Why companies are looking beyond China
The shift away from China is not a trend. It is a structural recalibration that has been building for years. Rising labour costs, US tariffs that started in 2018 and have only escalated since, geopolitical tensions, COVID supply chain disruptions, and growing ESG scrutiny have all pushed manufacturers to rethink their dependence on a single country.
The numbers are significant. A growing number of Japanese and Korean manufacturers have been actively diversifying their supply chains away from China since 2022, as widely reported by Reuters and other outlets. European and American companies are following the same path. The European Chamber of Commerce in China reported in its 2024 Business Confidence Survey that a record share of European firms were considering or already executing relocation of production capacity.
But here is where most companies get stuck. They know they need to diversify. They have read the headlines. They may have even visited a factory or two. But when it comes to choosing a country, the decision stalls. Vietnam gets the most attention, but is it always the right choice? What about Thailand's mature automotive supply chains? Malaysia's semiconductor ecosystem? Indonesia's scale?
The answer depends entirely on what you make, where you sell it, and how much operational complexity you are willing to manage. There is no single best country. There is a best country for your product, your volumes, and your target markets. Let us walk through each one.
Vietnam: the manufacturing magnet
Vietnam has attracted more "China+1" manufacturing investment than any other country in the region over the past five years. The reasons are well documented: competitive labour costs, a young and growing workforce of nearly 100 million people, political stability, and an aggressive trade agreement strategy that gives Vietnamese exports preferential access to Europe, Japan, Canada, Australia, and much of Asia.
The country's FTA coverage is the broadest in Southeast Asia. The EU-Vietnam Free Trade Agreement (EVFTA), CPTPP, and RCEP together create a tariff landscape that makes Vietnam genuinely competitive for export-oriented manufacturing. For European companies specifically, the EVFTA is a game changer: it eliminates or reduces tariffs on the vast majority of goods traded between Vietnam and the EU.
Electronics and technology
This is where Vietnam has made its biggest mark. Samsung's expansion into Vietnamese manufacturing has exceeded $20 billion in total investment, with factories in Bac Ninh and Thai Nguyen producing roughly half the company's global smartphone output. Intel operates a major assembly and test facility in Ho Chi Minh City. Foxconn has committed billions to manufacturing expansion in the northern provinces, building capacity for Apple products and other major brands.
The electronics ecosystem is now deep enough that second and third-tier suppliers have followed the major brands. Component manufacturers, PCB producers, and packaging companies have all set up operations in Vietnam, creating the kind of localised supply chain that reduces lead times and logistics costs.
Furniture, textiles, and consumer goods
Vietnam is the world's second largest furniture exporter, behind China. Factory clusters in Binh Duong and Dong Nai provinces produce everything from flat-pack shelving to custom hardwood cabinetry. The industry has matured significantly over the past decade, and many factories now hold FSC and CARB certifications that European and American buyers require.
Textiles and garments remain a major export category, with Vietnam ranking among the top three global exporters. Nike, Adidas, and H&M all source heavily from Vietnamese factories. The country has also developed strong capabilities in footwear, bags, and accessories.
The VinFast factor
No discussion of Vietnamese manufacturing is complete without mentioning VinFast. The speed at which Vingroup's automotive subsidiary went from concept to producing electric vehicles for export is a benchmark for what is possible in this country. VinFast's factory complex in Hai Phong, built on reclaimed land, went from breaking ground to producing cars in roughly 21 months. By 2023, VinFast was shipping vehicles to North America and Europe.
VinFast is not just a car company story. It is a signal about Vietnam's ambition and capability to move up the manufacturing value chain. The company's rapid scaling, willingness to invest billions in R&D, and push into international markets tell you something about the operating environment. Things can move fast here. Faster than most European executives expect.
Where Vietnam falls short
Vietnam is not without limitations. Power supply has been a recurring concern, with electricity shortages during peak summer months causing production disruptions in 2023. The government is investing heavily in power generation, but the grid is still playing catch up with the pace of industrial expansion.
Labour availability in some industrial zones is tightening. The northern provinces around Hanoi, where much of the electronics manufacturing is concentrated, are seeing rising wages and increasing competition for workers. Infrastructure, while improving rapidly, still lags behind Thailand and Malaysia in terms of road quality, port capacity, and cold chain logistics.
