Futuristic map of Southeast Asia showcasing interconnected manufacturing hubs.

Southeast Asia: The Next Manufacturing Hub?

Samir D’Costa in Business & Economy December 2025 • 4 min read.

"Dive into the factors influencing offshore decisions and how Southeast Asia is emerging as a global manufacturing powerhouse. Discover opportunities and potential."

The COVID-19 pandemic has dramatically reshaped global supply chains, compelling multinational corporations to seek diversification and resilience. China, long the dominant manufacturing hub, is now seeing companies explore alternative locations, with Southeast Asian countries emerging as prime candidates. This shift presents a unique opportunity to examine the factors that drive offshore decisions and the intricate relationships between these economies.

Recent events have accelerated the trend of relocating manufacturing to Southeast Asia, prompting a deeper investigation into the economic forces at play. Factors such as technology readiness, infrastructure, and foreign direct investment (FDI) are crucial in determining the attractiveness of a region for offshore operations. Analyzing these elements through advanced econometric approaches can provide valuable insights for policymakers and businesses alike.

This article explores a new conceptual framework to understand the dynamics of offshore decisions in Southeast Asia. By employing methods like Vector Auto Regression (VAR) and Quantile Vector Autoregressive (QVAR) models, we aim to uncover the multiway cointegration, causality, and dynamic connectedness among countries in the region. This analysis will shed light on spillover effects and interconnectedness, offering a comprehensive view of Southeast Asia's potential as a global manufacturing hub.

What Factors Are Driving the Offshore Manufacturing Shift?

Futuristic map of Southeast Asia showcasing interconnected manufacturing hubs.

Offshoring is defined as relocating a part of the production process overseas and can take several forms, such as FDI and international outsourcing. It has become a common practice for businesses to remain competitive. Motivated mainly by differences in the cost of operations, FDI is influenced by factors such as cost and productivity of labor, market size, incentives, and regulations. The rise of Southeast Asia as a manufacturing hub is tied to its ability to offer a competitive edge in these key areas.

Several interrelated factors drive the decision to offshore manufacturing. Key among these are:

Innovation: Countries that invest in technology and foster innovation are more attractive for advanced manufacturing operations.
Technology Readiness: The level of technological infrastructure and adoption affects the efficiency and competitiveness of manufacturing.
Infrastructure: Adequate infrastructure, including transportation and communication networks, is essential for smooth supply chain operations.
Foreign Direct Investment (FDI): The inflow of FDI boosts productivity and contributes to economic growth through technology transfer and spillover effects.
Intermediate Imports: The ability to efficiently import intermediate goods is crucial for assembling final products and integrating into global value chains.

These factors are not isolated; they interact and influence each other. For example, investments in infrastructure and technology can lead to increased FDI inflows, which, in turn, can enhance manufacturing outputs and innovation. Understanding these relationships is critical for policymakers aiming to attract offshore manufacturing.

The Future of Manufacturing in Southeast Asia

Southeast Asia is rapidly emerging as a significant player in the global manufacturing landscape. The region's ability to attract foreign direct investment, foster innovation, and enhance technological readiness will determine its long-term success as a manufacturing hub. As companies seek to diversify their supply chains and mitigate risks, Southeast Asia offers a compelling alternative to traditional manufacturing centers. By understanding the dynamics of cointegration, causality, and interconnectedness, policymakers and businesses can make informed decisions to unlock the region's full potential.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2406.07525,

Title: Will Southeast Asia Be The Next Global Manufacturing Hub? A Multiway Cointegration, Causality, And Dynamic Connectedness Analyses On Factors Influencing Offshore Decisions

Subject: econ.gn q-fin.ec stat.ap

Authors: Haibo Wang, Lutfu S. Sua, Jun Huang, Jaime Ortiz, Bahram Alidaee

Published: 11-06-2024

Everything You Need To Know

What are the key factors driving companies to move manufacturing operations, and how does Southeast Asia benefit from these trends?

The shift in manufacturing operations is primarily driven by the need for diversification and resilience in global supply chains, accelerated by events like the COVID-19 pandemic. Companies are now exploring alternative locations to the dominant manufacturing hub, China. Southeast Asia benefits from this trend due to its competitive advantages in several key areas, including cost and productivity of labor, along with its capacity to attract Foreign Direct Investment (FDI). Key factors include: Innovation, Technology Readiness, Infrastructure, Intermediate Imports and FDI. These factors interact dynamically. For instance, investments in Technology Readiness and Infrastructure often lead to increased FDI inflows, which subsequently boosts manufacturing outputs.

How does Foreign Direct Investment (FDI) contribute to Southeast Asia's emergence as a manufacturing hub, and what are its broader implications?

Foreign Direct Investment (FDI) plays a crucial role in Southeast Asia's rise as a manufacturing hub. It boosts productivity and economic growth through technology transfer and spillover effects. The inflow of FDI allows for enhancements in manufacturing outputs and innovation. Countries that attract FDI are likely to experience advancements in Technology Readiness. The availability of FDI is influenced by several factors, including the cost and productivity of labor, market size, incentives, and regulations. The inflow of FDI will lead to the region's long-term success as a manufacturing hub. Policymakers aiming to attract offshore manufacturing need to understand the dynamics of these factors to unlock the region's full potential.

What is 'offshoring' and what are the different forms it can take?

Offshoring is defined as relocating a part of the production process overseas, and it can take several forms, such as Foreign Direct Investment (FDI) and international outsourcing. It has become a common practice for businesses to remain competitive. Motivated mainly by differences in the cost of operations, FDI is influenced by factors such as cost and productivity of labor, market size, incentives, and regulations.

What is the significance of 'Technology Readiness' and 'Infrastructure' in determining a region's attractiveness for manufacturing, and how do they interrelate?

Technology Readiness and Infrastructure are both critical components in determining the attractiveness of a region for manufacturing. Technology Readiness, encompassing the level of technological infrastructure and adoption, directly impacts the efficiency and competitiveness of manufacturing operations. Adequate Infrastructure, including transportation and communication networks, is essential for smooth supply chain operations. Investments in both of these areas are interconnected. For instance, investments in Infrastructure can lead to increased Foreign Direct Investment (FDI) inflows, which, in turn, can enhance manufacturing outputs and innovation, thereby boosting Technology Readiness.

How can advanced econometric methods, such as Vector Auto Regression (VAR) and Quantile Vector Autoregressive (QVAR) models, provide insights into Southeast Asia's manufacturing potential?

Advanced econometric methods, like Vector Auto Regression (VAR) and Quantile Vector Autoregressive (QVAR) models, are employed to uncover the multiway cointegration, causality, and dynamic connectedness among Southeast Asian countries. These methods help analyze the relationships between factors driving offshore decisions, such as Innovation, Technology Readiness, Infrastructure, Foreign Direct Investment (FDI), and Intermediate Imports. By understanding these dynamics, policymakers and businesses can gain valuable insights into spillover effects and interconnectedness, providing a comprehensive view of Southeast Asia's potential as a global manufacturing hub and informing strategic decisions to unlock the region's full potential.