The 5 Countries That Will Play a Pivotal Role in 2023 For Global Electronics 

It’s no secret that 2023 will be a pivotal year for the global electronics industry. Trends like the component shortages will begin to alleviate, while others continue to evolve and present both new risk and new opportunities. 

Among all of this, the global landscape for electronics supply chains is changing and evolving. While countries like China still play a dominant role, others are beginning to emerge or grow into manufacturing hubs as well through investments and government legislation. 

Here is a look at five countries that will play a pivotal role in the coming year, and what we can expect from each: 

1) China Slowly Recovers 

In October 2022, China’s exports unexpectedly fell by a modest 0.3%, caused by a decline in the value of goods sold to the US and the EU, according to Chinese customs data. While a mild drop, it was a significant reversal from China’s 5.7% year-on-year increase in September 2022, and the first monthly decline since May 2020, according to Refinitiv Eikon data. 

A significant contributor to the shift was the drop in China’s exports to the US, which fell 12.6% in October from a year ago and was the third-straight month of decline. Consequently, Barclays Bank revised its forecast for China’s 2023 economic growth to 3.8% and exports to decline by 2-5% in 2023, a major shift from Barclays’ previous forecast of 1% growth. 

China’s National Bureau of Statistics projected GDP growth of 3% for the first three quarters of 2022, with exports accounting for 1%. 

On December 31, 2022, President Xi Jinping announced China’s economy grew by at least 4.4% in 2022, according to revised estimates by the National Bureau of Statistics.

In November, the International Monetary Fund (IMF) projected that China’s GDP growth in 2023 would be 4.4%. However, the IMF warned that China’s COVID-19 surge could drag down the world economy. The impact on China would be negative GDP growth in 2023. China’s official purchasing managers’ index (PMI) fell to 47.0 in December from 48.0 in November. Anything below 50.0 means contraction.

One reason for China’s declining exports is that it has more competitors today as foreign companies set up shop in India, Vietnam, Thailand, Malaysia and other Asian nations. In addition, the manufacturing exit from China began shortly after the government locked down the city of Wuhan during the initial outbreak of the virus in early 2020, confining more than 11 million residents to their homes. 

China implemented lockdowns for three years that were central to its zero-COVID-19 strategy that shuttered factories and locked down cities. However, protests across China in November 2022 led the government to abandon lockdowns and is now managing COVID-19 as a Class B infectious disease. The Chinese government also canceled the quarantine requirement for inbound travelers. 

Weakening external demand on the back of global recession fears amid rising interest rates, inflation and Russia’s invasion of Ukraine could further slow China’s exports in 2023, hurting its manufacturing sector and slowing economic recovery, according to the Taipei Times. 

When will China rebound?

President Xi Jinping’s announcement at the end of December that China’s economy grew by at least 4.4% in 2022 suggests that China is already on the rebound. “The Chinese economy has remained the second largest in the world and enjoyed sound development,” Xi said. 

Xi’s announcement suggests the possibility of a faster and stronger rebound later in 2023. After a likely slow start in Q1 2023, China’s GDP growth is projected to pick up to 4.8% for the remainder of the year, according to economists surveyed by Bloomberg.

Despite the diversification of electronics manufacturing across Asia, foreign businesses are reportedly eager to return to China. The country has ended its COVID-19 quarantine lockdown, and people arriving in China from abroad will no longer require mandatory quarantine.

However, China’s designation as the world’s electronics manufacturing center may no longer be accurate. Other Asian countries are adopting China’s strategy to attract foreign investment to produce sophisticated products for various industries. Just like China, these nations will likely mature and grow in the coming years.

2) India Emerges as an Alternative to China

In 2023, India is expected to surpass China as the most populous country in the world, according to the UN’s Department of Economic and Social Affairs. At the same time, India is promoting itself to foreign companies – including chip companies – as an attractive location to set up shop. 

According to government sources, the Indian semiconductor market is forecast to reach $63 billion by 2026, up from $15 billion in 2020. The growth will be driven by three sectors: automotive, consumer electronics, and wireless communications. The strong growth potential is attracting major companies to enter the Indian market.