Thailand: the established industrial hub
If Vietnam is the newcomer attracting all the attention, Thailand is the experienced player that quietly delivers. Thailand has been a manufacturing hub for decades, and its industrial infrastructure reflects that maturity. Roads, ports, power supply, and logistics networks are significantly more developed than in most of its neighbours.
Automotive and heavy manufacturing
Thailand produces nearly two million vehicles per year, earning its nickname as the "Detroit of Asia." Toyota, Honda, Mitsubishi, BMW, and Mercedes-Benz all operate assembly plants in the country. The automotive supply chain is deep: Tier 1, Tier 2, and Tier 3 suppliers are well established, and the workforce has decades of experience in precision manufacturing.
According to OICA production statistics, Thailand consistently ranks among the top 12 vehicle producers globally. For companies that need automotive-grade quality systems, certified suppliers, and a mature logistics infrastructure, Thailand is hard to beat in Southeast Asia.
Eastern Economic Corridor
The Thai government's Eastern Economic Corridor (EEC) initiative targets advanced manufacturing, robotics, aviation, and biotechnology. The EEC offers tax incentives, streamlined permits, and infrastructure development across three eastern provinces. It is designed to pull Thailand up the value chain from basic assembly toward higher-end manufacturing.
Companies like Bridgestone, Bosch, and Siemens have expanded their Thai operations under EEC incentives. For European manufacturers producing industrial components, automotive parts, or food processing equipment, the EEC provides a structured environment with clear regulatory support.
Where Thailand falls short
Labour costs in Thailand are notably higher than in Vietnam, Cambodia, or Myanmar. The minimum wage in Bangkok and surrounding industrial zones is roughly double Vietnam's. Thailand's population is also aging, with a median age of 40 and a shrinking working-age cohort. For labour-intensive manufacturing, these demographics present a real constraint. Thailand's FTA network, while extensive, does not include a direct agreement with the EU, which limits tariff advantages for companies exporting to European markets.
Malaysia: the precision player
Malaysia occupies a unique position in Southeast Asia. It is not the cheapest option for manufacturing, but for certain industries, it is the most capable. The country has built genuine expertise in high-value segments that require precision, IP protection, and a skilled English-speaking workforce.
Semiconductors and electronics
Penang has been called the "Silicon Island of the East" for good reason. Intel, Infineon, Osram, and Bosch all operate major facilities there. Malaysia accounts for roughly 13% of global semiconductor testing and packaging, according to the Semiconductor Industry Association. The semiconductor ecosystem includes not just the major multinationals but a deep bench of local contract manufacturers and equipment suppliers.
When the global chip shortage highlighted supply chain vulnerabilities, Malaysia's semiconductor capacity became strategically important. Intel announced a $7 billion expansion of its Penang facility, and other chipmakers have followed with significant commitments.
Medical devices and aerospace
Malaysia has developed a growing medical device manufacturing sector, with over 200 companies producing everything from surgical gloves (the country dominates global rubber glove production) to diagnostic equipment and implants. The aerospace sector is smaller but growing, with Airbus, Spirit AeroSystems, and Honeywell operating maintenance and component production facilities.
For companies where IP protection, regulatory compliance, and quality systems matter more than labour cost, Malaysia offers an environment that is closer to developed-market standards than most of its ASEAN neighbours.
Where Malaysia falls short
Malaysia's workforce is smaller than Vietnam's or Indonesia's, and labour availability can be a constraint, particularly for lower-skilled manufacturing roles. The country relies heavily on migrant workers for certain industries, which introduces regulatory and operational complexity. Labour costs are higher than in Vietnam, though lower than in Thailand for comparable skill levels.
Indonesia: the sleeping giant
Indonesia is the largest economy in Southeast Asia, with 270 million people and abundant natural resources. It has long been described as a market with enormous potential that is difficult to unlock in practice. That dynamic is starting to shift, particularly in sectors tied to the electric vehicle revolution.
EV batteries and raw materials
Indonesia holds the world's largest nickel reserves, and the government has leveraged this position aggressively by banning raw nickel ore exports and requiring domestic processing. The strategy is working. China's CATL, South Korea's LG Energy Solution, and Hyundai have all invested billions in Indonesian nickel processing and EV battery production facilities.
