Southeast Asia is seeking to turn a surge in semiconductor investment into an integrated regional supply chain, as demand linked to artificial intelligence and tensions between the United States and China drive companies to diversify manufacturing.
The region’s chip export industry is now worth roughly $258 billion, helping countries including Vietnam and the Philippines move up the World Bank’s income rankings. Malaysia, Singapore, Vietnam, Thailand and the Philippines are among those to have benefited from the expansion.
Exports of semiconductors, parts and components from Southeast Asia to China reached $42.2 billion in 2023, while exports to the US stood at $15.1 billion.
The growth has been fuelled by companies pursuing a “China plus one” strategy, spreading production across additional countries to reduce exposure to supply-chain disruption and US-China tensions.
In 2025, the Association of Southeast Asian Nations launched the ASEAN Framework for an Integrated Semiconductor Supply Chain, or AFISS, under Malaysia’s chairmanship. The initiative is intended to encourage member states to develop complementary roles across the industry rather than compete to duplicate every stage of chip production.
“Cultivation of semiconductor supply chains has put the region in the right place at the right time,” said Robert Walker, a research fellow at the Lowy Institute’s Indo-Pacific Development Centre.
Walker said pressure on existing AI supply chains could create further opportunities for Southeast Asia as demand outstrips available capacity and new production is required.
Piriya Piriyakrit, senior analyst at BowerGroupAsia, said the region had become an important semiconductor manufacturing hub, particularly in assembly, testing and packaging. She said investment had increased since the pandemic as companies sought greater diversification and resilience.
ASEAN framework faces national interests test
AFISS is not intended to create a single manufacturing base or investment destination comparable with a more closely integrated bloc. Its success will depend on countries co-ordinating their policies while retaining control over their own industrial strategies.
Chandra Putra, a Jakarta-based economist who has researched the sector, described the framework as a “fundamentally good idea” for aligning national agendas and creating a more transparent regional ecosystem. However, he said its feasibility “hinges on countries diverging from their national interests”.
Hans Vriens, co-founder and managing partner of government affairs consultancy Vriens & Partners, said co-operation could develop through existing commercial links even without strong central direction from ASEAN.
Singapore has focused on research and development and hosts fabrication plants operated by companies including Micron Technology and GlobalFoundries. Malaysia and the Philippines have traditionally concentrated more heavily on assembly, testing and packaging.
Arata Kuno, professor of international economics at Asia University in Japan, said practical measures such as faster customs clearance, mutual recognition of technical standards and qualifications, and easier movement of skilled workers could be more important than creating a self-contained regional industry.
He warned that requiring ASEAN countries to cover every stage of chipmaking could damage competitiveness. Japan’s former vertically integrated model, in which companies kept design and manufacturing in-house, was often cited as one reason the country’s market share later declined, he said.
Advanced packaging offers route up the value chain
Malaysia has been seeking to expand into front-end manufacturing and chip design since introducing its National Semiconductor Strategy in 2024. The Philippines unveiled a roadmap in September setting a target of $110 billion in annual chip and electronics exports by 2030, while also aiming to move beyond manufacturing and assembly.
Progress remains uneven. Malaysia’s $250 million agreement with British chip designer Arm has brought it closer to producing its own chips, but the deal is being investigated by the country’s anti-corruption agency. A shortage of skilled workers is another obstacle.
Vietnam’s first semiconductor plant is also expected to miss its target of beginning trial production in 2027, with a lack of experience at owner Viettel cited as a reason.
However, moving up the value chain does not necessarily require Southeast Asian countries to build the most advanced fabrication plants, which demand large amounts of capital, reliable supplies of power and water, and highly skilled staff.
Kuno said advanced packaging could provide a more realistic opportunity. The process has become increasingly important to the performance of AI chips and can generate higher margins than conventional assembly and testing.
Piriyakrit said Southeast Asia’s advantage lay not in trying to replicate Taiwan or South Korea, but in acting as a connector between global supply chains through its manufacturing experience, geographical position and range of investment destinations.
Andrew Chan Yik Hong, former founding executive director of the Malaysia Semiconductor Industry Association, said the region ultimately needed to develop stronger home-grown companies rather than rely solely on multinational investment.
“Multinational companies brought investment, technology and customer relationships, and provided a substantial portion of workforce training…But attracting FDI and bringing technology into a country does not automatically generate technological spillovers to local companies,” he said.
That would require “substantial patient capital, sustained research and development, access to customers, and policies that survive changes in political leadership”, Chan added.
