New Trends in the Transfer of Manufacturing Industry to Southeast Asia​

New Trends in the Transfer of Manufacturing Industry to Southeast Asia​

Driven by the wave of globalization, the transnational transfer of manufacturing industry has always been an important force reshaping the world economic pattern. In recent years, with the in-depth adjustment of the global industrial chain and the continuous evolution of international division of labor, Southeast Asia, relying on its unique geographical advantages, cost advantages and policy dividends, has become a popular destination for global manufacturing transfer, showing many new trends.​

Continuous Expansion of the Scale and Scope of Manufacturing Transfer​

The scale of manufacturing transfer to Southeast Asia is expanding at an unprecedented rate. In terms of foreign capital inflows, the manufacturing investment attracted by various countries is rising. Take Vietnam as an example, in 2023, manufacturing accounted for more than 60% of the foreign direct investment attracted, involving electronics, textiles, auto parts and other fields. Indonesia is also actively attracting foreign investment. In the first half of 2023 alone, the committed foreign investment in the manufacturing sector reached 15 billion US dollars. These data fully show the confidence of international capital in the Southeast Asian manufacturing market.​

The scope of transfer is also extending from traditional labor-intensive industries to technology-intensive and capital-intensive industries. In the past, Southeast Asia mainly undertook labor-intensive industries such as textiles, clothing and toys. Now, industries with higher technological content such as electronic information, automobile manufacturing and mechanical equipment are accelerating their transfer to this region. For example, Vietnam has become an important global electronics production base. Well-known enterprises such as Samsung and Foxconn have set up large-scale production parks in Vietnam, producing smart phones, tablet computers and other products. Thailand has performed prominently in the automobile manufacturing industry, attracting auto giants such as Toyota and Honda to expand investment and establish a relatively complete automobile industry chain.​

Diversified Driving Factors for Manufacturing Transfer​

Cost Advantage Remains the Core Attraction​

Labor cost and land cost are important factors promoting the transfer of manufacturing industry to Southeast Asia. Compared with China and other emerging economies, some countries in Southeast Asia have obvious advantages in labor costs. For example, the average monthly salary of manufacturing workers in Vietnam is about 200-300 US dollars, which is only one-third to one-half of that in the eastern coastal areas of China. The low labor cost makes labor-intensive industries more competitive in Southeast Asia, attracting a large number of enterprises engaged in textiles, clothing, electronic assembly and other fields to invest and set up factories.​

At the same time, land prices in Southeast Asia are relatively low, providing convenience for manufacturing enterprises to build factories and expand production scale. In some industrial parks, the government also offers preferential policies on land use, further reducing the investment cost of enterprises.​

Policy Dividends Create a Good Business Environment​

Governments of Southeast Asian countries have introduced a series of preferential policies to attract manufacturing investment. In terms of taxation, many countries have implemented policies to reduce or exempt corporate income tax. For example, Vietnam grants a 15% corporate income tax preferential to qualified foreign-invested enterprises, and some industries can even enjoy the “two-year exemption and three-year reduction” tax treatment. In terms of trade policies, Southeast Asian countries have actively participated in regional economic cooperation and signed a number of free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), which has reduced trade barriers in the region and facilitated the import and export of manufacturing products.​

In addition, countries are constantly improving infrastructure and administrative services. Increasing investment in transportation, logistics, energy and other infrastructure has improved logistics efficiency and reduced the operating costs of enterprises. Simplifying administrative approval procedures, improving work efficiency, providing more convenient services for enterprises, and enhancing the regional business attractiveness.​

Promotion of Global Industrial Chain Reconstruction​

In recent years, the global geopolitical situation has been complex and changeable, and trade protectionism has emerged. In order to reduce their dependence on a single market, some countries have begun to promote the diversified layout of industrial chains. Southeast Asia, with its superior geographical location, has become an important choice for enterprises to diversify risks and optimize industrial chains.​

For example, after the United States imposed tariffs on China, many enterprises that originally produced in China transferred some production links to Southeast Asian countries to enjoy lower tariff treatment in order to avoid trade barriers. At the same time, the outbreak of the epidemic also made enterprises deeply aware of the vulnerability of the supply chain, accelerating the pace of transfer to Southeast Asia to build a more resilient supply chain system.​

Manufacturing Transfer Shows Regional Agglomeration Characteristics​

Formation of Distinctive Industrial Clusters​

Southeast Asian countries have formed distinctive manufacturing clusters according to their own resource endowments and industrial foundations. Vietnam, with electronic information industry and textile and garment industry as the core, has formed two major industrial agglomeration areas in Hanoi in the north and Ho Chi Minh City in the south. A large number of electronic component production enterprises gather around Hanoi to provide supporting services for leading enterprises such as Samsung; Ho Chi Minh City is a major center of the textile and garment industry, with many garment factories and fabric production enterprises.​

Thailand’s automobile industry cluster effect is significant, with Bangkok as the center, radiating to many surrounding provinces, forming a complete industrial chain integrating automobile R&D, production, parts supply and sales. Malaysia has advantages in the semiconductor industry. Penang is an important global semiconductor packaging and testing center, attracting well-known enterprises such as Intel and ON Semiconductor.​

Gradual Deepening of Industrial Division of Labor in the Region​

With the deepening of manufacturing transfer, the industrial division of labor among Southeast Asian countries is gradually deepening. Countries are no longer in a simple competitive relationship, but form a situation of complementary and win-win cooperation. For example, Singapore, relying on its advanced financial, logistics and technological services, has become a regional R&D and headquarters base; Malaysia and Thailand focus on parts production and product assembly; Vietnam, Cambodia and other countries mainly undertake labor-intensive processing links.​

