Countries in Southeast Asia and India are becoming top choices for manufacturing companies looking to shift operations out of China. The shift is being driven by efforts to diversify global supply chains and attractive economic policies and conditions in these regions, according to a report by JLL, a commercial real estate and investment management firm.
An increasing number of companies are moving their manufacturing operations from China to other countries, a phenomenon known as the China+1 strategy. The primary reason is to reduce dependence on China and seek lower-cost alternatives. India and Southeast Asia are the main destinations for this relocation, attracting significant investment from companies looking to establish or expand their factories there.
This trend is driven by the need to diversify supply chains and capitalize on the economic advantages of these regions. Factors such as large populations, skilled labor, competitive costs, political stability, environmental regulations, infrastructure, and attractive incentives position India and Southeast Asia as key manufacturing hubs for the global market.
Moreover, rising costs in China, including land prices, wages, and raw material costs, are driving companies to seek lower-cost alternatives and accelerating this trend. Industrial land prices, wages, and material costs in China can be twice as high as in Southeast Asia and India.
Although China still holds the largest share of manufacturing FDI in the region, the gap is narrowing. Countries such as Indonesia and Vietnam have seen significant increases in manufacturing FDI in recent years. Last year, Indonesia attracted $28.7 billion in investment, an increase of $4 billion from the previous year. Vietnam also saw an even significant increase in manufacturing FDI, up more than 30% to $23.5 billion.
While India and Southeast Asia offer promising opportunities for manufacturing relocation, JLL notes the importance of considering qualitative factors such as cost, market access, infrastructure, labor and government support to ensure the long-term success of global manufacturing investments.
