ASEAN Economies Attract a Surge of Investment as Supply Chains Realign

Last year, foreign direct investment across the 11 ASEAN member states reached a record $243.9 billion, marking the fifth consecutive year it has topped $200 billion. While investment patterns vary by sector and country, roughly 60% of this investment was in manufacturing and finance.

As Southeast Asia develops and refines its manufacturing networks, many supply chain leaders are considering how these growing production and sourcing locations fit into a realigned, genuinely resilient supply chain network, supporting both diversification and targeted China+1 strategies.

Waldo Basilla, APL Logistics' Chief Operations and Commercial Officer, Asia, offers practical insight into this investment growth and advice on how businesses can make the most of the opportunities it creates.

It’s No Longer Just China+1, It’s Regional Networks

Data presented at the recent Transport Events conference in Kuala Lumpur showed that 15.6% of respondents had shifted manufacturing from non-ASEAN countries, while 71.5% had expanded their local supplier networks and 39.3% planned to increase local procurement.

In many ways, the China+1 strategy is now evolving into a broader China+ASEAN production network. Basilla sees companies diversifying across multiple ASEAN countries, not just for manufacturing but also for sourcing and assembly, rather than choosing a single alternative market. This reflects the distinct roles member countries have developed.

Vietnam, for example, is attracting electronics manufacturing, while Thailand has established automotive and industrial manufacturing sectors. Indonesia is taking on an increasing role in nickel processing and electric-vehicle battery supply chains, while Malaysia and the Philippines are specializing in semiconductors and hold large shares of that market.

Basilla also shared that he has seen cases where Chinese companies have moved their operations to ASEAN countries, partly to maintain established supplier relationships while diversifying production.

Diversification and Resilience Still Matter

Diversification alone, however, does not automatically create resilience. It reduces dependence on a single location but can also introduce new vulnerabilities.

One example Basilla gives is relocating manufacturing while continuing to source materials from China. This can lengthen supply chains and increase uncertainty, as more border crossings and additional handoffs create more opportunities for delays.

To offset these risks, supply chain leaders must fully understand the origins of their materials, the dependencies within their production networks, and how alternative routes and suppliers could help them respond to disruption. Otherwise, vulnerabilities are simply shifted upstream.

The Development Question: Skills and Infrastructure Must Be a Priority

The long-term success of ASEAN partnerships will also depend on how effectively the region develops. Basilla notes that gaps remain in logistics infrastructure, alongside differences in costs, automation, and productivity across the region. “It is difficult to match the efficiency and automation China has already built. This needs not just money, but also the knowledge and capability to compete.”

Indonesia’s archipelagic geography, for example, makes internal freight movement inherently more complex. Enhancing connectivity between manufacturing nodes is also critical, while developing advanced manufacturing and logistics capabilities will require investment in technical skills.

Without a focus on these areas, investment alone may boost production capacity but fail to deliver the efficiency and reliability supply chains need. The latest ASEAN Investment Report identified infrastructure, logistics capacity, workforce skills, digital transformation, and industry standards as priorities for strengthening regional supply chains.

Shaping Supply Chain Partnerships for the Next Decade

The influx of investment into ASEAN highlights the region’s potential to become a specialized manufacturing and sourcing network over the next decade. Invest ASEAN suggests that advanced manufacturing development will expand significantly, alongside a broader shift from basic to more sophisticated manufacturing, supported by the region’s growing digital and electronics capabilities. Basilla supports this outlook, provided investment in skills and infrastructure continues.

To make the most of expansion into the ASEAN region, businesses need to view it realistically: as a connected network with both limitations and great potential. Basilla advises starting by mapping at least Tier 1 and Tier 2 suppliers and gaining a clear understanding of cross-border dependencies and risks. He stresses that businesses should assess total landed costs before expanding, rather than focusing on manufacturing costs alone.

He also notes that a logistics partner with a strong local presence can be invaluable when entering a new market, providing support with regional transportation, warehousing, trade compliance, and shipment visibility. Combining local expertise with digital orchestration helps coordinate the movement of goods across complex, diversified supply chains.

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Disclaimer: This article is issued for general information purposes only. APL Logistics accepts no responsibility for any information contained within this article and disclaims and excludes any liability in respect of the contents or for action taken based on such information.