The past three years have seen a number of upsets to global supply chains, caused by political tensions and the COVID-19 pandemic. Lockdowns in Chinese cities continue to disrupt the distribution of goods, with thousands of ships circling around the port of Shanghai in April, as the city’s port maintained a strict regime to prevent the virus spreading.

A number of nations have begun to consider the risks of China’s domination of manufacturing. US president Donald Trump began raising tariffs on Chinese imports in 2018, while the Japanese government has been offering subsidies for manufacturers to “reshore” and bring production home. However, high wages in developed markets mean this is not straightforward.

“Furthermore, China still holds significant competitive advantages with its relatively mature infrastructure, high-quality workforce, extensive supply chains, and dense regional production ecosystems,” says Nancy Wong, senior manager regional research and consultancy, at Savills.

Manufacturers are hedging their bets with a “China plus one” strategy, moving some of their production to other Asia Pacific countries. This process started some years ago, as labour costs began to rise in China, but is now accelerated by supply chain concerns. Three Asian nations have emerged as the prime locations to be a “plus one” for manufacturers who wish to hedge their bets on China

Vietnam

The nation has two key economic zones, in the north around Hanoi and in the south around Ho Chi Minh City. The southern zone is larger but the northern zone is closer to China. Labour costs are considerably lower than in China, however Vietnam has a much smaller workforce and needs to invest substantially in infrastructure to support its economic growth. Plans are underway for 5,000km of highways, high speed rail and new ports and airports.

Indonesia

With a population of 272m, Indonesia has a large workforce and even lower wages than Vietnam. However, it suffers from a lack of infrastructure, although the government has a $430bn programme underway. The majority of manufacturing businesses in Indonesia are located on Java Island, home to 56% of Indonesia’s population and which generated 47% of exports and 70% of total manufacturing value-added in 2020.

India

India is the only nation in the world which can compete with China on scale. According to Oxford Economics, it may overtake China to boast the world’s largest workforce by 2027, with a billion people aged between 15 and 64. India’s huge supply of graduates means it is becoming a centre for pharmaceuticals and high tech manufacturing, as well as consumer manufacturing.

Savills has identified eight key industrial markets: Delhi-NCR, Mumbai, Bengaluru, Pune, Kolkata, Chennai, Hyderabad, and Ahmedabad. Industrial and logistics specialists have been targeting India and the sector attracted $1.5bn of investment in 2021, the second highest after the office sector.

Further reading:
Savills Asia Pacific Industrial report