East Asia rolls out welcome mat for Brainport as China loses allure

Brainport companies are looking beyond China to expand manufacturing operations in Asia, but cooling relations between Beijing and the West play only a minor part in those plans.

Paul van Gerven

The Dutch high-tech sector is actively scouting for plant locations outside China. A planned business trip to Malaysia, Singapore and Vietnam, organized by Brainport Industries and the Brabant Development Agency (BOM), is part of a “wider, long-term strategy to reduce exposure to China,” sources told Reuters. Companies said to participate in the business trip are AAE, Bestronics, BKB Precision, HQ Group, KMWE Group, Neways, NTS, Sempro, Sioux Technologies en VDL ETG. Most of them are suppliers of ASML.

Reuters suggests that China may have lost some of its allure as the West is erecting a silicon fence around the country. Following sweeping export restrictions imposed by the US in October, the Dutch government confirmed that it will impose additional export controls on ASML, most likely affecting the latest DUV immersion scanner models. Japan is still weighing which measures to take.

Reports indeed suggest that major US companies, including Apple and its key supplier Foxconn, are looking to move production out of China. There’s more at play here than cooling relations between Beijing and Washington, though. China’s relentless zero-Covid policy, which paralyzed supply chains, has prompted a desire for diversification. Analysts also frequently cite a deteriorating business environment as a reason to set up operations elsewhere.

Sophistication

Brainport companies are facing these issues, too. The new regulations, on the other hand, likely play only a very minor part in their deliberations. They’re not directly affected by them and the Dutch government is keener on maintaining good diplomatic and commercial relations with China than Biden’s administration is.

Most of all, Brainport is currently dealing with a more pressing issue: managing growth for ASML and other semiconductor customers. The tour of promising Asian locations is mainly motivated by the need for talent and space. In all of Asia – not just China – well-trained personnel can be found, labor costs are low and land is much cheaper than in the Dutch home base. In addition, in the wake of its customers, Brainport wants to expand its global presence. With a growing installed base, companies have an increasing need for spare parts.

It should also be noted that Brainport’s interest in the three countries predates geopolitical tensions between China and the West. For example, Singapore already hosts plants from both NTS and VDL ETG. KMWE has a presence in Malaysia and Sioux opened an office in Vietnam as early as 2012.

As global plans to move production beyond China accelerate and supply chains outside China grow in size and sophistication, the interest of Dutch high-tech companies in these places is likely to expand even more. Only in that respect, the export restrictions implemented may start to play a significant role in Brainport’s expansion in East Asia.