Moving Out of China
Western manufacturers have relied heavily on China for goods production for decades. According to recent estimates, the country accounts for roughly 30% of global manufacturing output, which includes some of the biggest U.S. and European brands across a multitude of industries. This was mainly driven by lower costs of production that enabled companies to maximize profit margins.
However, it’s never a good idea to concentrate too much of your production on any single region. Threats of high tariffs and sanctions make for a volatile environment for Western brands. Besides geopolitical instability, companies must also factor in the risk of natural disasters, cyberthreats, increasing wages, and material shortages disrupting supply chain operations.
For these reasons, an increasing number of Western enterprises are adopting a “China Plus One” strategy. Prominent brands like Dell, Nike, and Hasbro have signaled their aspirations to move production out of China and to new production hubs. China’s southern neighbors, such as the Vietnamese, Malaysians, and Indonesians, are seen as strong alternatives to China due to competitive labor wages, more stable regulatory environments, and strong economic growth in the region.
For North American and European brands looking to achieve supply chain resilience, the region presents a promising solution backed by government incentives and improving digital infrastructure.
In the video below, ABI Research Senior Analyst Matthias Foo and VP of the Asia-Pacific division Jake Saunders discuss the potential for companies to friendshore to Southeast Asia
Opportunities in Southeast Asia
Western companies are well accustomed to the cost savings generated by building production plants in China and other Asian countries. However, it’s not just about cost savings anymore. Southeast Asian countries are embracing advanced technologies to redefine manufacturing. Southeast Asia's manufacturing ecosystem is undergoing rapid digital transformation, from Artificial Intelligence (AI) and the Internet of Things (IoT) to private 5G networks and digital twins. Chinese factories also leverage these technologies, but the growing uptake expected in Southeast Asia is a critical stepping stone to offshoring efforts.
While it’s true that the adoption of Industry 4.0 technologies is still in its early stages in most Southeast Asian nations, the number of smart factories is expected to triple by 2028. Digitalization maturity in the region is fueled by investments like Singapore’s US$13.1 billion push toward sustainable manufacturing and Thailand’s Board of Investment blueprint. This technological leap allows manufacturers to optimize operations, reduce downtime, and make data-driven decisions—an enticing prospect for companies looking to future-proof their supply chains.
However, offshoring from China isn’t without its challenges. Western brands must navigate cultural differences, regulatory variations, and the logistics of relocating operations. Yet, for manufacturers wary of putting all their eggs in one basket, Southeast Asia offers a compelling opportunity. The region is an emerging hub for manufacturing innovation, with new case examples of domestic enterprises leveraging advanced connectivity and digital tools to meet the growing demands of global supply chains.
Western businesses must understand that the status quo is no longer sustainable. China’s middle class wage increases and geopolitical instability create potential business risks. Southeast Asia is positioning itself as the next frontier for the manufacturing sector, maintaining cost efficiency, while offering technological benefits and better protection from geopolitical challenges. Now is the time to act, leveraging the region's technological growth to build a more diversified and resilient supply chain.
To learn more about the potential for moving manufacturing to Southeast Asia and evaluate the technologies that will power this transformation, download our free whitepaper: Beyond China: Southeast Asia's Potential For Friendshoring Western Enterprises' Supply Chains.
