The global supply chain is constantly changing, shaped by manufacturers around the world striving to limit risk, build resilience, manage costs, and explore new markets for production. As many manufacturers seek to reduce their dependence on a single supply source, Southeast Asia is emerging as a prominent manufacturing hub, reflected in the production changes in the region.
Indonesia and Vietnam are currently leading the manufacturing and trade flow shifts, as indicated by tangible metrics such as FDI and export volumes. In 2023, Indonesia received about $33 billion in greenfield manufacturing FDI and Vietnam about $16 billion, while their exports reached $290 billion and $440 billion, respectively. China, which is expected to remain the key leader in production, is helping drive the production shifts in the region as its manufacturers are increasingly moving their base into Southeast Asia.
Several countries in the region are expanding their manufacturing capabilities and upgrading the transport and logistics infrastructure needed to support export demand. If regional trade continues its current upward trajectory, there may be room for logistics companies to support this growth. Our analysis suggests a gap of around $60 billion between existing or announced infrastructure investment and what could be needed to meet future trade flows. This gap provides opportunities for private investors, logistics companies, and other stakeholders to increase activity in the region.
The region is not homogenous. Trade flows, FDI, exports, raw materials, and industry growth differ across the region and from country to country. Having explored how Asian and multinational corporations are widening their manufacturing footprint across the region, in this article we probe the extent, nature, and significance of these supply chain shifts. It also highlights industry-specific trends and touches on related opportunities in infrastructure and third-party logistics.
We frequently hear the shorthand term “China+1” used to refer to diversifying manufacturing investments, including inward to Southeast Asia. This increasing global supply chain resilience is not only happening in a wider range of ways—our prior analysis shows that disruption has reshaped almost every supply chain yet they remain deeply interconnected. Furthermore, no region is self-sufficient. The challenge therefore is to harness the benefits of interconnection while managing the risks and downsides of dependency.
While geopolitics plays a role in such decisions, there are economic factors originating out of COVID-19 that influence companies’ decisions to invest in supply chain resilience. Improving proximity and responsiveness to a rapidly growing local customer base in the region, for instance, may be more significant.
Examining FDI patterns for supply chain insights, FDI into China has dropped. In 2023, it received $13 billion in FDI, reflecting a 17 percent decrease in greenfield manufacturing FDI between 2019 and 2023, while FDI to Southeast Asia increased by roughly 20 percent in the same time period.
China’s and Southeast Asia’s exports are growing at around the same pace, at a CAGR of about 7 percent between 2019 and 2023, compared to roughly 2 percent for China and 1 percent for Southeast Asia in previous years. While we observe that export growth has reached the same rate, it is important to note that China has the highest exports in terms of volume, by an order of magnitude, and will likely stay high for the foreseeable future.
Indonesia and Vietnam are leading the manufacturing shift
There is a strategic shift in global trade dynamics making Southeast Asia an increasingly vital hub for manufacturing, but growth has differed across the region: Indonesian and Vietnamese exports have grown the most rapidly and, alongside FDI surges, these countries have seen more manufacturing investment and production relocation than others. Consequently, the share of exports from these countries on certain routes has reached around 20 percent or more of total exports from the region (Exhibit 1).
Much of this growth is industry specific. Overall, the most prominent trend in Vietnam is increasing growth in electronics, and in Indonesia, in metals and chemicals. Delving into the details, regional export growth, FDI, and trade flows are summarized as follows.
Vietnam is currently the largest exporter in Southeast Asia, with exports growing from $320 billion in 2019 to $440 billion in 2023, achieving a CAGR of 8.2 percent. This export growth is largely driven by substantial FDI in the manufacturing sector, particularly in electronics. There are significant export flows between Vietnam and Europe, Mainland China, and the United States.
Indonesia’s exports have increased from $180 billion in 2019 to $290 billion in 2023, representing a CAGR of 12.3 percent—the highest among Southeast Asian countries. This export boom is supported by significant investments in commodities such as metals, minerals, and chemicals as well as continuous development of downstream industries in the country. Exports are mainly to Africa, parts of Asia, and Mainland China—Indonesia represents around 20 percent of Southeast Asia’s exports to those markets.
Other countries have shown substantial growth, too. Malaysia’s exports rose from $280 billion in 2019 to $370 billion in 2023, with a CAGR of 7.6 percent. The country continues to attract FDI in electronics, including semiconductors, and in the automotive sector, both of which are major contributors to its export performance.
Thailand’s exports have grown from $257 billion in 2019 to $314 billion in 2023, achieving a CAGR of 4.4 percent. While not as rapid as Indonesia or Vietnam, Thailand’s modest growth is supported by its strong manufacturing base, particularly in the automotive and electronics sectors. Economic markers show the country is growing in the field of electric vehicle (EV) production, especially electric four-wheelers (E4Ws) (see sidebar “Regional opportunities in EV production”).
India, too, is a growing manufacturing destination with the potential to export $1 trillion’s worth of goods by 2030. The country has been described as the world’s third most sought-after manufacturing destination due to its skilled workforce, conducive government initiatives, cost advantages, and strategic location.
China will likely remain the key exporter in the region, but local markets could flourish
Even with all the expected exports and growth of production in Southeast Asia, trends suggest China will likely stay the most important producer and exporter in the region. The growth rate may be the same, but China’s exports reached around $3.5 billion in 2023, almost double the total of Southeast Asian volumes at $1.8 billion (Exhibit 2). Even as production ramps up in the region, China will continue to benefit from its achieved size and remain a major force in manufacturing.
However, Southeast Asia has potential for growth in new disruptive industries with local consumers. One example is EVs. The rapid growth in EVs is influencing both supply and demand landscapes. Countries such as Indonesia, Malaysia, Thailand, and Vietnam, and are likely to play pivotal roles in this transformation, with opportunities for logistics companies to offer specialized services.
