Two forces are driving this surge: the AI wave and an intensifying rivalry between Washington and Beijing that has companies scrambling to diversify where they make things. Together, these trends are building a regional chip export industry worth roughly $258 billion.

But Southeast Asian governments aren’t satisfied with just housing a chip foundry or a packaging facility. The region wants to be a single, integrated supply chain right as the U.S.-China rivalry threatens to split the sector in two.

In 2025, the Association of Southeast Asian Nations (ASEAN) launched the ASEAN Framework for an Integrated Semiconductor Supply Chain (AFISS). The initiative—a signature deliverable of Malaysia’s 2025 chairship—hinges on each country playing a specialized, complementary role to move up the chip value chain. 

Now Southeast Asia can cement its role in the global supply chain for semiconductors, especially as AI demand makes the region’s position more valuable than ever. “Cultivation of semiconductor supply chains has put the region in the right place at the right time,” says Robert Walker, a research fellow at the Lowy Institute’s Indo-Pacific Development Centre. 

Malaysia, Singapore, Vietnam, Thailand and the Philippines have all benefited from the chip surge: Exports of semiconductors and semiconductor parts and components from Southeast Asia to China and the U.S. reached $42.2 billion and $15.1 billion respectively in 2023.

“Southeast Asia has emerged as a critical semiconductor manufacturing hub, particularly for assembly, testing and packaging. The region has attracted substantial investment since the pandemic as companies seek to diversify supply chains, manage exposure to U.S.-China tensions and build greater resilience,” Piriya Piriyakrit, senior analyst at BowerGroupAsia, says.

Walker thinks AI supply chains are “hitting their productive limits”—and that the capacity crunch that will follow gives Southeast Asia an opening. “As demand outpaces supply, new production capacity will be required, and Southeast Asia is well placed to drive that expansion across semiconductor supply chains, helping the region move up the value chain and increase its exports,” he says.

A framework, not a bloc

Southeast Asia is an obvious alternative for companies pursuing a “China plus one” strategy, diversifying their supply chains away from China. 

That is the gap AFISS is meant to fill. Walker argues that while the framework won’t establish ASEAN as a “unified production base or single investment destination,” it could still deepen regional integration and improve overall competitiveness in chips.

Yet ASEAN is not the European Union. The bloc emphasizes national sovereignty and non-interference, which means any framework—even a well-intentioned one—is only as good as each member’s choice to acknowledge it, let alone implement it.

Chandra Putra, a Jakarta-based economist who has researched the region’s semiconductor sector, calls AFISS a “fundamentally good idea” to harmonize national agendas and build a more transparent regional ecosystem. But he cautions that its feasibility “hinges on countries diverging from their national interests.”

But Southeast Asian coordination may happen without ASEAN’s guidance, argues Hans Vriens, co-founder and managing partner of government affairs consultancy Vriens & Partners.

“If you look at the different parts of the supply chain, they are present in different countries. In that sense, Southeast Asia is already taking care of the whole supply chain because the countries are complementary as investment destinations,” he says. Singapore, for example, focuses on research and development; assembly, testing, and packaging is more common in Malaysia and the Philippines. 

What matters more is driving down the costs companies face when they produce across borders within ASEAN, through faster customs clearance, mutual recognition of technical standards and professional qualifications, and easier movement of skilled workers, says Arata Kuno, professor of international economics at Asia University in Japan.

The framework could work, Kuno suggests, if the aim is to create a network that links members’ strengths while staying plugged into global supply chains instead of building a self-sufficient bloc. “Insisting on covering every stage of chipmaking within ASEAN could backfire and erode competitiveness,” Kuno cautions.

Japan is a warning. Its chipmakers once led the world in market share, yet it held onto a vertically-integrated business model, keeping everything from design to manufacturing in-house.

“That model is often cited as one reason their share later declined: it made them slower to respond as demand shifted from memory to logic chips, and to keep up with soaring investment costs and the growing international division of labor,” Kuno says.

Still, there is value in concerted regional coordination. Individually, Southeast Asian countries “cannot match the depth of capital, specialized talent and the proprietary technology in places such as the U.S., China, Europe, and Northeast Asia,” says Andrew Chan Yik Hong, former founding executive director of the Malaysia Semiconductor Industry Association.

Beyond wafer fabs

Singapore is the regional leader in semiconductors, hosting fabrication plants for companies like Micron Technology and GlobalFoundries.

Now Malaysia and the Philippines want to follow the city-state’s lead and move up the value chain, after decades specializing in back-end manufacturing—assembly, testing and packaging.

Malaysia has been transitioning toward front-end manufacturing and chip design since it launched its National Semiconductor Strategy in 2024.

In September, Manila unveiled a roadmap with ambitious targets to grow its annual chips and electronics exports to $110 billion by 2030, and move beyond manufacturing and assembly into higher-end operations.

Yet on-the-ground evidence of success is slim. Malaysia’s $250 million deal with British chip designer Arm brought the country closer to making its own chips, but is currently being probed by the country’s anti-corruption agency. A talent crunch is also a barrier.

On Oct. 26, Reuters reported that Vietnam’s first semiconductor plant will likely miss its 2027 target to start a trial production run, with sources citing a lack of experience at the plant’s owner, Viettel.

Fortunately, moving up the value chain “does not have to mean building cutting-edge front-end fabs, which require enormous capital, reliable power and water, and highly skilled workers,” Kuno says.

The most promising opportunity is advanced packaging, which has become increasingly central to the performance of AI chips, Kuno adds. The old view that back-end activities in chipmaking are uniformly low value-added “is no longer accurate,” as advanced packaging commands much higher margins than conventional assembly and testing.

Piriya argues that the region’s core advantage isn’t from trying to replicate Taiwan or South Korea, “but its role as a connector across global supply chains.”

“Southeast Asia combines scale, manufacturing experience, strategic geography and a diverse set of investment destinations. Importantly, moving up the semiconductor value chain does not necessarily require countries to develop advanced chip fabrication capabilities,” she added.

Yet protecting the region’s global chip market share is just the bare minimum, Chan says.

While Micron, Intel, and other companies have had decades to grow their footprint in the region, the greater ambition for the region should be to build stronger Southeast Asian companies with their own technology and regional or global reach.

“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 says.

“That requires substantial patient capital, sustained research and development, access to customers, and policies that survive changes in political leadership.”