VoiceOver users please use the tab key when navigating expanded menus


Chipping up in ASEAN

ASEAN looms as a big economic winner of the long-term COVID-19 recovery and associated diversification of supply chains – particularly for four specific countries in the electronics sector.

Over the past few years many ASEAN economies have been the beneficiaries of a shift among corporates to a ‘China+1’ model. The model sees companies reduce their direct exposure to Mainland China while maintaining an important presence to leverage the critical role the country will continue to play in both supply and consumption.

As the global economy begins to pick up where it left off pre-pandemic, the acceleration of these supply chain shifts, particularly in Asia, may be the lasting economic legacy of COVID-19.

Many multinationals based in the electronics sector are aiming their ‘China+1’ strategy toward Malaysia, Philippines, Thailand and Vietnam - collectively the ‘ASEAN Quad’ – all of which have robust electronics ecosystems.

But Mainland China is an integral part of the global electronics value chain and will not be easily replaced. The ASEAN Quad has a lot to offer but Mainland China still has a competitive edge.

Furthermore, the electronics industry in the ASEAN Quad largely operates in the low to mid value-added segments if the sector. That is changing, but only slowly.


The data show Mainland China’s share in global electronics exports fell by three percentage points in the years between 2015 and 2019, to ‘only’ 27.3 per cent. In the same period, the market share held by the ASEAN Quad rose 2 percentage points.

Vietnam holds 3.6 per cent of the global share of electronics exports, Malaysia 3.2 per cent, Thailand 1.6 per cent and the Philippines 1.4 per cent.

The Kearney Reshoring Index tracks the shift in US manufacturing imports away from Mainland China to other low-cost Asian economies. Of the US imports shifted from China, almost half (46 per cent) went to Vietnam. Thailand and Malaysia accounted for 5 per cent and 4 per cent, respectively.

Although COVID-19 may have accelerated the shift, the primary cause predates the pandemic. A US-China Business Council survey found 86 per cent of its members reported bilateral trade tensions impacted their business with China. Over 45 per cent of the respondents indicated tensions led to a change in suppliers or sourcing amid the uncertainties.

Notwithstanding the new US administration, the ongoing diversification is unlikely to end. The mainstream expectation is for some de-escalation in China-US tensions and while this may slow the shift of supply chains away from Mainland China, it will not stop it.

But diversification from Mainland China to other parts of Asia was occurring even before the trade war. MNCs have been employing a ‘China+1’ strategy for some time.


There are several factors which make the ASEAN Quad a preferred destination for the ‘China+1’ strategy. In addition to geographical proximity, wage trends in ASEAN are particularly favourable. Low wage growth and skilled workforce availability make these economies attractive destinations for business.

Additionally, the ASEAN Quad has a competitive advantage in certain segments. The Revealed Comparative Advantage (RCA) shows the ASEAN Quad has built a dominant presence in niche segments of the electronics industry.

The Philippines has high RCA in office equipment manufacturing, while Thailand is competitive in computers and radio equipment. Vietnam leads in telecom equipment manufacturing.

Each nation has strengths in different parts of the value chain in electronics. Although it is still a net importer of electronic components, Mainland China has its own lead firms specialising in consumer goods like PCs and mobile phones

Most of the Asian lead firms, such as Samsung and Sony, are domiciled in Japan, South Korea and Taiwan. These three economies account for 74 per cent of revenue generated by Asian electronic firms.

Malaysia and Thailand are primarily electronic component exporters and are home to subsidiaries of foreign contract manufacturers. In recent years, both have made some inroads in research and designing segments of ECs.

Vietnam, on the other hand, is firmly at the lower end of value chain. It has emerged as the top destination in the ‘subassemblies’ segment.

Overall, electronic firms in the ASEAN Quad account for just 1 per cent share of the total revenue.


The recently signed Regional Comprehensive Economic Partnership (RCEP) trade agreement will boost electronics industry in ASEAN. In fact, electronics firms are already gearing up to take advantage of RCEP.

For instance, Taiwan-based Foxconn is planning to set up a local company in Vietnam to produce computer parts. Vietnam is a participant in RCEP and its geographical proximity to China - an important production hub for Foxconn – makes this a strategic decision.

Another boost may come as Mainland China begins to focus on its domestic economy. At the 5th Plenum in 2020, top Chinese leaders reiterated the importance of a ‘new economy’.

A renewed policy push for structural changes, along with rising production costs, will facilitate relocation to neighbouring economies with lower costs.

These are all developments which bode well for electronics in the ASEAN Quad in the near future.

Kanika Bhatnagar & Bansi Madhavani are Economists at ANZ

The full report is available to registered clients at ANZ Live here

This publication is published by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (“ANZBGL”) in Australia. This publication is intended as thought-leadership material. It is not published with the intention of providing any direct or indirect recommendations relating to any financial product, asset class or trading strategy. The information in this publication is not intended to influence any person to make a decision in relation to a financial product or class of financial products. It is general in nature and does not take account of the circumstances of any individual or class of individuals. Nothing in this publication constitutes a recommendation, solicitation or offer by ANZBGL or its branches or subsidiaries (collectively “ANZ”) to you to acquire a product or service, or an offer by ANZ to provide you with other products or services. All information contained in this publication is based on information available at the time of publication. While this publication has been prepared in good faith, no representation, warranty, assurance or undertaking is or will be made, and no responsibility or liability is or will be accepted by ANZ in relation to the accuracy or completeness of this publication or the use of information contained in this publication. ANZ does not provide any financial, investment, legal or taxation advice in connection with this publication.