China is diversifying its manufacturing base into Southeast Asia
In the same way that global companies are diversifying supply chains, Chinese companies are moving manufacturing out of China. They may send components to other countries for production as part of their own manufacturing process, or they could be drawing on production in the region for their own domestic market. China has been investing in Southeast Asia, particularly in manufacturing, reaching $24 billion in FDI in the region in 2023 (Exhibit 3).
Notably, 88 percent of Southeast Asian trade flows stay within the Asia–Pacific (APAC) region. This may be a consequence of Chinese investment in manufacturing production in the region: around 30 percent of exports flow to China. While Southeast Asia is undoubtedly gaining scale in terms of trade, it is still relatively small on a global scale. Trade flows between Southeast Asia and the world outside APAC amount to less than 10 percent of global trade (Exhibit 4). These patterns reinforce the observation that the region is becoming a global manufacturing hub.
The region will likely need more logistics infrastructure to meet export demand
The shift in FDI toward Southeast Asia underscores the strategic importance of these countries in the global supply chain. And for investors and logistics providers, this presents opportunities to capitalize on the growing demand for infrastructure and logistics services. Governments in these countries have made significant infrastructure investments to support this growth (see sidebar “Investments have been made in infrastructure”).
While substantial investments have been made or planned, our analysis suggests that if trade continues on its current trajectory, there could be an additional $60 billion opportunity to provide trade infrastructure in the region (Exhibit 5).
Governments of Indonesia, Malaysia, Thailand, and Vietnam have announced or implemented improvements or expansions to transport infrastructure such as roads, seaports and airports, railroads, and bridges. These are vital for logistics. But there may be a gap between the announced logistics infrastructure capex and what could be needed to meet future trade flows.
We estimated the historical value of capex per incremental ton of global trade in each country. We also calculated the infrastructure investment needed until 2030 by multiplying the historical value of capex per incremental ton of trade by the projected trade until 2030. This suggests that existing and planned infrastructure investment could be supplemented by private investors, logistics companies, and other stakeholders. Logistics opportunities will vary across countries depending on the most prevalent exports—for example, Vietnam could hold potential for containerization of electronics shipments, while there may be a gap in Thailand for building storage solutions for EV batteries.
The logistics sector opportunity
The changing trade and logistics landscape in Southeast Asia has created new opportunities for logistics companies to capture growing demand. For example, Indonesia, Malaysia, and Vietnam are growing in specific exports that offer investment opportunities in specialized supply chains. Given the existing trends surfaced by our analysis of cross-border trade flows, the following logistics routes could hold opportunity.
In Vietnam, chemicals and electronics exports are growing fast and could represent areas of opportunity where logistics support may be needed. Chemicals exports to Mainland China have more than doubled since 2016, as have electronics exports to Mainland China, Taiwan, and the United States. Overall, there has been increased containerization in Vietnam’s exports, suggesting another area for growth.
In Indonesia, opportunities could be found in chemicals and metals export routes to China. For example, metals exports stood at 15 million tons in 2023, growing by 179 percent compared to 2016.
Malaysia exports around 10 million tons of metals a year, the majority of which is to China, and around 3 million tons of electronics a year, the majority of which is to the United States.
Given these volumes, and the anticipated growth of production in the region, there could be room for logistics companies to enter the market. The current third-party logistics landscape is fragmented, with low logistics outsourcing rates of around 7 or 8 percent across Indonesia, Malaysia, Thailand, and Vietnam (Exhibit 6). By comparison, other countries in the region outsource up to 12 percent of logistics services. And in other areas of the world this figure reaches 13 percent. These factors could offer new entrants a chance to become involved in growing trade routes, especially given the low presence of international companies currently in that space.
Logistics companies looking to enter the Southeast Asian region could begin by exploring opportunities in the sectors and regions detailed in this article—such as EVs, electronics, chemicals, and metals—to be alert to ongoing activities. Our analysis suggests that these markets have logistics capacity constraints, particularly in warehousing, port infrastructure, and some areas of specialized services such as RoRo. Companies that prioritize access to these markets could be well positioned to support growing trade flows.
Further considerations they could explore include:
- Building the right sales model that considers using the local commercial force (while taking into account that there may be talent constraints), developing relationships in specific target markets and the commodities industry, and leveraging their global network’s local entities.
- Appraising what the right product offering could be, such as cross-border and local end-to-end products, or express or time-sensitive services for urgent deliveries and customs brokerage services (given the complexity of the region’s customs regulations, this might be in high demand).
- Looking at the right partnerships and investment models to ensure a presence on the ground, such as joint ventures and M&As with local companies, given the low level of consolidation in the market; partnering with investors to develop needed infrastructure; and building a joint footprint with manufacturing companies, being their trusted supply chain partners.
We have seen successful cases of implementation of these strategies. For example, an Asian logistics company has strategically expanded its operations in Southeast Asia, particularly along the China–Thailand corridor, by partnering with logistics firms in Thailand. These partnerships have enabled the company to handle over 1.5 million tons of cargo annually and gain more than 25 percent market share in lithium battery logistics. Their strategy heavily relies on multimodal transport, using road, rail, and sea routes to enhance efficiency and reduce transit times. Moreover, the company has built the logistics based on strong relationships with lithium battery producers located in key regions, such as Guangdong and Jiangsu provinces in China and new connections in Thailand’s Eastern Economic Corridor, and now plays a vital role in the supply chain of EV components.
As global manufacturers diversify their supply chains, new trade routes are burgeoning across Southeast Asia. Logistics companies may have an opportunity to position themselves as integral to making the expected growth in trade a reality.
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