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As manufacturers increasingly pivot towards ASEAN, what challenges remain for electronics manufacturers in search of low cost, high-yield production.

Overall, ASEAN countries account for about 5 per cent of global manufacturing (in value-added terms). Furthermore, the region continues to attract electronics manufacturers as companies look to diversify their manufacturing sites away from traditional locations such as China.

According to SEMI’s 300mm Fab Outlook to 2024 report, 300mm fab investments in 2020 will grow by 13 per cent year-over-year (YoY) to eclipse the previous record high set in 2018 and log another banner year for the semiconductor industry in 2023.

Furthermore, the Covid-19 pandemic has sparked the 2020 surge in fab spending by accelerating digital transformations worldwide, and the increase is expected to stretch into 2021.

Powering the growth is the rising demand for cloud services, servers, laptops, gaming and healthcare technology. 

Fast-evolving technologies such as 5G, Internet of Things (IoT), automotive, Artificial Intelligence (AI) and machine learning that continue to fuel demand for greater connectivity, large data centres and big data are also behind the increase.

“The Covid-19 pandemic is accelerating a digital transformation sweeping across nearly every industry imaginable to reshape the way we work and live,” said Ajit Manocha, SEMI president and CEO. 

“The projected record spending and 38 new fabs reinforce the role of semiconductors as the bedrock of leading-edge technologies that are driving this transformation and promise to help solve some of the world’s greatest challenges.”

Growth in semiconductor fab investments will continue in 2021 but at a slower rate of four per cent YoY. Mirroring previous industry cycles, the report also predicts a mild slowdown in 2022 and another slight downturn in 2024 following a US$70 billion record high in 2023.

Southeast Asia is expected to see 59 per cent growth from 2020 to 2024.

Investments

The Covid-19 pandemic and the US-China trade friction have failed to slow countries such as Thailand’s resilient electronics and electrical (E&E) industry which on the contrary many investors see as a haven, Thailand Board of Investment (BOI) data shows.

In the first nine months of 2020, the number of foreign and domestic companies which applied to invest in Thailand’s E&E sector actually rose to 106 projects, from 94 projects in the same period in 2019, making it by far the most popular sector, totalling over US$1.2 billion in investment applications submitted to the BOI.

With a supply chain of some 2,500 companies and 800,000 employees ranging from researchers with doctoral degrees to vocationally trained technicians and experienced assembly line workers, it is the country’s largest manufacturing employer, according to Thailand’s Electrical and Electronics Institute (EEI).

“E&E is fundamental to Thailand 4.0,” said EEI president Narat Rujirat, referring to the innovation-driven growth strategy of Southeast Asia’s second-largest economy.

This ambitious vision involves creating a regional hub for futuristic industries including medical devices, electric vehicles, robotics and automation. 

At its heart is the technological transformation of one of Thailand’s long-established core industries, electrical and electronics, into what is today termed ‘Smart E&E’ and the emergence of the so-called Internet of Things (IOT).

Thailand’s E&E sector has burgeoned into a global powerhouse and is the world’s second-largest exporter of computer hard disc drives, air conditioners and washing machines, according to GSB Research, a unit of Thailand’s largest state-owned bank.

In total, Thailand’s E&E industry generates US$56.5 billion worth of exports in 2019, or 24 per cent of total exports, according to Thailand’s Ministry of Commerce and GSB Research.

In addition to a strong supply chain and skilled human resources, Thailand’s attraction for E&E investors also stems from its strategic geographical location at the crossroads of Asia, which has enabled it to become one of the world’s top exporters.

Investors also benefit from privileges offered by the BOI. E&E companies focused on innovation and research and development can receive tax breaks of up to eight years and other incentives such as renewable smart visas of up to four years for international talent and investors in key sectors such as smart electronics, as well as their families. 

The BOI also supports companies by helping establish industrial linkage, sourcing of local suppliers and business matching. Many companies have developed strong partnerships with local academic institutions.

The Challenge

According to MGI, ASEAN use of disruptive technologies could increase profit margins and lower costs, potentially creating US$25 billion to US$45 billion of annual economic impact in ASEAN by 2030.

However, ASEAN has historically been slow to adopt such technologies such as IoT, data analytics, etc. Skill gaps are also a matter of concern for the region, with graduates skilled in the latest developments in data analytics, as well as managers and analysts to follow through on the implementation.

If ASEAN can fill this skills gap and overcomes these challenges then the region will be on its way to be seen as the next ‘factory of the world.’

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