The recent slew of supply disruptions has given rise to what is being called a “China plus one” strategy. Rather than focusing all of one's investment efforts and vendor relationships in China, companies are now creating redundancies in other manufacturing areas of the world to mitigate the risk of slowdown or complete shutdown in China. But which countries are the most promising for that "plus one" location? We've compiled the top 3 Asian countries, which have enacted rules and regulations to make the choice even easier. The Tiger Cub economies, namely Malaysia, Thailand and Vietnam, are ideal targets for manufacturers seeking to bolster their operations in the region.
Firstly, let's look at the numbers. According to the latest update by Container xChange, demand for containers has been increasing in Vietnam, Malaysia and Singapore, as well as other South Asian countries. While Singapore has many attractive qualities and a solid export industry, we focus on Thailand due to lower costs of production.
Located next to China, Vietnam has been the top pick for a “China plus one” strategy. In fact, many Chinese firms now outsource work to Vietnam as part of their own Plus One strategy, or to avoid tariffs placed on Chinese companies by the United States. The country has an ambitious goal for 2030, including the construction of 5,000 kilometers of expressways, a port with deep water canals, high-speed rails, and the expansions of Long Thanh International Airport. Presently, Vietnam’s ports have struggled to keep up with export demand.
Thailand features prominently for foreign direct investment among the high-growth Southeast Asian countries. In fact, it ranked 3rd in the region for ease of doing business, according to the World Bank’s Ease of Doing Business index in 2020. Thailand has made great strides with a simplified application process for starting a business as well as obtaining construction permits. Moreover, it has recently improved protections for minority investors. While the medical sector is the most robust, manufacturing industries, such as the metals and machinery sectors, are on the rise as well. Formerly, an agriculture economy, is now a leading exporter of manufactured goods in industries, such as clothing and textiles, agricultural products (particularly rice, palm oil, rubber, sugar, and seafood), electrical appliances, plastics, and automobiles and automotive parts.
According to the Department of Statistics, the trade flow in Malaysia unanticipatedly saw double-digit growth in imports and exports of 37.3% and 30.5% y-o-y respectively, contrary to the subdued growth it saw last year. Malaysia is attractive for foreign direct investment for many reasons, including a strong legal system, as well as advanced telecommunications and internet infrastructure. Going forward, Malaysia’s Digital Blueprint Program is projected to further improve FDI flows into the development of software and hardware digital infrastructure.
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