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Southeast Asian Countries Are Best Positioned to Win Amid a Globalisation Reset

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Rising geopolitical tensions and economic multipolarity are adding to trade restrictions, shifting the flows of global trade and investment, and hindering economic growth. Against the backdrop of this new global reality, over the long term, companies and countries will continue to follow a globalisation reset strategy, with economic diversification and supply chain security being the key priorities. This provides new opportunities for Southeast Asian countries as they are well positioned to emerge as the global future manufacturing and export hubs owing to their various strengths. However, additional investments into supporting industries will be required in order to fully benefit.

Rising geopolitical tensions add to the challenges, yet a full deglobalisation remains unlikely

Higher global geopolitical tensions and increasing economic multipolarity are fuelling strategic competition and, in turn, add to trade restrictions, weaker collaboration between the countries and consequently slower economic growth. However, companies continue to seek growth and efficiency gains through global production networks and markets abroad. Thus, an outright reversal of globalisation remains unlikely. Yet companies and countries will continue to adapt to the new global settings by prioritising economic diversification and production relocation of critical components.

Euromonitor International’s Future Manufacturing Hub Index helps companies to spot the most attractive destinations for their next manufacturing locations

However, companies seeking economic diversification face a critical question where to go next and how to allocate future investments. Euromonitor International’s Future Manufacturing Hub Index, assessing labour force, competitiveness, and economic openness across the different countries, helps to identify prime manufacturing destinations and spot possible winners in today’s globalisation reset.

Graphic depicting Pillars to Identify Future Manufacturing Hubs 2023

Asian countries are leading in the Future Manufacturing Hubs Index

Southeast Asian countries, such as Vietnam, Indonesia and India, are best positioned to benefit from the globalisation reset trend and emerge as the new manufacturing and export hubs. The countries benefit from large labour pools, improving productivity and a generally open trade environment. Asian countries have good chances in attracting investments in both labour-intensive and light manufacturing sectors.

Vietnam, Indonesia and India are top performers in Euromonitor International Future Manufacturing Hub Index rankings for 2023

Source: Euromonitor International

Among the developed economies, Germany and the US are among the leaders and benefit from high productivity of workers, good infrastructure and business-friendly operating environments. Developed economies can successfully attract investments from sectors that require highly-skilled workers and are less sensitive to higher operating costs, such as semiconductors, EV batteries or pharmaceuticals.

Success in the neighbouring countries can also benefit mid-tier economies, such as Poland, Malaysia or Mexico. These economies can benefit from rising B2B demand in the neighbouring countries and emerge as key regional suppliers of components and production hubs. Such countries benefit from the presence of manufacturing companies, skilled workers and good infrastructure, yet operating costs still remain attractive.

Chart showing Future Manufacturing Hubs Index Pillars Rank in Selected Countries 2023

Investments into supporting B2B industries will be required in order to fully benefit from globalisation reset

When planning and implementing broader changes in production network and supply chains, companies require a reliable network of suppliers to provide essential components and materials. Industries with lengthy supply chains, such as hi-tech goods, machinery and transport equipment, rely on a wide range of input materials and intermediary goods.

Countries with robust supporting industries, such as chemicals, metal products or electronics subcomponents, have a competitive edge in attracting investments during the globalisation reset. In addition to intermediary goods, robust services and logistics sectors are also required in order to create a favourable operating environment for manufacturing and other companies. Well-developed financial, ICT and engineering sectors make it easier to finance, develop and commercialise new products and help the countries to move up the value chain.

For the emerging countries to fully benefit from globalisation reset, additional investments into supporting industries will be required. Some of the best performers in the Future Manufacturing Hubs Index are already making investments into supporting B2B industries. For example, Vietnam aims to enhance domestic supply and quality in metal parts, textiles and electronics sectors through the Supporting Industry Development Programme. India is also planning to improve its railways, ports and digital infrastructure to lay stronger foundations for future exports growth. Such investments can help to create strong network effects, when pioneering manufacturers attract new investments from smaller suppliers, and lay strong foundations for the future development of the higher value-added sectors in emerging economies.Chart showing Global Spending on Products in Selected Industries 2023More insights on globalisation reset and future opportunities are available in our New Economic Reality: Geopolitical Risks and Globalisation Reset strategy briefing.

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