Friendshoring the Future of Chips

The semiconductor industry, once built on hyper-optimized, just-in-time supply chains stretching from Silicon Valley to Taiwan, is experiencing its most profound realignment in decades. What started as a scramble to secure chips during the pandemic has now turned into a full-scale strategic shift. The concept of "friendshoring"—moving supply chains to politically aligned and economically stable nations—is not just corporate risk management; it is a necessity.

Southeast Asia is emerging as a key player in this new order. With deep expertise in back-end semiconductor processes, competitive labor costs, and strategic geographical positioning, the region is now an essential piece of the global semiconductor puzzle. However, while the opportunity is real, so are the challenges. The semiconductor industry demands precision, massive capital investment, and an ecosystem of suppliers that takes decades to cultivate. Can Southeast Asia move beyond its traditional role and establish itself as a true semiconductor powerhouse?

Southeast Asia: From Support Act to Center Stage

For years, Malaysia, Vietnam, and Thailand have played supporting roles in the global semiconductor supply chain, primarily handling assembly, testing, and packaging (ATP). These processes, while critical, are lower-margin and often overshadowed by the more complex and lucrative front-end manufacturing done in Taiwan, South Korea, and the U.S.

However, as companies rethink their supply chains, the region is getting a fresh look—not just for ATP, but for broader semiconductor operations. Governments are offering incentives, foreign investors are taking notice, and the groundwork is being laid for Southeast Asia to move further up the value chain.

Malaysia: A Semiconductor Stronghold Ready for More

Malaysia has long been a heavyweight in semiconductor ATP, accounting for 13% of global back-end semiconductor production and contributing 5.8% to the country’s GDP. Penang, often dubbed the "Silicon Valley of the East," has attracted industry leaders such as Intel, Micron, and Infineon, and the government has ambitions to expand its footprint beyond ATP into IC design and wafer fabrication.

One of Malaysia’s biggest assets is its highly skilled workforce. Over 50% of its manufacturing workforce holds technical certifications, making it well-positioned for more advanced semiconductor roles. However, while Malaysia is investing heavily in R&D, transitioning into high-end fabrication will require massive capital investments and long-term partnerships with global foundries. [1]

Vietnam: Chip Assembly Boom, But What Comes Next?

Vietnam is one of the fastest-growing semiconductor players in the region, with companies such as Hana Micron and Amkor Technology expanding their chip packaging and testing facilities. The Vietnamese semiconductor market is projected to reach $28.8 billion by 2030, driven by 7.4% CAGR growth.

Vietnam’s appeal lies in its cost competitiveness and strong government incentives for foreign tech investments. However, it still faces an uphill climb in developing a deep semiconductor talent pool and the high-tech infrastructure needed for advanced manufacturing. Unlike Malaysia, which has an established semiconductor ecosystem, Vietnam is still in the early stages of its transformation. [2]

Thailand: Late to the Party but Catching Up Fast

Thailand has been slower to attract semiconductor investments compared to its neighbors, but it is aggressively positioning itself to become a semiconductor hub. The Thailand Board of Investment (BOI) has prioritized semiconductor expansion, aiming to secure 500 billion baht in semiconductor investments by 2029, with a strong focus on power electronics and high-value chip manufacturing.

Thailand’s challenge is not ambition but execution. Unlike Malaysia and Vietnam, it does not yet have a well-established semiconductor supply chain. The country will need substantial infrastructure investment and regulatory incentives to lure high-end semiconductor players.

China’s Changing Role and the U.S. CHIPS Act Ripple Effect

The semiconductor industry’s shift toward friendshoring is, in many ways, a direct result of China’s evolving role in global manufacturing. China’s overall manufacturing dominance has surged, with its global share rising from 4.9% in 1995 to nearly 32% in 2023. However, in semiconductors, China still lags behind the U.S., Taiwan, and South Korea in advanced chip manufacturing.

The U.S. has placed strict export controls on semiconductor technology, limiting China’s access to cutting-edge chipmaking tools. As a result, companies looking to maintain uninterrupted access to Western markets and technology are diversifying their supply chains away from China—and Southeast Asia is the primary beneficiary.

Meanwhile, the U.S. CHIPS and Science Act, which allocated $39 billion to boost American semiconductor production, is reshaping the industry on a global scale. Major players like Intel, TSMC, Samsung, and Micron are among the primary recipients of this funding. However, rather than reshoring all semiconductor production to the U.S., many companies are adopting a hybrid approach—keeping leading-edge fabrication stateside while diversifying ATP and mid-tier chip production into friendlier locations like Southeast Asia. [3]

Challenges That Could Slow Southeast Asia’s Rise

While Southeast Asia’s semiconductor ambitions are well-founded, execution is not guaranteed. Several critical challenges must be addressed for the region to truly become a semiconductor powerhouse:

1. Infrastructure: More Than Just Factory Space

High-end semiconductor manufacturing requires stable power, advanced logistics, and a clean supply of ultra-pure water. Many Southeast Asian nations are still developing the necessary infrastructure, and without it, attracting leading-edge fabrication will remain difficult.

That said, some regions are getting creative. Sarawak, a Malaysian state on the island of Borneo, is leveraging its 70% green energy mix to attract high-tech investors. By 2030, it plans to run entirely on renewable energy, positioning itself as an ideal location for sustainability-focused semiconductor firms.

2. Talent: Workforce Readiness is Key

Advanced chip manufacturing is one of the most complex engineering fields in the world, requiring highly trained scientists, engineers, and technicians. While Malaysia and the Philippines have strong technical education systems, Vietnam and Thailand still face a talent shortage in semiconductor design and fabrication.

Addressing this gap will require government and private sector collaboration to develop semiconductor-specific training programs. Without the right talent pipeline, Southeast Asia risks becoming a secondary player rather than a leader in the next phase of semiconductor growth.

3. Political Stability: Walking the Tightrope

Southeast Asian countries have historically balanced relationships with both the U.S. and China, allowing them to benefit from trade with both superpowers. However, as geopolitical tensions rise, maintaining this delicate balance will become increasingly difficult.

Countries that can skillfully navigate these tensions while remaining attractive to Western and Asian investors will have the most success.

The Future of Friendshoring in Southeast Asia

Friendshoring is no longer just a concept—it’s happening in real time. Companies are already shifting their semiconductor supply chains to Southeast Asia, and governments are actively competing to secure investments.

However, moving beyond back-end operations into high-value semiconductor production will require more than just investment—it will take time, policy coordination, and industry partnerships.

If Malaysia successfully expands into wafer fabrication, Vietnam continues its strong semiconductor packaging growth, and Thailand follows through on its investment commitments, Southeast Asia could emerge as a semiconductor powerhouse within the next decade.

But make no mistake, this is a high-stakes game. Companies that hedge their bets correctly, diversify their supply chains wisely, and align with the right partners will come out on top.

The semiconductor industry’s next chapter is being written. Southeast Asia has its pen ready. The only question now is: how big of a role will it play?

References:

[1] 2025 Year Ahead: Brace Up For A Volatile Year: https://shorturl.at/wbtCc

[2] Vietnam expands chip packaging footprint as investors reduce China links: https://shorturl.at/mhVju

[3] Bolstering and Securing Semiconductor Supply Chains: https://shorturl.at/9Sqap