The Association of Southeast Asian Nations (ASEAN) has emerged as a pivotal player in the global manufacturing sector. Comprising ten member states, ASEAN offers diverse manufacturing capabilities, each member possessing unique commercial and industry strengths. This article explores the manufacturing advantages of key ASEAN countries, the five-year journey of Original Equipment Manufacturers (OEMs) in the region, and what brand owners should consider when relocating operations.
Vietnam is emerging not only as a strategic transit point but also as a key manufacturing hub in the global supply chain, particularly in the production of high-tech and luxury goods. The country's regulatory reforms, most notably through free trade agreements such as the EU-Vietnam Free Trade Agreement (EVFTA), have enhanced the business environment and eased trade flows, drawing high-tech firms with its young, skilled workforce nurtured through education and vocational training programmes. Samsung plans to increase investment over the next three years to transform its facility in Vietnam into the company’s largest display module production base in the world, serving as a prime example of the country’s growing high-tech manufacturing capabilities. Moreover, Vietnam's crafts are renowned for their fine detail, durability, and cultural richness, making these products highly attractive to luxury brands and thereby strengthening its market position.
Indonesia, with its large population, functions as a major hub for labour-intensive OEM assembly. In the automotive industry, companies such as Toyota, Honda, and Mitsubishi have set up assembly plants, capitalizing on the local labour pool and the growing domestic market. Electric vehicle manufacturers have also expanded their operations to Indonesia. Many already submitted formal commitments and begun factory construction. However, brand owners interested in the Indonesian market need to be wary of intellectual property (IP) risks such as trademark squatting. Early trademark registration, comprehensive due diligence on partners, and inclusion of protective contract clauses are each important mitigation strategies.
Thailand is a premium ASEAN manufacturing hub for automotive and electronics, fueled by robust infrastructure, a skilled workforce, and strategic policies. Nicknamed the "Detroit of Asia," it produces over 2 million vehicles annually for global brands like Toyota and Honda, with exports to Asia, Australia, and Africa; government support for electric vehicles (EVs)—including tax incentives—strengthens its regional leadership, aided by an integrated supply chain. For electronics, it hosts major facilities for Samsung and Western Digital, specializing in semiconductor packaging and hard disk drives, leveraging trade agreements like ASEAN Free Trade Area for duty-free exports. Education and industry collaboration ensures skilled labor, while the Eastern Economic Corridor initiative (focused on Chonburi, Rayong and Chacheongsao provinces) drives high-tech investment to enhance global competitiveness.
Cambodia's clothing manufacturing industry benefits from low labour costs and its membership in trade agreements, such as the ASEAN Free Trade Area and the Regional Comprehensive Economic Partnership (RCEP), which both offer favourable market access conditions. The government's support through the establishment of special economic zones (SEZs) further promotes the industry's growth. In 2024, the launch of the Intellectual Property Rights Filing System (IPRRS) enhanced IP protection, bringing advantages to brand owners. This initiative underscores Cambodia’s strong commitment to strengthening intellectual property protection and enforcement, thereby fostering a more secure and reliable environment for both businesses and consumers. The government’s ambitious goal through the electronics sector is expected to grow at over 10% annually through 2029, with increasing assembly of semiconductors, motors, and wiring harnesses in SEZs like Phnom Penh, Bavet, and Sihanoukville. The automotive parts sector has drawn US$1.7 billion in committed capital and produces over 400,000 motorcycles per year. Boosting export-ready products like processed cashews, rice, and dried fruits, agro-processing exports exceeded US$1 billion in 2023. The government aims to grow this segment by 30% by 2027.
Original equipment manufacturers typically begin by analyzing the ASEAN manufacturing landscape, comparing labour costs, production expenses, and infrastructure conditions across different countries. They also evaluate regulatory environments, trade agreements, and political stability. Brand owners usually shortlist potential locations with the help of local experts and industry reports.
In the second year, OEMs enter the selected markets through small-scale pilot projects. These projects aim to test the local workforce's productivity, the efficiency of the supply chain, and the effectiveness of the infrastructure. Meanwhile, brand owners focus on building relationships with local suppliers and partners, often participating in trade events and exhibitions.
If the pilot projects prove successful, OEMs move on to expand their operations in the third year. This expansion may involve increasing production capacity at existing plants or establishing new manufacturing facilities. During this stage, OEMs also focus on optimizing the supply chain, improving inventory management, and localizing product designs to better meet market demands.
In the fourth year, OEMs seek to diversify their product offerings or manufacturing processes. There is a growing trend towards integrating supply chains across different ASEAN countries to enhance efficiency and reduce costs. Throughout this process, brand owners need to ensure strict quality control to maintain brand standards.
By the fifth year, OEMs aim to consolidate their position in the ASEAN market. This may involve considering acquisitions or mergers to strengthen their market share. At this stage, long-term planning focuses on future capacity expansions, new product developments, and further integration with the global supply chain.
Brand owners must carefully assess labour-related factors, including labour costs, skills, productivity, and labour laws. For example, Cambodia's labour force is well-suited for traditional manufacturing industries due to its cost-effectiveness, while Vietnam has an edge in high-tech manufacturing with its skilled workforce. In Indonesia, the complex labour laws require brand owners to navigate them carefully to avoid legal risks.
The quality of infrastructure has a significant impact on manufacturing operations. Vietnam's continuous investments in infrastructure have facilitated high-tech exports, while Cambodia's developing infrastructure may still pose challenges for time-sensitive shipments. Logistics capabilities, such as warehousing and distribution, play a crucial role in ensuring the smooth movement of products.
Each ASEAN country has its own set of regulations regarding business operations, intellectual property rights, and environmental protection. Brand owners need to pay close attention to Indonesia's IP protection requirements, Vietnam's regulatory landscape, and Cambodia's new IP and patent fee regulations to ensure compliance.
ASEAN's participation in various trade agreements presents valuable opportunities for market access. Vietnam's EVFTA membership provides preferential access to the EU market, and Cambodia's RCEP membership offers duty-free access to many key markets. Brand owners should select locations that have trade agreements aligned with their target markets and product lines.
Cultural differences can significantly affect business operations. Language barriers, work cultures, and social norms can impact communication, employee management, and customer relations. To adapt to these differences, brand owners may consider investing in cross-cultural training for their employees.
The ASEAN manufacturing landscape is diverse, with each country offering distinct advantages. The five-year journey of OEMs in the region follows a strategic path. For brand owners, a comprehensive evaluation of labour, infrastructure, regulations, market access, and culture is essential to fully leverage ASEAN's manufacturing potential and drive business growth.
Engaging with regional legal and market experts, conducting tailored risk assessments, and implementing a phased, country-specific entry strategy are critical to long-term success. With the right strategy in place today, businesses can secure a competitive edge and build resilient operations across the region for the years to come.
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Disclaimer: The OEMS journey presented here offers a general framework that may be applicable to companies across ASEAN. However, specific adaptations and modifications may be necessary, depending on the individual strategies, contexts, and operational needs of each business or enterprise.
Contributor/Authors: Kesuma Wardhana, Khanh Nguyen, Monyrak Phang, Oat (Norasak) Sinhaseni, Quynh Ngo, and Tania Lovita
