SEA & India: The Next Manufacturing & Innovation Hubs (July 13, 2023)

AGX gathered 18 corporate VPs and directors on July 13th, 2023, to discuss Southeast Asia and India’s rising importance as manufacturing and innovation hubs and high-potential markets in the context of geo-strategic shifts for multinational corporations (MNCs). The dialogue focused on localized innovation and footprint expansion in ASEAN and India. The group explored how MNCs localize their innovation strategies, capitalizing on Asia’s projected status as the fastest-growing region through the 2020s. Despite geopolitical uncertainties prompting supply chain diversification, China’s robust consumer market and industrial prowess continue to affirm its role as a crucial hub.

China’s advanced manufacturing infrastructure maintains its dominance in global supply chains, creating short- to medium-term dependencies. However, ASEAN nations are positioning themselves as viable alternatives, leveraging cost-effectiveness, expanding infrastructure, and youthful demographics. The shift from China-centric supply chains presents new opportunities for Southeast Asia and India, requiring long-term strategic commitments from MNCs alongside favorable policy environments.

Supply chain diversification faces challenges due to a limited talent pool of experienced managers and engineers, infrastructure gaps, local bureaucracy, and import reliance for value-added components. India’s transition from back-office roles to advanced fields such as AI, machine learning, and green technology underscores the critical role of STEM talent in supply chain diversification. ASEAN’s growing technical expertise, combined with India’s vast resources, could enhance global supply chain resilience, particularly in the semiconductor industry. Advanced Asian economies such as Singapore, Japan, and South Korea are investing in robotics and automation to maintain supply chain competitiveness despite aging populations. Singapore’s leadership in digital trade agreements is reshaping supply chain decisions as MNCs explore alternatives to China.

MNCs must adopt an Asia-for-Asia approach, developing fit-for-market solutions that address local competition and regulatory constraints. Balancing premium and affordable market segments remains a challenge, as local competitors expand into ASEAN with high-volume, low-margin models. Strategic expansion decisions between ‘buy or build’ require ingenuity, and targeted minority investments are emerging as a promising strategy, providing local expertise while reducing financial risk. To navigate corporate bureaucracy, MNCs are fostering agile innovation teams with entrepreneurial freedom while maintaining governance balance. The region’s digitally native consumers create unique opportunities for pioneering business models, leveraging legacy manufacturing expertise.

Southeast Asia and India are attracting major foreign direct investment (FDI) due to cost-effectiveness, infrastructure, and demographics. Recent data shows China’s FDI share has dropped to 5.9%, while India’s has surged to 27% (Financial Times). However, UNCTAD data indicates that while China’s FDI rebounded in 2022, India’s growth has tapered off due to temporary inflows from companies such as Apple and Foxconn suppliers.

ASEAN economies are establishing themselves as strong manufacturing and technology hubs through stable supply chains and a growing STEM workforce. Vietnam is rising in mid-value manufacturing, while Malaysia and Thailand continue to focus on automotive and mobile tech. India is rapidly evolving into AI, machine learning, and green technology, driven by an expanding pool of skilled talent. ASEAN’s innovation capabilities can complement India’s needs, particularly in semiconductors and broader supply chain synergies. Advanced economies such as Singapore, Japan, and South Korea are increasing their investments in robotics and automation to maintain their competitive advantage. At the same time, evolving trade agreements are accelerating digital trade flows, with Singapore leading integration efforts with countries such as New Zealand, Australia, and the UK.

Asia’s business landscape is shifting towards localized innovation strategies. There is a clear transition from a global-for-Asia approach to developing solutions within Asia for the Asian market. Foreign MNCs in China must efficiently allocate resources for localization success as competition intensifies. Balancing global R&D efforts with local market needs remains an ongoing challenge for corporate innovation.

MNCs must navigate the complexity of balancing premium and low-cost market demands as China and India emerge as leaders in cost-efficient innovation. Local players from these markets are expanding into ASEAN, offering competitive, low-cost, high-volume solutions. To succeed in Asia’s evolving startup ecosystems, MNCs must make careful ‘buy vs. build’ decisions. Targeted minority investments are an effective way to access market expertise while minimizing financial risk. Intrapreneurship models have proven to accelerate corporate innovation, though corporate red tape can slow agility. Investment decisions hinge on market scalability, talent availability, and ecosystem strength.

Asia’s rapid digital transformation is unlocking new opportunities in industrial automation and AI. While Southeast Asia and India offer immense potential for growth, long-term success depends on strategic partnerships, alignment with headquarters, and localized innovation. A due diligence-driven approach is essential for sustainable expansion in Asia’s evolving markets.