its ASEAN neighbours.

Understanding the situation

While most ASEAN nations are actively encouraging investment across the semiconductor value chain, a handful of issues loom large over the industry. First, the region finds itself in the crosshairs of potential tariffs and uncertainty surrounding US-China trade relations.

Countries in Southeast Asia continue to strike a delicate balance between the two parties but ongoing volatility in the short term is possible. Interestingly, Europe is becoming a reliable trade partner to the region with both the EFTA and EU having signed or in talks over free trade agreements. Canada and Australia are becoming more active. ASEAN has significant economic relationships with Japan and South Korea as well.

Another issue is a lack of regulatory clarity in certain markets. Singapore and Malaysia boast a solid framework for overseas organisations. On the other hand, Indonesia, Thailand, the Philippines and Vietnam have barriers to entry. Efforts are being made to remove these, but the process is ongoing.

Final thoughts on the ASEAN Semiconductor Value Chain

The ASEAN semiconductor value chain is evolving with numerous opportunities currently available for overseas companies looking to either enter the region or scale up existing Asian operations. Many countries offer attractive incentives for those wanting to invest.

Additionally, several countries in Southeast Asia require foreign technology and knowledge to achieve their stated semiconductor manufacturing objectives. While there may be some trepidation due to current global trade uncertainty, there is also a risk of missing out on available opportunities.

Working alongside a market entry specialist, such as Asian Insiders, is crucial for navigating these potential obstacles and making the correct decision. Our in-country experts assist with market research, help you understand regulatory issues and ultimately find the best path forward.

Considering investing in the ASEAN semiconductor value chain? Learn more about available opportunities by scheduling a no-obligation call with Jari Hietala, Managing Partner: jari.Hietala (at)asianinsiders.com