India and Southeast Asia Emerge As Supply Chain Hubs Amid U.S.-China Tensions

In a strategic pivot reflective of the shifting global economic landscape, business leaders are increasingly turning to India and Southeast Asia as alternative supply chain hubs. This trend is gaining momentum as trade relations between China and the United States continue to sour, according to a recent poll by PwC published on Thursday.

Despite these shifts, the survey—which targeted 150 senior executives across Asia, Europe, and North America—reveals that disengagement from China and the U.S. is not imminent. The poll, commissioned by asset manager Eastspring Investments and conducted between December and January, highlights a nuanced approach where businesses seek to diversify without severing ties with the two economic giants.

Over the next decade, India is projected to ascend in importance within global supply chains, moving from the fourth to the third position. Similarly, Southeast Asia is expected to climb to fifth place from its current sixth. This reshuffling sees Germany and Japan each slipping one rank to fourth and sixth, respectively.

The study underscores Southeast Asia’s potential to benefit from the rebalancing, particularly within the electronics manufacturing sector. Meanwhile, India is poised to make significant gains in electronics manufacturing, as well as in pharmaceuticals and medical equipment.

Despite the ongoing discourse on “de-risking” from China—an effort to reduce dependency on the world’s second-largest economy amid its economic downturn and escalating trade tensions with the U.S.—the survey indicates that China remains crucial. Companies do not plan to deprioritize or significantly ramp up their focus on China or the U.S. in the near future.

“The cooling of relations between the two nations has been one of the driving forces of rebalancing,” the study notes. “Nevertheless, our global survey of business leaders shows that China is likely to retain an important role in global supply chains.”

The poll also indicates that while companies are “rebalancing” to enhance supply chain resilience and mitigate overdependence on a single market, the U.S. and China are expected to maintain their status as the top two supply chain hosts for the foreseeable future.

As businesses explore alternative destinations, the 10-member ASEAN region and India emerge as key beneficiaries. These regions, with their vast populations and burgeoning economies, offer lucrative opportunities for multinational corporations. India, with over 1.4 billion people, and Southeast Asia, home to more than 650 million, present substantial markets for global businesses.

According to the survey, 47% of business leaders identified boosting supply chain resilience as a key priority, with 75% believing that the costs associated with rebalancing would be outweighed by the potential profits at risk if they fail to adapt.

Executives estimate that not rebalancing their supply chains could jeopardize 19% to 24% of their profits over the next decade, varying by sector. Additionally, 29% of respondents believe that rebalancing could provide opportunities to benefit from lower costs.

“Business leaders are clearly prioritizing the need for rebalancing their supply chains and making their companies more resilient to external pressures,” said Sidharta Sircar, a PwC Singapore partner focusing on international growth. “This also provides a significant growth opportunity for key markets to capitalize on by attracting investments and increasing their participation in global value chains.”

As global businesses navigate these complex dynamics, India and Southeast Asia are poised to play increasingly pivotal roles in the future of international supply chains. This strategic shift not only promises to bolster regional economies but also to enhance global supply chain resilience in an era marked by geopolitical uncertainty.

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