For companies in the EV supply chain, or those requiring access to nickel, cobalt, or other mineral resources, Indonesia is increasingly difficult to ignore. The government's downstream processing strategy means that more value is being created domestically, and the industrial ecosystem around battery materials is growing rapidly.
Scale and domestic market
Indonesia's population is the fourth largest in the world. For companies willing to serve both domestic and export markets, the scale of the Indonesian opportunity is compelling. Consumer goods, food processing, packaging, and building materials all have strong domestic demand that provides a baseline of volume independent of export markets.
Where Indonesia falls short
Bureaucracy remains a real challenge. Permit processes, land acquisition, and regulatory approvals can be slower and less predictable than in Vietnam or Thailand. Infrastructure outside Java is underdeveloped, and logistics costs between islands are high. Local content requirements can complicate import strategies and force premature localisation. For export-oriented manufacturers without a need for Indonesian raw materials or domestic market access, these frictions often tip the balance toward Vietnam or Thailand.
The Philippines: services to manufacturing bridge
The Philippines is best known for its services sector, particularly business process outsourcing. But the country also has a manufacturing base that is often overlooked, particularly in electronics assembly and food processing.
Electronics assembly
Texas Instruments, Analog Devices, and ON Semiconductor all operate significant production facilities in the Philippines. The country is a major producer of semiconductor components and electronic sub-assemblies. The workforce is English-speaking, which simplifies communication and training compared to most other Southeast Asian markets.
Food processing and packaging are also growing, driven by both domestic demand and export opportunities. The Philippines has strong trade ties with the United States and Japan, which creates tariff advantages for certain product categories.
Where the Philippines falls short
The biggest limitation is logistics. The Philippines is an archipelago of over 7,000 islands, and moving goods between production sites and ports can be slow and expensive. Natural disaster exposure, particularly typhoons, adds operational risk that manufacturers need to plan for. Power costs are among the highest in the region, which affects energy-intensive production. For companies focused on European export markets, the Philippines lacks a direct FTA with the EU, which limits tariff competitiveness compared to Vietnam.
How to decide: matching your product to the right market
The right country depends on a handful of practical factors that are specific to your product and business model:
- Labour intensity: If your product requires large volumes of manual labour, Vietnam and Indonesia offer the most competitive costs. For precision work requiring skilled operators, consider Malaysia or Thailand.
- Export destination: Selling to Europe? Vietnam's EVFTA gives it a clear tariff advantage. Selling to the US? Vietnam and Thailand are both strong, though tariff landscapes are shifting. Selling within ASEAN? Any member state benefits from intra-regional trade agreements.
- Supply chain maturity: If you need a deep, established supplier base with automotive-grade quality systems, Thailand is the safest bet. If you are willing to invest in supplier development for long-term cost advantages, Vietnam rewards that approach.
- Raw material access: If your production depends on nickel, palm oil, rubber, or other natural resources, Indonesia and Malaysia move up the list significantly.
- IP sensitivity: For products where intellectual property protection is critical, Malaysia's legal framework and enforcement environment are the strongest in the region.
Many companies end up splitting production across two countries. This adds operational complexity, but it also provides resilience. A common pattern we see is producing labour-intensive sub-assemblies in Vietnam while sourcing precision components from Thailand or Malaysia. RCEP and bilateral FTAs between ASEAN countries are making these cross-border supply chains increasingly practical.
Getting started without getting stuck
The companies that succeed in relocating production to Southeast Asia share a common approach: they validate before they commit. They visit factories. They run pilot orders. They test logistics routes. They budget for a learning curve and they put people on the ground who can manage the inevitable surprises. If Vietnam is on your shortlist, we have written a detailed guide on designing an operationally viable supply chain in Vietnam that walks through the practical steps.
The companies that struggle are the ones that try to make the decision from a boardroom based on reports and trade show conversations. Southeast Asia rewards presence. It rewards relationships. And it rewards companies that take the time to understand the specific market they are entering, rather than treating the entire region as interchangeable.
We work with companies from Europe, the US, and across the globe evaluating and executing production relocation across Southeast Asia. If you are at the stage where you know you need to diversify but are not sure where to start, a conversation with someone who has spent years on the ground in these markets is usually the most efficient first step.