This intra-regional industrial division of labor has improved the manufacturing competitiveness of the entire Southeast Asian region, enabling the region to better integrate into the global industrial chain. Enterprises can layout production links according to the advantages of different countries, reduce production costs and improve production efficiency.​

Challenges and Problems Faced by Manufacturing Transfer​

Lagging Infrastructure Construction​

Although Southeast Asian countries have made some progress in infrastructure construction, there is still a large gap compared with the needs of the rapid development of manufacturing industry. In terms of transportation and logistics, the road and railway networks in some countries are imperfect, and the port handling capacity is insufficient, resulting in high cargo transportation costs and low efficiency. For example, in some remote areas of Indonesia, logistics costs account for more than 30% of the total product cost, seriously affecting the competitiveness of enterprises.​

There is also the problem of unstable energy supply. Power supply is tight in some countries, and power outages often occur, which brings trouble to the normal production of enterprises. In order to ensure production, many enterprises have to have their own generators, increasing production costs.​

Labor Quality Needs to Be Improved​

Although Southeast Asia is rich in labor resources, the quality of labor is uneven, and the shortage of high-quality technical talents and management talents is prominent. In some technology-intensive industries, such as electronic information and automobile manufacturing, it is difficult for enterprises to recruit a sufficient number of skilled workers and engineers, so they have to introduce them from abroad, increasing the labor cost of enterprises.​

The disconnection between the education system and industrial needs is also an important reason for the low quality of labor. Vocational education in many countries is underdeveloped, and the trained students lack practical operating skills, which makes it difficult to meet the production needs of enterprises.​

Incomplete Industrial Chain Supporting​

The industrial chain supporting in Southeast Asia is still insufficient. Many key components and raw materials need to be imported from abroad, increasing the procurement cost and production cycle of enterprises. For example, although Vietnam’s electronics manufacturing industry is developing rapidly, most core components such as chips and displays rely on imports, and the local supporting rate is less than 30%.​

The imperfection of the industrial chain also affects the production efficiency of enterprises. Due to the lack of local suppliers, enterprises need to spend more time and energy looking for foreign suppliers and coordinating logistics and transportation, increasing the management difficulty of enterprises.​

Policy Stability and Business Environment Need to Be Improved​

Some Southeast Asian countries have insufficient policy stability, imperfect laws and regulations, and low administrative efficiency, which bring certain risks to enterprise investment and operation. For example, tax policies and land policies in some countries often change, making it difficult for enterprises to make long-term plans. The administrative approval process is cumbersome, and corruption occurs from time to time, increasing the operating costs of enterprises.​

In addition, insufficient protection of intellectual property rights is also an important factor restricting the transfer of manufacturing industry. In some countries, piracy and infringement are relatively serious, which affects the innovation enthusiasm of enterprises and is not conducive to the development of technology-intensive industries.​

Future Trends and Prospects of Manufacturing Transfer​

The Pace of Industrial Upgrading Will Accelerate​

With the deepening of manufacturing transfer, Southeast Asian countries will gradually move from simple processing and assembly to high-end links of the industrial chain. Governments of various countries have increased investment in R&D and innovation, encouraged enterprises to carry out technological innovation, and improved the added value of products. For example, Singapore has set up a number of R&D centers to attract top global scientific and technological talents and promote the development of high-tech industries; Vietnam is also actively building science and technology parks to provide R&D support and policy preferences for enterprises.​

At the same time, multinational enterprises are gradually transferring some R&D and design links to Southeast Asia, using local talent and cost advantages to improve their innovation capabilities. In the future, Southeast Asia is expected to form certain technological R&D capabilities in electronic information, automobile manufacturing and other fields, and realize industrial transformation and upgrading.​

Regional Economic Integration Will Promote Coordinated Development of Manufacturing Industry​

The entry into force of the Regional Comprehensive Economic Partnership (RCEP) provides an important opportunity for the coordinated development of Southeast Asian manufacturing industry. The agreement will reduce trade barriers in the region, promote the free flow of goods, services and investment, and help Southeast Asian countries give play to their respective comparative advantages and deepen industrial division of labor and cooperation.​

For example, countries can form closer industrial chain cooperation according to their own industrial characteristics. Thai auto parts enterprises can provide supporting facilities for Vietnamese auto assembly plants, and Malaysian semiconductor enterprises can supply chips for Singaporean electronic enterprises. This intra-regional coordinated development will improve the manufacturing competitiveness of the entire Southeast Asian region and form a more complete and efficient industrial chain system.​

Green Manufacturing Will Become an Important Development Direction​

With the increasing global attention to environmental protection, green manufacturing will become an important trend in the development of Southeast Asian manufacturing industry. Governments of various countries have begun to introduce relevant policies to encourage enterprises to adopt environmental protection technologies and equipment and reduce pollutant emissions. For example, Thailand has formulated a new energy vehicle development plan, aiming to achieve 30% of new energy vehicles in total automobile production by 2030; Vietnam is also actively promoting the development of renewable energy to provide clean energy for manufacturing enterprises.​

Multinational enterprises are also introducing the concept of green manufacturing into Southeast Asia, focusing on energy conservation and emission reduction in the production process and promoting the circular economy model. In the future, Southeast Asian manufacturing industry will make greater progress in green production and clean energy utilization, and realize sustainable development.​

The transfer of manufacturing industry to Southeast Asia is in a stage of rapid development, showing new trends such as expanding scale, extending scope, diversified driving factors and regional agglomeration. Although facing challenges such as lagging infrastructure, low labor quality and incomplete industrial chain supporting, with the promotion of policy support, regional economic integration and green manufacturing trends, the future development prospects are broad. Southeast Asia is expected to occupy a more important position in the global manufacturing pattern and become a new engine for global economic growth.