New manufacturing hotspots emerge

For decades, China has dominated global manufacturing. However, companies are increasingly diversifying their operations elsewhere, wary of overreliance on a single source.

This diversification drive is fueling a boom in foreign direct investment (FDI) for manufacturing in Southeast Asia and India, with both vying to become the next manufacturing powerhouse. 

While China holds the lion’s share of manufacturing FDI in the region, 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, according to JLL.

“One of the key drivers behind this shift is the desire to diversify and create more resilient supply chains,” says Peter Guevarra, Director, Research Consultancy, Asia Pacific, JLL.

Spreading their manufacturing base beyond China offers companies multiple advantages, Guevarra says. “It reduces their vulnerability to geopolitical tensions, while potentially boosting supply chain efficiency by locating closer to Southeast Asia, one of the world's fastest-growing regions.”

The search for an ideal location is influenced by a multitude of factors including labor productivity, which can vary significantly.

“It's difficult to directly compare productivity between different areas,” says Ignatiadis. “For instance, productivity in China tends to be substantially higher compared to India or Southeast Asia.”

However, rising costs for land, construction, and labor in China are further tipping the scales in favor of other emerging markets, where costs are often nearly half as much.

Manufacturing wages in India are less than half of China’s, with workers earning $2 per hour compared to China's $5.58, JLL data shows.

“India and Southeast Asia offer a compelling combination of lower labor costs compared to China, and access to a vast, combined talent pool for diverse manufacturing needs,” says Guevarra.

Other factors are also gaining weight in the decision-making process for manufacturers’ relocation strategies, according to Ignatiadis.

“Typically, a manufacturer prioritizes factors like location, talent availability, and capital requirements when relocating to a new market,” he says. “But now, the domestic market size and the potential to tap into new customer bases are also emerging as decisive factors for manufacturers choosing a new hub.”