Southeast Asia's Industrial Shift: The Data on Who Is Winning the China Plus One Race

What the Investment Data Shows

Foreign direct investment flows into ASEAN manufacturing rose from approximately $180 billion in 2018 to a record $226 billion in 2023, according to ASEAN Secretariat data. This growth has been distributed unevenly across the region, with Vietnam, Indonesia, Thailand, and Malaysia capturing the largest shares of new manufacturing investment.

Vietnam has been the standout performer. Electronics manufacturing investment, particularly in smartphone assembly and component production, has transformed the country's export profile. Vietnam's electronics exports grew from $25 billion in 2015 to above $110 billion in 2024, with Samsung alone responsible for approximately 20 percent of total Vietnamese exports. The country's strategic location, competitive labor costs, improving infrastructure, and stable government have made it the preferred destination for electronics manufacturers diversifying away from Chinese concentration.

Indonesia has captured significant investment in nickel processing and battery component manufacturing, driven by its position as the world's largest nickel reserves holder and the government's controversial export ban on unprocessed ore, which successfully forced nickel processors to invest in Indonesian smelting capacity rather than exporting raw material.

Thailand retains its position as the regional hub for automotive manufacturing, though this advantage is being tested by the electric vehicle transition. The country's established supply chains, skilled workforce, and extensive infrastructure favor incumbency in internal combustion engine vehicle assembly while creating adjustment challenges as the industry shifts toward electric drive trains.

The China Context

The China Plus One narrative requires careful contextualization against China's own manufacturing data. China's share of global manufacturing output has continued to rise even as Southeast Asian investment has grown, reaching approximately 29 percent in 2024. The more accurate description of what is happening is that global manufacturing capacity is expanding, with a significant portion of that expansion occurring in Southeast Asia as a diversification of previously China-concentrated supply chains rather than a wholesale relocation.

China itself remains the preferred destination for the most technically complex manufacturing operations, particularly where supply chain depth, skilled workforce availability, and infrastructure quality still provide advantages that Southeast Asian competitors cannot fully replicate. The shift is most evident in labor-intensive, standardized manufacturing, and in sectors where geopolitical risk is creating explicit policy incentives for diversification.

Sector by Sector: Who Is Moving Where

Electronics assembly and component manufacturing have shown the most significant diversification, with Vietnam and increasingly India capturing investment from companies explicitly reducing Taiwan and China concentration in response to geopolitical risk assessments.

Textile and apparel manufacturing has seen continued movement toward Bangladesh, Cambodia, and Vietnam, driven primarily by cost differentials rather than geopolitical considerations.

Pharmaceutical manufacturing, particularly active pharmaceutical ingredient production, has seen deliberate policy-driven investment in India and several Southeast Asian countries following the COVID-19 pandemic exposure of supply chain concentration risks in Chinese facilities.

Automotive manufacturing is undergoing a more complex transition. Traditional internal combustion engine assembly is stable or contracting in most locations, while electric vehicle assembly and battery production are attracting new investment flows primarily to Vietnam, Indonesia, and Thailand.

Infrastructure Constraints and the Limits of the Shift

The most significant constraint on Southeast Asia's ability to absorb manufacturing investment is infrastructure, broadly defined to include not just physical infrastructure but workforce skill levels, regulatory capacity, and supply chain ecosystem depth.

Vietnam has invested heavily in industrial zones and logistics infrastructure, reducing but not eliminating this constraint. Power supply reliability, a fundamental requirement for precision manufacturing, remains a periodic challenge. The government has responded by accelerating renewable energy investment and grid modernization, but the transition creates its own disruptions.

Indonesia's infrastructure investment has improved significantly under the Jokowi administration and its successors, but the archipelago's geography creates logistics costs that mainland Southeast Asian competitors avoid. Skilled workforce availability for technically demanding manufacturing operations requires investment in education and training that has long lead times.

Investment Implications

For companies evaluating Southeast Asian manufacturing investment, the data supports several conclusions. Vietnam offers the most developed ecosystem for electronics manufacturing but is experiencing rising labor costs that are narrowing its cost advantage over more recent entrants. Indonesia offers compelling resource advantages in battery supply chains but requires acceptance of a more complex regulatory and infrastructure environment. Thailand offers manufacturing quality and supply chain depth for established sectors but faces the electric vehicle transition challenge.

For financial investors, the Southeast Asian manufacturing story supports exposure to industrial real estate, logistics infrastructure, utilities, and the upstream resource sectors, particularly Indonesian nickel, that are feeding the battery supply chain build-out. The direct equity exposure to listed manufacturing companies in the region offers participation in the growth story with significant variation in quality and governance across the listed universe.