The global effort to diversify supply chains beyond China is creating significant opportunities for India and Southeast Asia. Recent policies and initiatives in India, such as the Make in India initiative, Industrial Corridor Development Program, Production Linked Incentives (PLI), India Semiconductor Mission, and National Logistics Policy, have successfully elevated the country’s global standing.
De-risking supply chains is encouraging the expansion of manufacturing hubs. Industry experts highlight that both Southeast Asia and India are becoming top choices for companies looking to expand or establish new manufacturing bases.
India’s growth trajectory is particularly impressive. The Make in India initiative continues to flourish, with a 55% increase in Foreign Direct Investment (FDI) equity inflow in the manufacturing sector from 2014 to 2023, reaching USD 148.9 billion. This growth is further demonstrated by a substantial rise in leasing activity for light manufacturing spaces, with an expected Year-on-Year growth of approximately 25% in 2024.
Key sectors fueling this demand include Engineering, Auto & Ancillary, and Electronics & White Goods, which require advanced manufacturing spaces. Approximately 35% of manufacturing leasing is achieved through Built-to-Suit transactions, while the remaining 65% is dominated by Ready-Built transactions. Prime destinations for manufacturing companies include Pune, Chennai, and NCR Delhi, which offer robust manufacturing ecosystems and well-developed infrastructure.
The trend of expanding manufacturing outside of China, known as the China+1 strategy, is gaining momentum. This strategy aims to enhance supply chain resilience by establishing additional manufacturing bases in different countries. The positive impact of this trend is especially evident in Southeast Asia and India, where governments are implementing supportive policies to boost local manufacturing industries and enhance land availability and access to capital.
The driving force behind this diversification is the opportunity to capitalize on the strong economic fundamentals of the region, including a large population, favorable costs, and various incentives. With rising costs in China, such as higher wages and material costs, this shift is gaining further traction. Industrial land prices in China can be up to twice as high compared to some Southeast Asian countries and India.
While China remains a significant player in manufacturing FDI in the region, countries like Indonesia and Vietnam are seeing remarkable increases in investment. Additionally, factors such as skilled labor, infrastructure, environmental regulations, and political stability play a crucial role in ensuring a factory’s long-term success and sustainability.
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