Southeast Asia’s manufacturing boom under the “China plus one” strategy is delivering uneven economic gains, bringing factories and jobs while largely missing out on design, core components and process know-how, according to a report published by fortune.com.
Billions in Factory Investments Meet Local Ecosystem Limits
The “China plus one” strategy has drawn billions of dollars of investment into Southeast Asian manufacturing as global companies pivot away from rising costs and geopolitical tensions in China. Yet the region is reaping fewer benefits than leaders hoped. Meng-Chun Liu, director of the Chung-Hua Institution for Economic Research, stated that the strategy brought factories, exports, and jobs to the region, but not the design, core components, and process know-how that captures most of the value.
Vietnam, often highlighted as the star economy of Southeast Asia, focuses primarily on final assembly before export to developed markets rather than manufacturing intermediate components. Meanwhile, companies like Target are growing frustrated by an underdeveloped Southeast Asian factory ecosystem and are moving supply chains back to China. At the same time, Chinese firms increasingly view Southeast Asia as a consumer market rather than a worker base, raising concerns that a flood of cheap exports could undercut local manufacturing gains.
The Breakdown of the Flying Geese Production Model
The traditional “flying geese” model, formulated by Japanese economist Kaname Akamatsu in the 1930s, suggested that manufacturing automatically flows from economically advanced countries to less-advanced ones over time. However, Meng-Chun Liu noted that this pattern is breaking down as China aims to keep the full supply chain at home and sell directly into Asia rather than hand production over to neighboring nations.
A key factor holding Southeast Asia back is fragmented manufacturing capabilities. Vietnam specializes in electronics assembly, Thailand in automotives, and Malaysia in chip packaging. Without fully mature local ecosystems, Southeast Asian factories must source inputs from China to keep production running. Apple, even as it shifts final assembly to Vietnam and India, still relies heavily on Chinese suppliers for batteries, optics, and enclosures. Christopher Tang, a supply chain management expert from the UCLA Anderson School of Management, explained that while jobs are created in Southeast Asia, they are largely low-skill assembly roles that cap the immediate creation of high-value industries.
Diverging Capital Flows Across Vietnam and Thailand
A handful of countries capture most of the gains from the manufacturing shift. Vietnam remains the largest beneficiary, with GDP growing 8.0% in 2025, accelerating from 7.1% in 2024. Exports to the United States jumped 28.1% to $153.2 billion last year, up from $119.6 billion in 2024. However, imports from China climbed nearly 30% to roughly $183 billion over the same period.
Printed circuit board investments offer a clear window into this capacity growth. Total PCB capital expenditure in ASEAN nations reached approximately $4.8 billion in 2025, nearly triple the $1.7 billion invested in 2022, according to an industry update citing Prismark’s 2026 outlook. Thailand stands as the leading destination for PCB manufacturing with an estimated $2.3 billion in new facility investments announced or underway since 2024.
Semiconductor Clusters and Resource Nationalism in Malaysia and Indonesia
Malaysia is carving out a distinct niche in the semiconductor and data center space. Data center investment currently amounts to nearly 18% of the country’s GDP, the highest share globally according to HSBC analysts, while homegrown chip design firm SkyeChip surged 300% on its main market debut on the Bursa Malaysia stock exchange in May. Despite this momentum, regional politicians caution against a subordinate role in high-tech industries. Malaysian Foreign Minister Datuk Seri Mohamad Hasan stated at the United Nations General Assembly that the Global South cannot simply become a destination for data centers while decisions about artificial intelligence are made elsewhere.
Other nations are implementing structural interventions to capture more of the value chain. Indonesia imposed a ban on nickel ore exports to encourage smelters and refining operations to move inside the country, and is now pushing to attract electric vehicle and battery manufacturing. Singapore acts as a regional hub for orchestrating supply chains and investments, according to Goh Puay Guan, an associate professor at the National University of Singapore.
Indonesia Bans Nickel Ore Exports to Boost Supply Chain
What specific policy did Indonesia use to capture more EV supply chain value?
Indonesia imposed a ban on nickel ore exports to encourage smelters and refining operations to move inside the country.
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