China’s Increasingly Risky Business Environment Prompts Foreign Firms to Relocate Operations to Other Asian Countries

In anticipation of the incoming Trump administration’s tariffs and sanctions against the People’s Republic of China (PRC), a growing number of foreign companies, particularly semiconductor manufacturers, are moving their production facilities to countries neighboring the PRC. This development reflects China’s increasingly risky business environment.

During his campaign, President-elect Trump threatened to place a 60% tariff on Chinese imports. In anticipation of a Trump win, many foreign semiconductor companies are moving their production facilities out of China, and China’s neighbors are looking to capitalize on the situation.

In December 2024, Taiwan Semiconductor Manufacturing Co. (TSMC) – the main global producer of advanced chips by a long way – announced the opening of its first chip factory in Japan. Given TSMC’s dominance in advanced chip fabrication, and Taiwan’s geopolitical disputes with China, it marks a pivotal moment in the history of the global semiconductor supply chain.

Migration out of China to Southeast Asian neighbors

In 2023, Taiwan's Hon Hai Precision Industry Co., Ltd. (Foxconn) – Apple's largest contract manufacturing partner for MacBook – moved 30% of its MacBook production from China to Vietnam, while South Korea's Samsung Electronics has also started withdrawing from China – in 2019, it closed its last smartphone factory in China and moved production to Vietnam and India. Nintendo also transferred part of the production of its flagship game console, the Nintendo Switch, to Vietnam in 2019.

More recently, in November 2024, Hana Micron – a South Korean assembly, testing, and packaging (ATP) semiconductor specialist – announced that it would be expanding its presence in Vietnam after some of its customers requested the company move production away from China.

Likewise, Amkor Technology, Hana Micron, and Intel have invested billions of dollars in Vietnam – U.S. firm Amkor Technology has invested $1.6 billion in a new million-square-foot campus in the country that will deliver “next-generation semiconductor packaging capabilities.” Nvidia and Apple have also recently expressed interest in joining Intel in expanding their manufacturing capabilities in Vietnam.

Indonesia, meanwhile, is investing in its semiconductor manufacturing ecosystem through its “Making Indonesia 4.0” initiative and “Golden Indonesia 2045 Vision.” Malaysia is also working to attract significant foreign investment into its chip sector. In addition, the South Korean government is introducing legislation to bolster that country’s semiconductor production capacity.

These efforts seem to be bearing fruit. According to Thailand’s Amata Corp PCL, one of the largest industrial park developers in Southeast Asia, of the 90 factories opened in one of Amata’s industrial parks in 2024, two-thirds are owned by companies moving their production facilities out of China.^[1]

Among China’s neighbors, Vietnam seems particularly well-positioned to be the new home for foreign semiconductor manufacturers. As a major exporter of electronics and other goods, Vietnam is viewed by the U.S. as a strategic hub for realigning global supply chains, as evidenced by the strengthening diplomatic and trade ties between the two countries. Washington has also promised to help Vietnam build its semiconductor ecosystem.

According to a recent report co-authored by Boston Consulting Group and the Semiconductor Industry Association, Vietnam currently accounts for 1% of the global assembly, test, and packaging (ATP) capacity in 2023 but that share is expected to grow to 9% by 2032.^[2]

Sovico Group, a Vietnamese investment firm, is gathering partners and investors to build an ATP facility in Danang. Viettel, a Vietnamese state-owned telecommunications company, plans to build Vietnam’s first chip foundry by 2030. Intel’s main back-end facility is already located in Vietnam. South Korean chip packaging firms, such as Hana Micron, are also investing in manufacturing facilities in Vietnam.

Trump threatens 60% tariffs on imported goods from China leading chip companies to flee to surrounding countries

The US Chips Act and China’s Made in China 2025 represent each sides desire to safeguard their semiconductor supply chains. While this creates challenges, it is also providing opportunities for other countries – particularly Vietnam – in the region as chip manufacturers and packagers fear further sanctions on Beijing following President Trump’s election win, who has threatened significant tariffs on Chinese imports – during his electoral campaign, potential import taxes of 60% were mooted.

It signals a potential reshuffling of the global supply chain for chips and the electronics products they are used in. While this migration out of China and into Southeast Asia has been gaining momentum in recent years, observers predict that this transition will be more intense.

While there are challenges to overcome in the region – including a fragmented legislative landscape, a lack of chip design engineers, and chip manufacturing infrastructure – the BCG and Semiconductor Industry Association report predicts that the wafer fabrication supply chain will be significantly more resilient by 2032, driven by Taiwan, South Korea, Japan, and the introduction of Vietnam. The U.S., meanwhile, is expected to increase its fab capacity by 203% between 2022 and 2032^[3].

But before the development of a domestic semiconductor supply chain, it could make sense for American businesses to consider relocating their China operations to other Southeast Asian countries. However, this may not be a viable option for all U.S. companies. In addition, there are still opportunities in the Chinese market for foreign businesses. American companies doing business with China should focus on how to minimize risks, including adopting measures to protect their sensitive data, critical assets, and key personnel.

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^[1] https://www.taipeitimes.com/News/biz/archives/2024/11/09/2003826599

^[2] https://web-assets.bcg.com/25/6e/7a123efd40199020ed1b4114be84/emerging-resilience-in-the-semiconductor-supply-chain-r.pdf

^[3] https://www.semiconductors.org/wp-content/uploads/2024/09/SIA_State-of-Industry-Report_2024_final_091124.pdf