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How 'Friendshoring' is Making Southeast Asia the Center of the AI Revolution

Thu, 16 Jan 2025 07:45 | Artificial Intelegence |   Editorial INTI


How 'Friendshoring' is Making Southeast Asia the Center of the AI Revolution

Jakarta, INTI - Amid shifting global geopolitical dynamics, the strategy of 'friendshoring' is gaining momentum, driving technology companies to relocate supply chains to politically stable and aligned countries. Southeast Asia, with its abundant resources and supportive policies, has emerged as a promising hub for the Artificial Intelligence (AI) revolution. The region’s rapid rise in technological significance is setting the stage for a transformative era in global innovation.

What is 'Friendshoring'?

Friendshoring refers to the practice of relocating manufacturing operations and supply chains to countries regarded as allies or nations with favorable diplomatic relations. The primary objective is to minimize risks associated with political and economic instability in other regions. This strategy not only enhances the resilience of global supply chains but also fosters economic growth in friendshoring destinations.

Why Southeast Asia?

Countries in Southeast Asia, such as Malaysia, Vietnam, and Indonesia, have become prime destinations for global technology firms looking to diversify their supply chains. The region’s strategic location, burgeoning economies, and supportive government policies make it an attractive alternative to traditional manufacturing hubs.

Malaysia: A Semiconductor Powerhouse

Malaysia, particularly Penang, has cemented its position as a key player in the global semiconductor industry. Major companies like Intel, Micron, and AMD have established substantial operations here, taking advantage of Malaysia’s robust infrastructure and favorable investment environment. As AI applications demand ever-more advanced semiconductor chips, Malaysia’s role in the industry becomes increasingly critical.

Vietnam: A Rising Star

Vietnam has also emerged as a favorite for tech investors, with companies like Nvidia announcing plans to build semiconductor manufacturing facilities. Vietnam’s cost-competitive labor market, improving infrastructure, and pro-investment policies have solidified its appeal.

Indonesia: A Sleeping Giant Awakens

Indonesia is making strides in the tech sector, with significant investments in data centers and AI-driven technologies. The country’s large population and rapidly growing digital economy make it a lucrative market and an emerging player in the AI revolution.

The Role of Semiconductors and AI Investments

The rise of AI technologies heavily depends on the availability and production of semiconductor chips, the “brains” behind all modern electronics. Southeast Asia’s increasing investments in this sector are a testament to its growing importance on the global stage.

Malaysia’s Ambitious Goals

Malaysia aims to attract investments of at least 500 billion ringgit (approximately USD 107 billion) in its semiconductor industry over the next decade. Government initiatives and public-private partnerships are fueling this growth, ensuring Malaysia remains competitive in the global semiconductor market.

Vietnam’s Rapid Expansion

In Vietnam, technology giants are pouring billions into AI and semiconductor production. These investments are expected to boost the country’s GDP and create thousands of high-tech jobs.

Indonesia’s Data Center Boom

Indonesia is also stepping up with ambitious projects, including plans for Southeast Asia’s second-largest AI-powered data center. Such developments position Indonesia as a vital player in the region’s technology ecosystem.

Economic Impact on Southeast Asia

The friendshoring trend and increasing technological investments have significant economic implications for Southeast Asia.

Job Creation and Economic Growth

The influx of investments has led to job creation, skill development, and economic growth across the region. In Malaysia, for example, the semiconductor industry alone contributes nearly 40% of total exports. Similarly, Vietnam’s burgeoning tech sector is helping to lift millions out of poverty.

AI’s Contribution to GDP

According to a report by Microsoft News, AI has the potential to contribute nearly $1 trillion to Southeast Asia’s GDP by 2030. Indonesia alone is projected to account for $366 billion of this total, highlighting the transformative economic impact of AI technologies.

Challenges Ahead

While Southeast Asia is well-positioned to capitalize on the friendshoring trend, several challenges must be addressed to sustain growth and competitiveness.

  1. Talent Development The lack of a highly skilled workforce in advanced technologies like AI and semiconductor manufacturing is a significant hurdle. Governments must invest in education and training programs to bridge this gap.
  2. Infrastructure Improvements Digital and physical infrastructure in some countries lags behind global standards. Reliable power supplies, high-speed internet, and efficient transportation networks are critical for attracting and retaining investments.
  3. Regulatory and Policy Alignment Inconsistent policies and bureaucratic hurdles in some countries create uncertainty for investors. Streamlining regulations and offering tax incentives can help overcome these barriers.
  4. Regional Competition As Southeast Asia competes for foreign investments, countries must differentiate themselves through innovation, efficiency, and strategic partnerships.

Future Prospects for Southeast Asia in the AI Revolution

Southeast Asia’s rise as a hub for AI and semiconductors is undeniable, driven by friendshoring and increasing investments in technology. However, realizing its full potential requires collective effort and strategic planning.

Collaboration Across Borders

Regional collaboration can amplify Southeast Asia’s competitiveness on the global stage. Initiatives like the ASEAN Smart Cities Network and shared R&D projects can foster innovation and economic integration.

Sustainability and Green Technology

As the world moves towards sustainable practices, Southeast Asia must align its technological advancements with environmental goals. Adopting green energy solutions for data centers and semiconductor factories will ensure long-term viability.

Friendshoring has positioned Southeast Asia as a pivotal player in the global AI revolution. With strategic investments, policy support, and regional cooperation, the region has the potential to become a global technology powerhouse. While challenges remain, the future looks promising for countries like Malaysia, Vietnam, and Indonesia as they lead the charge in shaping the next wave of technological innovation.

Indonesia Technology Revolution +17