Background
Since 2020, governments and technology businesses have been working to implement what has become known as the “China +1” strategy. Driven by various macroeconomic factors, geopolitical tensions between the US and China leading to trade restrictions, varying COVID strategies, and the volume of energy disruptions, the goal is to develop more resilient supply chains.

As a result, and to diversify geographic risk and avoid a heavy reliance on one country, many leading western OEMs are requesting PCB suppliers develop more capacity outside of China.  Contract manufacturers and supply chain operators are now executing plans incorporating other geographies. However, due to the dominance of PCB manufacturing in mainland China, the country will remain a majority producer.

As a result, companies are accelerating their plans to expand global production throughout Southeast Asia (SEA) with Vietnam, Thailand, and Malaysia benefiting the most from the geographic expansion.

 

Regional Revenues for PCB Manufacturing 
 

Source: Prismark 
 

Which OEM Segments are Leading the Initiative?
OEMs supporting segments such as enterprise and infrastructure, networking, servers, and data center providers, alongside industrial and medical are leading the initiative. These segments remain cost-conscience and are not typically driving the lowest-cost production and supply for PCBs. 

Their focus is to drive PCB suppliers to expand in SEA and to consider India. Their target for out-of-China production is approximately 25% over the next three years, driven by lower labor costs, strong government support, and already existing factories. In parallel to the investments in the SEA region, suppliers must also grow their supply chain capabilities (both inbound and outbound) and expand their local supply base.

It should be noted that most OEMs in the consumer electronic segment are extremely cost sensitive. Despite seeing the benefits of diversifying their supply chain, these OEMs are not willing to pay a premium for this shift.
 

PCB Manufacturing Regional Development Trend
Some multinational PCB and substrate companies such as TTM, AT&S, and SEMCO have announced their intention to invest in new factories in Malaysia, Vietnam, or Thailand. In doing so they have an obligation to invest in new infrastructure, remain competitive in pricing, and upskill new employees.  Much of the initial capacity will be focused on lower-volume, higher-margin activities including security-sensitive applications.
 

Companies Making the Move

• Substrates
  • AT&S and Simmtech have invested in Malaysia
  • Semco has invested in Vietnam
  • Closer to customers, such as Intel, AMD and Micron now have plants in Malaysia and Vietnam
     
• FPC
  • Thailand and Vietnam
  • Japanese and Korean FPC shops such as Nippon Mektron, Fujikara, Sumitomo, BH and SI Flex have already committed to Vietnam and Thailand
     
• HDI and Rigid Board
  • Thailand: KCE, CMK, Chin Poon, APEX, APCB, Wus, Jove, Techwise, China Eagle, Dynamic
  • Vietnam: Meiko, Fujitsu, Tripod
  • Malaysia: TTM, AT&S, Hannstar, Sunshine

Industry watcher, Prismark, recently highlighted that despite the moves to diversify PCB manufacturing supply chains, China remains dominant in the market with 56% of all production capacity, compared to 10% in Southeast Asia. Within Southeast Asia, Thailand, Vietnam, and Malaysia are investment hotspots for the industry. 

The transition from China to Southeast Asia will be difficult for most. Organizations must plan for potential challenges associated with shifting well-established trade links, including incomplete supply chains and higher procurement costs. In addition, overall labor costs are low in Southeast Asia and mid- to high-level R&D personnel are difficult to locate. There are also cost challenges in filling the talent gap with Taiwanese and Japanese experienced employees who require higher salaries while working overseas.

No Japanese PCB makers have invested within China in the last 10 years, with Mektec as the only exception. Japanese PCB makers continue to invest in Thailand and Vietnam. South Korean PCB makers, particularly FPC makers, are investing heavily in Vietnam.  China +1 is focused in Southeast Asia, however there is still some consideration for India. To date, no major PCB investment has been announced.

Which Countries are Benefiting from the China +1 Strategy?
Vietnam has taken the most aggressive steps to attract foreign investment, and provide regional manufacturing, and supply chain alternatives to China. The growth in exports to the US and other markets has helped stabilize their economy while attracting new investments. Vietnam posted 8% growth in 2022, its highest rate since 2011, powered by 11.9% growth in the logistics sector.

Trade agreements signed before the pandemic including the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership laid the groundwork for economic growth both now and in the future. It is understood that major American companies regard Vietnam as an important location for production and that Japanese and South Korean PCB manufacturers have been actively investing in Vietnam and Thailand for quite some time.

Meanwhile, India has been attempting to attract new investment through the Production Linked Incentives (PLI) scheme.  Major manufacturing partners have been enticed by the PLI subsidies as New Delhi moves to make the country a manufacturing hub. These incentives, coupled with an abundance of low-cost labor, make India an attractive electronics manufacturing location.
 

Jabil’s Perspective
The current trend will continue, with investments earmarked for China placed under careful review at OEMs’ requests. The future, steady state for PCB manufacturing will be led by China, with 80% volume remaining in the country, while around 20% is moved offshore to mitigate risk. As we move toward a China alternative, the rate of adoptions will be driven by innovations undertaken by states to attract additional investments, including supplier and inbound supply chains, available skilled labor, and, most importantly, the desire to mitigate PCB supply risk.

Challenges to ramping production and consistent growth in Southeast Asia will also be paced by some of the softer requirements including after-sales support, transportation, and logistics, localized manufacturing equipment, and support directly from the factories.

Chinese mainland customers involved in local production, research and development services, and the initial development of Southeast Asia rely on the support of both sides of the strait. These groups will increase local service and business personnel while evaluating the timeline of setting up a factory in the area. The chart below summarizes our perspective for each country based on China as the benchmark standard for each criteria listed and discussed in the POV. 

Source: Jabil Procurement Intelligence
 

PCB supplier development outside of China has been an agenda of the SRM, GCM, and PCB commodity teams for the purpose of purchase localization and risk diversification, especially in Thailand and the other Southeast Asia countries. We continue to monitor developments in the region and are well-prepared when non-China solutions are needed.

Please do not hesitate to contact me (allan_clark@jabil.com) with any questions or for more information.