India and Southeast Asia Gain from Supply Chain Diversification

De-risking supply chains will push diversification of manufacturing hubs beyond China. According to JLL, Southeast Asia and India stand out to be net beneficiaries for companies keen to complement or diversify from their existing manufacturing bases in China.

“The Make in India initiative, Industrial Corridor Development Program, Production Linked Incentives (PLI), India Semiconductor Mission & National Logistics Policy are a few policies and initiatives that has helped propel the India story globally today. Not just that, the country’s demographic dividend and therefore being one of the largest consumer markets in World makes India an attractive proposition over other SEA countries. Manufacturing companies are exploring innovative transaction structures to complement their timeline targets and funding strategies in India,” said Chandranath Dey, Head (Operations & Business Development), Logistics & Industrial, India, JLL.

Make in India 2.0 continues its impressive trajectory, fuelled by remarkable 55% increase in Foreign Direct Investment (FDI) equity inflow in the manufacturing sector from 2014-2023, reaching a substantial USD 148.9 billion, compared to USD 96 billion between 2005-2014. This robust growth is further evidenced by notable 4.5 times increase in leasing activity for light manufacturing spaces in 2023, as compared to 2020, with projected Year -on -Year growth of ~25% in 2024.

India's growth story unfolds with remarkable contributions from the Engineering, Auto & Ancillary, and Electronics & White Goods sectors, driving the leasing demand for light manufacturing. “These thriving industries require spaces with advanced specifications, leading to a substantial 35% of manufacturing leasing being garnered through Built-to-Suit transactions. The remaining 65% is dominated by Ready-Built transactions, underscoring the eagerness of manufacturing companies to swiftly occupy readily available stock. Pune, Chennai, and NCR Delhi have emerged as prime destinations, luring manufacturing companies with their robust manufacturing ecosystems and well-developed infrastructure,” he added.

Over the past few years, companies have begun exploring the relocation of manufacturing outside of China. In Asia Pacific, this near/re/friend shoring trend has resulted in the China+1 strategy where companies add additional manufacturing bases outside of China to hedge against supply chain disruptions by reducing reliance on a single country.

According to JLL analysis, the impact has been mostly felt at the destination country, especially in Southeast Asia and India. As a result, governments are supporting these opportunities and implementing more policies that aim to boost their local manufacturing industries, placing a premium on land availability and access to capital sources.

The driving force behind this trend is not only the need for supply chain diversification, but also to capitalise on the strong economic fundamentals of this region, including a large population and labour pool, favourable costs, and various incentives. From a manufacturing investment perspective, these factors position SEA and India as major manufacturing hubs for global markets.

According to multiple sources, rising costs in China over the past decade have served as the primary accelerator of this shift towards diversification. Higher demand for industrial land, coupled with rising wages and material costs, has also pushed up land prices in China, which can be up to two times higher compared to some SEA countries and India.

JLL estimates China holds the lion’s share of manufacturing FDI in the region, but the gap is narrowing. Indonesia raked in USD 28.7 billion in investment last year, up USD 4 billion from the year earlier. Vietnam’s FDI in manufacturing climbed over 30% to hit USD 23.5 billion.

Furthermore, factors such as skilled labour, infrastructure, environmental regulations, proximity to suppliers and customers, and political stability contribute significantly to a factory’s long-term success and sustainability. JLL recommends careful evaluation of these non-cost or qualitative factors are crucial to make an informed decision and lay a strong foundation for future growth.