The manufacturing industry is a crucial pillar of ASEAN’s economy. It drives both regional growth and global trade. Despite challenges such as rising costs and slowdowns in late 2022, ASEAN remained resilient. It was the only region that showed growth in its manufacturing sector, while major economies such as the US, China, Japan, and the eurozone experienced contractions.
In addition, ASEAN’s Purchasing Managers’ Index (PMI) showed steady growth. Although slower, it reflects the region’s critical role in global supply chains. In this article, we – Source of Asia, provide detailed insights into the manufacturing industry and how to enter this market in the ASEAN region.
ASEAN’s Role in the Global Manufacturing Industry
ASEAN’s share of global exports grew from 5.7% in 2018 to 6.6% in 2022. As a result, its role in global trade has become more significant.
Multinational corporations are shifting manufacturing from China due to rising costs, trade tensions, and geopolitical risks. ASEAN provides lower labor costs, close proximity to China, and an increasing focus on Industry 4.0. Therefore, it has become a key player in global supply chains.
Key Drivers of ASEAN’s Manufacturing Market Growth
- Strategic location. ASEAN countries are near major markets like China, Japan, South Korea, and Australia. This allows manufacturers to diversify supply chains while staying close to suppliers and customers.
- Cost competitiveness. Lower labor costs, especially in Vietnam and Indonesia, attract investment. Vietnam’s average manufacturing wages are about half of China’s.
- Expanding workforce. ASEAN has the world’s third-largest labor force. It is young and increasingly skilled, supported by government investment in training and digital skills.
- Infrastructure development. Transport and logistics networks are improving. Singapore, Malaysia, and Thailand already have advanced systems, while Vietnam and Indonesia are catching up fast.
- Government incentives. Tax breaks, simpler rules, and free trade zones encourage investment. At the same time, these policies support high-value industries like electronics, automotive, and medical devices.
Manufacturing Market Overview by Country
While ASEAN is a regional bloc, each country has its own strengths.
- Vietnam: A global hub for electronics, textiles, and apparel. Tech giants like Samsung, Intel, and Foxconn have invested heavily. The government is also upgrading workforce skills.
- Indonesia: The region’s largest economy, strong in automotive and textiles. The “Making Indonesia 4.0” initiative aims to build a global hub for electric vehicles. Natural-resource industries like palm oil and mining are also vital.
- Thailand: Known as the “Detroit of Asia.” It produces over two million vehicles annually and has a strong electronics sector. The “Thailand 4.0” plan focuses on smart manufacturing.
- Malaysia: A key player in semiconductors and high-tech electronics. Strong infrastructure and skilled labor support its role in global supply chains.
- Philippines: Focused on electronics assembly, shipbuilding, aerospace, and medical devices. Government support and new investment are boosting its role.
- Singapore: A hub for robotics, biotech, and precision engineering. It leads in R&D and Industry 4.0 adoption.
Key Sectors in ASEAN Manufacturing Industry
- Electronics. ASEAN is central to the global electronics supply chain. Vietnam, Malaysia, and Thailand are leaders. Vietnam’s electronics exports alone exceed US$100 billion.
- Automotive. Thailand and Indonesia dominate. Thailand exports globally, while Indonesia is building its EV industry. Major brands like Toyota, Honda, and Ford are present.
- Textiles and apparel. Vietnam is one of the world’s top exporters, supported by low costs and skilled labor. Indonesia and Cambodia also contribute.
- Heavy industries and materials. ASEAN produces steel, cement, and chemicals, which support infrastructure development.
- Medical devices. Growing fast in Singapore, Malaysia, and Thailand. These countries specialize in disposable and diagnostic equipment.
Manufacturing Industry in ASEAN 2024
Import and Export Dynamics
In 2022, ASEAN’s exports reached US$1.98 trillion. Electronics and machinery led the way, mainly from Vietnam, Malaysia, and Thailand.
Imports were valued at US$1.78 trillion. China, South Korea, and Japan supplied the largest share, particularly electronic components. ASEAN also benefits from free trade agreements such as RCEP (Regional Comprehensive Economic Partnership) and CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). As a result, tariffs are lower, and market access is broader, especially in electronics, textiles, and automotive.
ASEAN Manufacturing Industry: Challenges
Despite its rapid growth, ASEAN’s manufacturing sector faces several challenges:
- Productivity gaps. Vietnam and Indonesia remain cost-competitive but trail in productivity. Governments are investing in training and technology to close the gap.
- Infrastructure gaps. Singapore, Malaysia, and Thailand have advanced infrastructure. However, countries like Vietnam and the Philippines still need major upgrades.
- Supply chain risks. Heavy reliance on global supply chains exposes ASEAN to pandemics, tensions, and natural disasters. Therefore, diversification and stronger regional links are critical.
Figure 1: Total output in trillion USD | Source: Statista
Future Outlook
ASEAN’s manufacturing market is forecasted to grow from US$1.7 trillion in 2018 to US$2.3 trillion by 2029. Industry 4.0 technologies, such as automation, AI, and IoT, will boost productivity in electronics and medical devices.
Governments are driving digital transformation and sustainability. Thailand’s “Industry 4.0,” Indonesia’s “Making Indonesia 4.0,” and Vietnam’s smart factory push are examples.
In short, ASEAN’s manufacturing industry is set to play a larger role in global supply chains. Its location, cost advantages, and focus on innovation will keep attracting investment.
Final Thoughts
ASEAN’s manufacturing industry is set to play an even larger role in the global economy, driven by its strategic location, competitive costs, and government policies supporting investment.
The region’s growing focus on advanced manufacturing technologies and infrastructure development will further enhance its competitiveness. As ASEAN continues to integrate into global supply chains and embrace Industry 4.0, it is poised to become a global manufacturing powerhouse in the coming decades.
Click below to discover all you need to know about an overview of the Manufacturing Industry in ASEAN!
Sectorial Note Manufacturing Industry In Southeast Asia 2024
