India, Southeast Asia emerge as next ‘export manufacturing powerhouses’

Lower cost is top priority, but resilience and stability are also crucial in selecting the next factory location.

India and Southeast Asia were picked as among the top locations for expansion among US manufacturers looking to diversify production away from China, according to a recent study by Boston Consulting Group. 

Over 90% of North American manufacturers surveyed said they have relocated some of their production and sourcing to different countries from China in the past five years, and will continue to do so in the next five years. 

The most competitive destinations they consider expanding include India and Southeast Asia, as well as Mexico, which BCG said are “quickly emerging as future export manufacturing powerhouses” given the competitive cost structures, strong workforce, and capabilities across different industries in all of the three markets.

India’s huge domestic market also provides an additional incentive for foreign manufacturers to enter the subcontinent.

“Geopolitical uncertainties and high US tariffs are driving a significant shift away from China as the primary export platform for the US market in a wide range of industrial sectors,” it said.

The supply chain reshuffling has been an ongoing trend. Citing trade data, BCG noted US goods imported from China went down 10% between 2018 and 2022, but increased from India and the Association of Southeast Asian Nations (ASEAN) by 44% and 65%, respectively, during the same period.

While production shifts were mainly driven by desire to lower costs, the survey revealed US manufacturers are also willing to pay extra to keep supply chains resilient considering the series of disruptions in international trade recently.

It found out that companies were willing to give up an average of 2% of their gross margins to operate in an environment with shorter lead times, greater stability, ease of doing business and better logistics infrastructure.

“They should tailor the footprint to their industry and balance cost against other operating considerations,” BCG said. “In our experience, a successful footprint transformation can improve companies’ resilience and sustainability and cut their global manufacturing and supply-chain costs by 20% to 50%.”