For example, in May 2022, the international semiconductor consortium ISMC, a joint venture between Abu Dhabi-based Next Orbit Ventures and Israel’s Tower Semiconductor, announced plans to invest $3 billion in the Indian state of Karnataka to build a semiconductor plant. Also, Singapore-based IGSS Ventures announced plans in July 2022 to build a semiconductor manufacturing complex in Tamil Nadu, including a fab, for an investment of over $3 billion.

In September 2022, Apple announced plans to produce between five and ten percent of its new iPhone 14 models in India. Apple has already transitioned some of its iPhone production to the Indian states of Tamil Nadu and Karnataka. By 2025, India could be manufacturing 1-in-4 of the world’s iPhones, according to Apple. In addition, Apple is considering moving some of its iPad manufacturing to India.

Another big win for India was the announcement in September 2022 by UK-based Vedanta Group, in collaboration with Taiwan’s Foxconn, that it would build a $20 billion semiconductor plant in Gujarat, India.

3) Vietnam Benefits From Foreign Investment

Intel, an early entrant to Vietnam, opened a $1 billion semiconductor assembly and testing facility in Ho Chi Minh City in 2006. In 2019 and 2020, the chipmaker invested an additional $500 million in the facility. Today Intel employs 2,800 people in Vietnam.

Korea’s Samsung is another early technology company to invest in Vietnam. In 2008, the company built a $670 million manufacturing plant in the northern Indian province of Bac Ninh and has since increased its investment in Vietnam to $17.3 billion. 

Vietnam has seen an increase in technology companies manufacturing during the three-year COVID-19 pandemic. For example, China’s Xiaomi, a designer and manufacturer of consumer electronics and related software, home appliances, and household items, moved the production of smartphones to Vietnam in June 2021. And Apple moved its iPad production from China to Vietnam in June 2022.

Fast forward to December 2022, when Samsung Electronics completed a new R&D center in Hanoi, the largest in Southeast Asia. Construction of the new center cost $220 million and will employ 2,200 staff to develop mobile terminals, networks, and software.

Vietnam’s government has made good progress in attracting foreign investment in electronics manufacturing and integrating Vietnam into the global production network. But it is still a long way from being known as a high-tech manufacturing hub. 

Much of the electronics manufacturing in Vietnam currently focuses on mid-stream activities in the supply chain. For example, the assembly of finished products for export by foreign companies. Upstream activities, such as product design and sub-component production, take place in other countries. For example, South Korea competes for product design while China does sub-component production. 

4) Malaysia’s Manufacturing Influence Continues to Grow 

Malaysia has always been known for its oil and palm oil production. But that was yesteryear. Today, most of the country’s revenue comes from the export of semiconductors, electronic components, and equipment.

For the past few years, Malaysia has been eyeing opportunities from the manufacturing shift out of China. It has made some headway with the efforts, as it has attracted at least 32 projects that have relocated from China to Malaysia, the Malaysian Investment Development Authority said in July 2020. The source didn’t provide details of the projects or the companies that moved.

But even before the pandemic, tech investments in Malaysia had been rising because of lower labor costs and US-China trade tensions. Major deals over the past few years included a $339 million investment by the US chip giant Micron over five years starting in 2018. In addition, Jabil, a US contract manufacturer serving a variety of high-tech sectors, has expanded operations in Malaysia.

5) Thailand Shifts Focus to HIgh-Tech 

Thailand is Southeast Asia’s second-largest economy behind Indonesia. Over the last few decades, the country has been moving up the value chain in manufacturing, specifically semiconductor manufacturing and electronics products for the automotive and computing sectors. Today, Thailand is a production hub for car parts, vehicles, and electronics, including Sony and Sharp.  

Between 2020 to 2021, the country’s foreign direct investment rose threefold to $13.1 million, according to the Thailand Board of Investment. Semiconductor manufacturing is complex, requiring many steps, from wafers to components. As a result, Thailand focuses mainly on the backend of the chain, such as packaging the finished wafer chips and testing.

In 2019, Sony closed its Beijing smartphone plant to cut costs and relocated some of the production to Thailand. In the same year, Sony announced moving some of its printer production to Thailand due to the US-China trade war. 

Sony is not alone. The Thai government emphasizes investments in high-tech and environmentally sustainable industries. The Thailand 4.0 strategy is to move the country away from an export-driven economy dependent on low labor costs and natural resources. Instead, it seeks to attract automotive, robotics, medical, smart electronics, and digital industries.

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