ASEAN manufacturing relocation enters the second wave: from "leaving China" to "designing for the region"

From "Factory" to "Factory of Factories": The Evolving Role of ASEAN

For a long time, "Made in China" has dominated global supply chains, but this landscape is being profoundly reshaped. China is upgrading from a large-scale assembly center to a "factory of factories"—exporting intermediate goods to other countries for final assembly. Amid rising labor costs and intensifying trade frictions, ASEAN economies have steadily taken over manufacturing capacity flowing out of China.

According to the Asian Business Review, in the first four months of 2026, Vietnam attracted $7.4 billion in foreign direct investment (FDI), a year-on-year increase of 9.8%, hitting a five-year high; of this, $6.12 billion flowed into processing and manufacturing, highlighting ASEAN's position as the top destination for manufacturing relocation from China. Malaysia has just surpassed Vietnam to rank second in the 2026 Asia Manufacturing Index, while Indonesia is demonstrating its ambition in the electric vehicle battery sector.

Second Wave of Relocation: From "Leaving China" to "Designing for the Region"

The core of the first wave of manufacturing relocation was "leaving China"; the second wave—the current unfolding trend—requires companies not only to move production lines out of China but also to design operational systems for the entire Southeast Asian region. ASEAN is not a homogeneous market: tax systems, e-invoicing systems, labor laws, and compliance requirements vary significantly among Vietnam, Indonesia, and Malaysia. Even with regional trade agreements like RCEP and ATIGA 2.0, fragmentation in practice still challenges multinational enterprises.

As industry observer KG Tan notes: "An optimized manufacturing footprint in 2024 could look completely different by 2026." This dynamism means that a single-country strategy alone cannot sustain long-term competitiveness. The key to success for companies lies in building a diversified, resilient layout capable of withstanding change.

Regional Competition Drives Deeper Industrial Division of Labor

A more refined division of labor is emerging within ASEAN. Malaysia continues to deepen its focus on semiconductors, Indonesia builds an EV battery supply chain around its nickel resources, and Vietnam concentrates on electronics assembly. This differentiated development is both a result of competition and an opportunity for regional synergy—for example, Indonesia's batteries can supply Malaysia's car assembly, while Vietnam's electronic components can flow to Thailand for final manufacturing.

However, dispersion also means greater complexity. A manufacturer with factories in Vietnam, Indonesia, and Malaysia simultaneously must contend with three completely different compliance frameworks. This forces companies to rethink their organizational structure: the era of individual local teams operating independently is over.

Singapore's Hub Advantage and the "Hub-and-Spoke" Model

Data shows that in the first quarter of 2026, Singapore's FDI to Vietnam reached $5.32 billion, accounting for 52% of Vietnam's newly registered capital. This reflects a deeper trend: more and more foreign capital is registering holding companies in Singapore before investing in operating assets in Vietnam, Indonesia, Thailand, and other locations.Singapore has become the preferred regional headquarters not only due to its geographical proximity, pro-business environment, quality infrastructure, and logistics connectivity, but also because of its strong technological capabilities and talent pool. Alongside other Asia-Pacific hubs such as Hong Kong and Tokyo, Singapore offers enterprises a platform for centralized management of taxation, treasury, intellectual property, and compliance.

Industry experts suggest that leading manufacturers should adopt a "hub-and-spoke" model, where a central headquarters provides strategic coordination and compliance oversight while granting local execution teams flexible operational space. Under this structure, compliance is no longer a cost burden but can be transformed into a strategic asset that enhances speed, reputation, and market competitiveness.

Outlook: ASEAN at a Crossroads

ASEAN is often likened to "China 15 years ago" and is at an inflection point of growth. In 2024, ASEAN's manufacturing FDI surged 147% to US$44 billion, but scale alone does not signify victory. The true winners will be those companies that can respond nimbly to regional changes and integrate complexity.

In the coming years, the production hierarchy will continue to be restructured. Driven by frameworks such as RCEP, intra-ASEAN trade will deepen further, but regulatory reforms in individual countries (such as Vietnam's 2025 corporate income tax law amendments) will keep introducing new variables. Only by embedding a regional mindset into their strategic foundation can companies capture long-term value from the second wave of relocation.