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SE Asia territories becoming global manufacturing hubs

Industrial Automation

December 2023

Samantha Mou

Samantha Mou

Research Analyst

As a Research Analyst based in China, Samantha provides support in the Industrial Automation sector. Samantha brings with her a master’s degree in Economics, and has experience, whilst working in Germany, conducting market research in Industrial Equipment and Automobile Components.

A series of global manufacturing hubs are being established in south-east Asia, including those for semiconductors in Malaysia, electronics in Vietnam, and automotive in Thailand. However, the concentration of sector-specific manufacturing in these territories is unlikely to trouble China’s vast economy.

As manufacturing becomes increasingly globalized, our research indicates that a number of countries in south-east Asia are becoming hubs for certain products and components. These include Malaysia – semiconductors; Vietnam – electronics; and Thailand – automotive.

The latest work by analysts at Interact Analysis shows the trend for international companies establishing facilities in the region is showing little sign of stopping, despite predictions of a growing trend for reshoring and nearshoring in many western markets and legislation such as the Inflation Reduction Act (IRA) in the United States encouraging domestic production of technology such as lithium-ion batteries. Malaysia, Vietnam and Thailand all offer relatively cheap destinations for the manufacture of parts for export to other markets.

In addition to global corporations choosing to base manufacturing operations in south-east Asia, some Chinese manufacturers are also expanding operations to other countries in the region. Creating manufacturing hubs, such as those in Malaysia, Vietnam and Thailand, can help eliminate inefficiencies, provide proximity to expertise, remove time zone problems, and provide greater control over production costs.

However, as the Interact Analysis Manufacturing Industry Output (MIO) Tracker demonstrates, these hubs in south-east Asia are unlikely to cause huge concern to China in terms of capacity and competition because of the sheer size of its manufacturing economy. For example, China’s automotive sector alone was worth an estimated $1.704tn in 2023, compared with just $46bn for Thailand’s this year. The APAC region’s other manufacturing powerhouse, India, will similarly be affected very little by the creation of the hubs in Malaysia, Thailand and Vietnam, largely because these are not mainstays of its manufacturing economy, which continues to be dominated by food & beverage and metals (although automotive has a growing market share), and because of the sheer size of its manufacturing sector.

Malaysia, Thailand and Vietnam are all relatively small areas, where the creation of manufacturing hubs and high turnover by a small number of companies can have a significant impact on their economies in a relatively short space of time.

Malaysia is becoming a global semiconductor hub

Malaysia has seen a series of key announcements relating to its semiconductor manufacturing industry in recent years, including leading international names. The country’s semiconductor manufacturing industry now comprises 20.5% of its total manufacturing industry output.

  • Intel – announced plans in 2021 to invest more than $7bn in a new chip packaging and testing facility in Malaysia, due to come online in 2024
  • ASE – a leading Taiwanese semiconductor packaging and testing manufacture broke ground on a new facility in Malaysia in 2022
  • Texas Instruments – announced plans this year to expand its existing footprint in the territory with two new assembly and test factories in Kuala Lumpur and Melaka, part of efforts to better control its supply chain by bringing 90% of assembly and test operations in-house by 2030
  • Infineon – also unveiled plans in 2023 to invest more than 5bn euros over the next five years to build the world’s largest 200mm silicon carbide (SiC) power fabrication plant in Malaysia

Semiconductor & components comprises 21.6% of Malaysia’s total manufacturing industry output

Electronics manufacturers/assemblers flock to Vietnam

Vietnam is now one of the key destinations for electronics manufacturers / assemblers, with a number of recent announcements indicating this trend is accelerating. For example, Foxconn announced in June 2023 its plans to invest $250 million in Vietnam to manufacture electric vehicle and telecoms parts. This follows comments made early in 2023 by Foxconn Chairman Liu Young-way, in which he stated about 70% of the company’s revenue is derived from products made in China, but “going forward the proportion of overseas region will continue to increase”.

In addition to Foxconn’s announcements, GoerTek (a major Chinese assembler of AirPods) will invest $280 million in a new plant in Vietnam, continuing to diversify its supply chain away from China and maintain its position in the Apple supply chain. Furthermore, China’s Sunny Optical Technology plans $2.5 billion investment in Vietnam (March 2023), and Sunny Group will build a $150 million factory in Vietnam to manufacture camera modules, mobile phone cameras, and vehicle cameras (September 2023), with the latter’s plant expected to be put into production in 2025.

Chinese automotive manufacturers invest in Thailand

Recent years have also seen a slew of investments in Thailand by Chinese automotive manufacturers, including:

The automotive industry comprises 14.7% of Thailand’s manufacturing industry output

In conclusion, we are likely to see greater concentration of these industries in Malaysia, Vietnam and Thailand as each country appears to be specializing in production of parts. However, this is unlikely to have a significant impact on the vast manufacturing economies of China and India in the short term, and may well feed components and parts into their domestic manufacturing industries. We are also likely to see exports from the trio of south-east Asian territories to other regions, such as the expanding electric vehicle and batteries markets in the Americas and Europe.

Interact Analysis’ Manufacturing Industry Output (MIO) Tracker provides unparalleled analysis of the global machinery and manufacturing industry, produced by analysts around the world. It covers 45 countries, with more added each year, 30 machinery sectors and two points in the supply chain (machinery and manufacturing end users). This article is drawn together from the accumulated knowledge of expert analysts who compare, monitor and deliver insights into key market trends.

To learn more about our Manufacturing Industry Output (MIO) Tracker and China, get in touch with Samantha Mou directly: Samantha.Mou@interactanalysis.com

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