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Supply chain shifts to drive more manufacturing to Southeast Asia and India

Diversification of supply chains to create opportunities but will require companies to be flexible on factors including land selection.

 Singapore– The next decade will accelerate shifting supply chains whereby manufacturing and production locations will diversify to multiple locations across Southeast Asia and India. According to JLL,Southeast Asia and India stand to be net beneficiaries of companies diversifying manufacturing capabilities to complement existing bases in China, however, companies will need to be flexible when considering locations and funding options to take advantage of volatility in supply chains.

Over the past few years, companies have begun exploring the relocation of manufacturing outside of China. In Asia Pacific, this near/re/friend shoring trend has resulted in the China+1 strategy where companies add additional manufacturing bases outside of China to hedge against supply chain disruptions by reducing reliance on a single country.

According to JLL analysis, the impact has been mostly felt at the destination country, especially in Southeast Asia and India. As a result, governments are supporting these opportunities and implementing more policies that aim to boost their local manufacturing industries, placing a premium on land availability and access to capital sources.

“Diversification within supply chains is a natural step for companies involved in manufacturing within the wider economic lifecycle of this region. We see Southeast Asia and India representing a natural complement to the existing production strength of China but feel that for companies to respond quickly to supply chain shifts, they need to adopt a flexible mindset towards land selection and funding options,” says Michael Ignatiadis, Head of Manufacturing Strategy, Asia Pacific, JLL.

The driving force behind this trend is not only the need for supply chain diversification, but also to capitalise on the strong economic fundamentals of this region, including a large population and labour pool, favourable costs, and various incentives. From a manufacturing investment perspective, these factors position SEA and India as major manufacturing hubs for global markets.

According to multiple sources, rising costs in China over the past decade have served as the primary accelerator of this shift towards diversification. Higher demand for industrial land, coupled with rising wages and material costs, has also pushed up land prices in China, which can be up to two times higher compared to some SEA countries and India.

JLL estimates China holds the lion’s share of manufacturing FDI in the region, but the gap is narrowing. Indonesia raked in $28.7 billion in investment last year, up $4 billion from the year earlier. Vietnam’s FDI in manufacturing climbed over 30% to hit $23.5 billion.

Furthermore, factors such as skilled labour, infrastructure, environmental regulations, proximity to suppliers and customers, and political stability contribute significantly to a factory’s long-term success and sustainability. JLL recommends careful evaluation of these non-cost or qualitative factors are crucial to make an informed decision and lay a strong foundation for future growth.

“Each economy in Southeast Asia is at a different level of its manufacturing story, but we can confidently say that policymakers are extremely keen to rake advantage of diversification initiatives of supply chains.  Companies need to carefully evaluate various factors such as costs, market access, infrastructure, labour, and governmental support before determining their global manufacturing investment strategies,” says Peter Guevarra, Director, Research Consultancy, Asia Pacific, JLL.

 

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