Semiconductors have become a critical factor in determining the future economic edge, as innovation and the growing demand for artificial intelligence (AI) increasingly rely on more advanced chips. These advanced chips are made possible through an intricate and highly specialised semiconductor supply chain, which underpins the development of cutting-edge technologies. As AI continues to drive demand for increasingly powerful chips, the global competition for semiconductor leadership is only expected to intensify.

Given the critical importance of advanced semiconductors, the escalating US-China Chip War prompted the Biden administration to impose export restrictions and technology transfer limits on advanced chips in order to prevent technological leakage to China from third countries. Close and trusted US allies have been granted tier 1 status, which allows them unlimited access to these chips. In contrast, tier 3 countries, including countries hostile to the United States, such as China, Russia, Iran, and North Korea, face the most stringent restrictions.

ASEAN countries, including Singapore, Malaysia, and Thailand, are currently categorised as tier 2 players in the global semiconductor hierarchy, meaning they have limited access to the most advanced semiconductors, such as high-performance graphics processing units (GPUs). While these countries have become important players in downstream processing and assembly, they face challenges expanding their roles beyond these areas. This limitation interferes with their national strategies to move up the semiconductor value chain and participate more actively in advanced manufacturing, chip research, and design.

Securing ASEAN’s role as the trusted chip in the global supply chain

In view of these geopolitical challenges, ASEAN must position itself as a secure and reliable partner in the global semiconductor supply chain to remain competitive in the evolving technology landscape. As the demand for advanced chips grows, attracting investment from top-tier semiconductor companies will depend on the region’s ability to implement stringent security measures that prevent technological leaks and intellectual property theft. Companies need to feel confident that their innovations will be protected from being accessed by tier-3 countries, which has far-reaching trade implications.

Policies such as tax incentives, business-friendly regulations, and streamlined processes for setting up operations are key to creating a conducive environment for high-end companies.

In addition, ensuring transparency and operational reliability is crucial. ASEAN countries need to actively employ diplomatic efforts, engage in multilateral negotiations, and build trust with global partners to create a stable and predictable environment for semiconductor operations. As the region builds its credibility and trustworthiness, this could influence global powers, particularly the United States, to potentially relax existing restrictions on technology transfers and semiconductor access.

Breaking the mould and sparking growth

ASEAN should continue to leverage its investment-friendly policies to attract advanced semiconductor manufacturers to the region. Policies such as tax incentives, business-friendly regulations, and streamlined processes for setting up operations are key to creating a conducive environment for high-end companies. Additionally, preferential land policies and visa-friendly initiatives will further enhance ASEAN’s appeal as an investment destination. Special economic zones, such as the Johor-Singapore Special Economic Zone, Indonesia’s Kendal Special Economic Zone, and Thailand’s Eastern Economic Corridor, should continue to be key pillars of this strategy, as they foster economic clusters that can drive innovation and manufacturing in the semiconductor sector.

Safeguarding intellectual property with enhanced security protocols will play a crucial role in building investor confidence.

Incentives such as tax breaks and ensuring that regulatory frameworks are aligned with global best practices can position ASEAN as a prime location for semiconductor manufacturers. Leveraging its existing semiconductor infrastructure – developed over years of industry growth – will give ASEAN a significant edge in attracting high-tech investments.

In addition, safeguarding intellectual property with enhanced security protocols will play a crucial role in building investor confidence. Ensuring the protection of technological innovations and confidential data will reassure semiconductor firms and their complementary industries, including data centres and software development, that their operations in ASEAN will be secure.

Shifting gears to diversification

Given the volatile global semiconductor environment, which is influenced not only by a country’s competitiveness and economic dynamism but also by the intensifying geopolitical battles between major economic powerhouses vying for semiconductor dominance, it is crucial to rethink the region’s semiconductor policy. This should encompass not only short- and medium-term trade strategies but also long-term plans to ensure sustained competitiveness.

In this sense, ASEAN needs to look at expanding and diversifying its semiconductor ecosystem beyond just manufacturing. While the region has established itself as a key player in semiconductor production, the future of the industry lies in building a more integrated, multifaceted ecosystem that encompasses the entire value chain. Investing in complementary services such as advanced software development, AI services, and cutting-edge data centres can strengthen ASEAN’s semiconductor ecosystem.

Notably, advanced software development is important in the practical functionality of semiconductors, particularly as AI and machine learning applications become increasingly important in sectors ranging from healthcare to finance to autonomous systems. ASEAN countries can build on their existing technological infrastructure to foster software innovation, supporting the semiconductor industry in the region by developing tailored solutions for AI, automation, and data analytics.

This diversification strategy will help ASEAN move up the semiconductor value chain and create a more dynamic and resilient industry landscape that can weather global market shifts.