Which Asian countries could benefit from the “China +1” supply chain shift?

Based on multiple fundamental factors, we use a scorecard analysis to assess the potential of individual Asian economies to adapt to supply chain shifts. From our analysis, we came to four important conclusions:

No other economy has the potential to match China’s onshore supply chain network in scope, scale and competitiveness. China still plays a central role in global supply chains. China’s competitive advantage is not limited to relatively low labor costs and high productivity. Over the past few decades, China has built an integrated supply chain ecosystem, reducing logistics and coordination costs and making production costs much lower than in other countries. As a result, China now accounts for a large proportion of global manufacturing value added.

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Vietnam deftly capitalized on the initial wave of supply chain migration, as the country’s existing domestic production network and supply chain links with China helped it gain a head start. However, Vietnam is hampered by the country’s relatively small infrastructure and internal disparities.

In terms of scale, India is better placed to match China in low-cost, large-scale manufacturing. India’s reform policies and improved macro stability are clear advantages for the country, but India remains at a disadvantage in terms of higher logistics costs, lower labor productivity, and regulatory hurdles.

In other parts of Southeast Asia, higher production costs and lack of scale remain major obstacles for countries in the region, but some of these economies may carve out a market in areas where they have a comparative advantage. We believe that Malaysia may have a competitive position in the semiconductor industry, while Indonesia and Thailand may stand out in the emerging supply chain in the electric vehicle (EV) sector.