The manufacturing opportunity in Southeast Asia and India is immense, driven by structural tailwinds that will continue to drive growth.
Supply chains are undergoing significant transformation, with manufacturing and production locations diversifying across Southeast Asia and India. This shift presents a promising opportunity for many companies to expand their manufacturing capabilities beyond China and strengthen their presence in these regions.
Figure 1: Regional manufacturing FDI (USD billions)
Source: Malaysian Investment Development Authority (MIDA), Philippines Statistics Authority, Bank of Thailand, Indonesia Investment Coordinating Board, Vietnam Ministry of Planning and Investment Department for Promotion of Industry and Internal Trade (DPIIT), Govt. of India, Statista, Press Research India: The manufacturing FDI in India includes all investments in manufacturing sectors and excludes Computer Software & Hardware, Transportation, Construction Activities, Hospital and Diagnostic Centres, Hotel & Tourism, Information & Broadcasting, Service Sectors and Trading.
The "China+1" strategy has gained momentum across the Asia Pacific region. This strategy involves companies establishing additional manufacturing bases outside China to safeguard against supply chain disruptions and reduce dependence on a single country. Southeast Asia and India have emerged as ideal destinations for these diversified manufacturing bases, prompting local governments to implement policies that support their respective manufacturing industries. And while China still leads in manufacturing foreign direct investment (FDI) within the region, the gap is closing. Last year, Indonesia attracted US$28.7 billion in investment, a US$4 billion increase from the previous year. Vietnam experienced a remarkable surge of over 30% in FDI in manufacturing, totalling $23.5 billion.
This shift in manufacturing is driven not only by the need for supply chain diversification but also by the attractive macroeconomic fundamentals of Southeast Asia and India. Rising manufacturing input costs in China have made it comparatively less attractive from a cost perspective. Escalating land prices, coupled with higher wages and material costs, have prompted businesses to explore alternative markets in Southeast Asia and India.
Positive qualitative factors complement these cost considerations. These factors include skilled labour availability, robust infrastructure, adherence to environmental regulations, proximity to suppliers and customers, and political stability. Companies must carefully consider both financial and non-financial considerations when formulating their global manufacturing investment strategies.
The transition to diversified supply chains presents an exciting opportunity for companies to leverage the strengths of Southeast Asia and India while minimising risks associated with over-reliance on a single manufacturing base. By embracing this shift and making informed decisions, companies can position themselves strategically for long-term success in the evolving global manufacturing landscape.
For more information, download our latest report: Beyond China: Asia’s next manufacturing powerhouse.