1-7-2024 (SINGAPORE) Southeast Asia has emerged as a top choice for firms seeking to diversify their production away from China. This trend, fueled by escalating tensions between Washington and Beijing, has propelled foreign direct investments (FDI) into the ASEAN economies of Indonesia, Malaysia, Philippines, Thailand, Singapore, and Vietnam to a staggering US$236 billion in 2023, compared to an annual average of $190 billion between 2020 and 2022.
The ‘China Plus One’ strategy, which aims to reduce the risks associated with reliance on a single market or supply chain, has gained significant traction among both foreign and Chinese companies. As firms seek to diversify their manufacturing operations and expand into other countries while maintaining a presence in China, Southeast Asia has positioned itself as an attractive destination for these investments.
According to Kuo-Yi Lim, co-founder and managing partner of the Southeast Asian venture capital firm Monk’s Hill Ventures, the region is well-poised to benefit significantly from this phenomenon. “Southeast Asia is well-placed to benefit significantly from the China+1 phenomenon as both foreign and Chinese companies diversify their supply chains and operations,” Lim told CNBC.
The surge in FDI inflows into the ASEAN bloc has been driven by a diverse array of sources, including the United States, Japan, the European Union, mainland China, and Hong Kong, as highlighted in a May report by OCBC economists.
Vietnam, in particular, has emerged as a key manufacturing hub for global tech giants seeking to diversify their operations away from China. Apple, the renowned US technology company, has established a significant presence in Vietnam, leveraging the country’s competitive labor costs and market access facilitated by a host of free-trade agreements.
“Vietnam’s competitive labor costs and market access, with a whole raft of free-trade agreements, makes it a lot easier to export to other markets, for example, the EU,” remarked Kai Wei Ang, an ASEAN economist at BofA Securities, in an interview with CNBC earlier this month.
Moreover, Vietnam has solidified its position as a major research and development hub for Samsung, the South Korean electronics behemoth, while simultaneously serving as a manufacturing and export base for Samsung’s smartphones.
The influx of investments into the ASEAN region is not limited to the technology sector alone. Across various industries, companies are recognizing the strategic advantages of diversifying their operations and tapping into the region’s burgeoning markets and favorable business environments.
