The manufacturing industry is a crucial pillar of ASEAN’s economy, driving regional growth and global trade. Despite facing challenges such as rising costs and economic slowdowns in late 2022, ASEAN remained resilient and was the only region that experienced growth in its manufacturing sector, while key global economies like the US, China, Japan, and the eurozone saw contractions. Additionally, ASEAN’s Purchasing Managers’ Index (PMI) showed continuous growth, albeit at a slower pace, reflecting the region’s critical role in global manufacturing and supply chains. 

ASEAN’s Role in the Global Manufacturing Market

ASEAN’s significance in global trade has grown steadily, with its share of global exports rising from 5.7% in 2018 to 6.6% in 2022. This growth comes as multinational corporations shift manufacturing from China due to rising costs, trade tensions, and geopolitical risks. ASEAN offers lower labor costs, strategic proximity to China, and a growing focus on Industry 4.0, making it a key player in global supply chains.

Key Drivers of ASEAN’s Manufacturing Growth

• Strategic Location: ASEAN countries are well-placed to serve major markets like China, Japan, South Korea, and Australia. This helps manufacturers diversify supply chains while staying near essential markets and suppliers.
• Cost Competitiveness: Lower labor costs, especially in Vietnam and Indonesia, attract foreign investment. Vietnam’s average manufacturing wages are about half of China’s, making it a cost-effective choice for manufacturers.
• Expanding Workforce: ASEAN has the world’s third-largest labor force, with a young and increasingly skilled workforce. Governments invest in education, vocational training, and digital skills to enhance productivity.
• Infrastructure Development: Improved transport and logistics networks boost manufacturing capabilities. Singapore, Malaysia, and Thailand have advanced infrastructure, while Vietnam and Indonesia are rapidly upgrading their systems.
• Government Incentives: ASEAN governments offer corporate tax breaks, simpler regulations, and free trade zones to attract foreign investment. These policies support high-value manufacturing in electronics, automotive, and medical devices.

Manufacturing market overview by country 

While ASEAN functions as a cohesive regional bloc, individual countries have developed distinct manufacturing strengths. As a result, here is a breakdown of the key manufacturing sectors in major ASEAN economies: 

• Vietnam: Vietnam has emerged as a global hub for electronics manufacturing, largely driven by investments from tech giants like Samsung, Intel, and Foxconn. It is also a major player in textiles and apparel, ranking among the world’s largest exporters in these sectors. Vietnam’s labor market is cost-effective, and the government has made strategic moves to upskill its workforce in advanced manufacturing techniques. 

• Indonesia: Southeast Asia’s largest economy, Indonesia is a leader in automotive and textile manufacturing. The government’s “Making Indonesia 4.0” initiative aims to position the country as a global automotive hub, particularly for electric vehicles (EVs). Indonesia also has significant natural resource-based industries, including palm oil and mining. 

• Thailand: Often referred to as the “Detroit of Asia,” Thailand is the region’s automotive manufacturing powerhouse, producing over two million vehicles annually. It also has a robust electronics manufacturing sector and is focusing on smart manufacturing technologies under the “Thailand 4.0” initiative. 

• Malaysia: Malaysia has established itself as a major player in high-tech manufacturing, particularly in semiconductors and electronics. The country’s strong infrastructure, favorable business environment, and skilled labor make it a key link in global technology supply chains. 

• Philippines: The Philippines is known for electronics assembly and shipbuilding. It has benefited from strong government support for its manufacturing sector, and with rising foreign investments, it is growing its role in sectors like aerospace and medical devices. 

• Singapore: Singapore focuses on advanced manufacturing technologies, including robotics, biotechnology, and precision engineering. It is a global hub for R&D and innovation, driving the region’s shift toward Industry 4.0. 

Figure 1: Total output in trillion USD | Source: Statista

Local insights 

Manufacturing Industry in ASEAN 2024

• Electronics: ASEAN is a significant player in the global electronics supply chain. Countries like Vietnam, Malaysia, and Thailand have attracted substantial investments in electronics manufacturing, especially from multinational corporations looking to relocate from China. Vietnam, for instance, has seen electronics exports soar to over $100 billion, with companies like Samsung and Intel making significant contributions. 
• Automotive: Thailand and Indonesia dominate the ASEAN automotive sector. Thailand’s automotive production primarily focuses on exporting to global markets, while Indonesia is rapidly developing its domestic EV industry, aiming to become a regional hub for electric vehicle manufacturing. Major carmakers like Toyota, Honda, and Ford have established manufacturing operations in the region. 
• Textiles and Apparel: Vietnam is a leading global exporter of textiles and apparel, benefitting from its skilled workforce and competitive labor costs. Other ASEAN countries, such as Indonesia and Cambodia, also contribute significantly to the region’s textile industry. 
• Heavy Industries and Materials: ASEAN has a strong base in industrial products, materials, and heavy manufacturing, particularly in sectors like steel, cement, and chemicals. These industries provide the backbone for infrastructure development across the region. 
• Medical Devices: The medical devices sector is growing rapidly in ASEAN, with Singapore, Malaysia, and Thailand at the forefront. Singapore is known for its advanced manufacturing capabilities in medical devices, while Malaysia and Thailand have become important hubs for manufacturing disposable and diagnostic devices. 

Import & export dynamics 

In 2022, ASEAN’s total exports reached $1.98 trillion, with the US, China, Japan, and the EU being the largest markets. Moreover, electronics and machinery are the leading export categories, driven by Vietnam, Malaysia, and Thailand. ASEAN’s imports, valued at $1.78 trillion, primarily come from China, South Korea, and Japan, with components for electronics manufacturing being the largest import category. 

ASEAN countries also benefit from several free trade agreements (FTAs) that enhance their global trade position. Agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have reduced tariffs and expanded market access, particularly for manufacturing industries like electronics, textiles, and automotive. 

Challenges facing ASEAN manufacturing 

Despite its rapid growth, ASEAN’s manufacturing sector faces several challenges: 

• Productivity Gaps: Countries like Vietnam and Indonesia, while competitive in terms of labor costs, lag in productivity compared to more developed economies. Governments are investing in education and technology adoption to address these gaps. 

• Infrastructure Disparities: While countries like Singapore, Malaysia, and Thailand boast world-class infrastructure, others like Vietnam and the Philippines are still catching up. Ongoing investments in transport, logistics, and digital infrastructure are essential for sustaining long-term growth. 

• Supply Chain Disruptions: ASEAN’s reliance on global supply chains makes it vulnerable to disruptions such as the COVID-19 pandemic, geopolitical tensions, and natural disasters. Diversification and increased regional integration are essential strategies for mitigating these risks. 

Future outlook 

ASEAN’s manufacturing market is projected to grow from $1.7 trillion in 2018 to $2.3 trillion by 2029, with the region playing an increasingly important role in global supply chains. Therefore, the adoption of Industry 4.0 technologies, such as automation, AI, and IoT, is expected to boost productivity and efficiency, particularly in high-tech manufacturing sectors like electronics and medical devices. 

Governments across ASEAN are actively promoting innovation, digital transformation, and sustainable manufacturing practices. For example, Thailand’s “Industry 4.0” strategy, Indonesia’s “Making Indonesia 4.0,” and Vietnam’s focus on smart factories all reflect a commitment to transforming the region’s manufacturing landscape for the future. 

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. 

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Sectorial Note Manufacturing Industry In Southeast Asia 2024