Asia Manufacturing Index

Bangladesh

Bangladesh ranks last in the 2025 Asia Manufacturing Index, primarily due to the severe political upheaval it experienced in 2024. In August 2024, a student-led movement ousted Prime Minister Sheikh Hasina, resulting in widespread protests and violent clashes that left over 600 people dead. This unrest has created significant instability in the country, impacting the business environment, investor confidence, and overall economic performance. Until true political stability is achieved, Bangladesh will continue to struggle in the years to come.

Despite these challenges, Bangladesh demonstrates notable strengths, particularly in its labor force. On a pure labor scale, Bangladesh ranks 3rd out of the 11 economies analyzed in the workforce tier. It benefits from a young, burgeoning population and offers the lowest minimum and average manufacturing wages among all countries assessed, providing a cost-competitive advantage for labor-intensive industries.

However, Bangladesh's infrastructure remains a critical limiting factor. It ranks 9th in the infrastructure category, reflecting gaps in transport, logistics, and industrial facilities. Nevertheless, Bangladesh performs well in some specific parameters, ranking 1st in water cost and 2nd in energy cost, which could appeal to manufacturers with high resource usage needs.

While Bangladesh's potential as a manufacturing destination remains high due to its large, cost-efficient workforce, its current political instability and underdeveloped infrastructure pose significant risks for foreign investors. Stability and strategic infrastructure improvements will be essential for the country to climb in future iterations of the Asia Manufacturing Index.

China

For the second consecutive year, China claims the top spot in the Asia Manufacturing Index, continuing to lead across multiple critical categories. China's manufacturing prowess remains unmatched, particularly in the economy, infrastructure, and innovation tiers. It boasts the largest GDP of all the economies measured, maintains a strong trade balance, and offers unparalleled access to a vast network of domestic suppliers. These factors make China a manufacturing powerhouse, especially for industries requiring complex supply chains. Additionally, its higher education standing and ongoing investment in infrastructure, particularly in ports, have further strengthened its position.

China also ranks highly in international trade and workforce, maintaining a balanced performance across these categories. With a large, educated labor pool and extensive trade links, China continues to be an attractive destination for large-scale manufacturing operations. Its infrastructure investment ensures that manufacturers benefit from well-developed transport networks, reliable energy supplies, and top-tier port performance, making it easier to get goods to global markets efficiently.

However, despite these strengths, China faces significant challenges in its business environment—ranking last in this category. From a foreign direct investment (FDI) perspective, many international businesses continue to express concerns over the lack of a level playing field.

Common complaints include complex regulatory requirements, high capital barriers for SMEs, and the lengthy process of setting up wholly foreign-owned manufacturing operations. This red tape, combined with ongoing trade tensions since the US-China Trade War, has left many foreign manufacturers wary. Increasingly, foreign companies are shifting production away from China to avoid tariffs imposed on China-made products, particularly in sectors affected by these trade measures.

This shift has largely benefited other countries in the index, notably Indonesia, India, and Vietnam, which have capitalized on China's manufacturing losses. While China's manufacturing sector remains dominant, particularly for domestic and regional markets, foreign investors are diversifying their supply chains to mitigate risks associated with tariffs and regulatory hurdles. As these trends continue, China will need to address the concerns of foreign investors if it wants to maintain its top spot in the long term.

India

India ranks 6th overall in the 2025 Asia Manufacturing Index but stands out as a top performer in two critical areas. India claims the top spot in the economy and workforce tiers, reflecting its rapid economic expansion and significant manufacturing growth. With the highest economic growth rate among the 11 economies measured and a promising outlook, India's manufacturing sector is set for continued robust development.

In terms of workforce, India also ranks 1st, benefiting from a massive labor pool, low median age, and competitive wage levels. These factors make India highly attractive for labor-intensive manufacturing, positioning it as a favorable destination for foreign manufacturers looking to capitalize on its large, young, and cost-efficient workforce.

However, India faces challenges in other areas, such as in Tax Policy and in International Trade, where its ranking is lower due to a cautious approach to free trade agreements. Recently, India signed an FTA with the European Free Trade Association (EFTA) countries (Switzerland, Norway, Liechtenstein, Iceland), signaling a potential shift in its trade policy.

Despite these hurdles, manufacturing is pouring into the country as infrastructure development is accelerating, driven by one of the highest infrastructure spending rates in the region. The government's focus on boosting infrastructure is attracting more FDI, with foreign investors finding increasingly lower barriers to entering the Indian market. India's low minimum registered capital requirements for foreign manufacturers, coupled with the ongoing regulatory overhaul and digitization drive, signal strong future potential.

With these ongoing developments, India is well-positioned to capitalize on its strengths such as its massive labor force while addressing its shortcomings. As more foreign investment flows into the country, India's manufacturing capabilities will likely continue to expand, pushing it higher in future editions of the Asia Manufacturing Index.

Indonesia

Indonesia, ASEAN's largest economy and population, ranks 7th in the 2025 Asia Manufacturing Index. The country demonstrates strength in several key areas, including having the lowest inflation rate among all the countries analyzed. Indonesia also performs well in terms of corporate tax rates, tax incentives for manufacturers, gas costs, and internet freedom. Additionally, Indonesia boasts a competitive average time for company setup, which makes it an attractive location for businesses seeking efficient market entry.

However, one of the major hurdles for foreign direct investment (FDI) in Indonesia's manufacturing sector is the minimum registered capital requirement. Foreign-owned companies must have at least IDR 10 billion (approximately USD 640,000) in registered capital, a threshold that applies to service and trading companies as well, not just manufacturing. This high entry barrier filters out many small and medium-sized foreign enterprises, limiting the scope of foreign investment and making Indonesia more selective in accepting FDI compared to some of its regional peers.

Following the recent elections and the handover of the presidency, Indonesia's new government appears to offer greater political stability compared to the uncertain pre-election period. This stability, combined with Indonesia's status as the world's fourth-largest population, could present significant growth opportunities in the coming years. However, Indonesia remains relatively closed toward FDI, favoring a protective economic policy that may slow down the influx of foreign manufacturers compared to countries like Vietnam.

Despite these barriers, major projects such as the development of Indonesia's new capital, Nusantara, are opening up substantial opportunities for FDI. The country is also gaining importance in the electric vehicle (EV) supply chain, which could attract more foreign investment as global companies look to secure critical resources and manufacturing capabilities in the sector.

While Indonesia's cautious approach to FDI poses challenges, the nation's ongoing infrastructure projects and strategic importance in emerging industries position it for potential future growth, particularly if it adapts its policies to welcome more foreign investors.

Japan

Japan ranks 8th in the 2025 Asia Manufacturing Index, a position that reflects the country's mixed performance. As a highly developed and industrialized nation, Japan excels in key areas such as political risk, business environment, and innovation. The country offers a level playing field for both local and foreign businesses, ranking best in restrictions toward FDI. Japan also stands out for its labor market mobility, energy stability, and robust environmental regulations, making it an appealing option for companies prioritizing regulatory transparency and long-term stability.

However, Japan's overall ranking is weighed down by significant economic and demographic challenges. It has the oldest population among the countries assessed, leading to high labor costs and wages, which are some of the highest in the region. The cost of water and energy is also elevated, making Japan less attractive for cost-sensitive manufacturers.

Japan's economic outlook is another major concern. The country ranks very low in categories such as inflation, currency volatility, economic growth, manufacturing growth, and economic resilience. These weaknesses contribute to a generally bleak economic environment, which has hindered Japan's appeal as a top manufacturing destination. While some Japanese companies have attempted to move production back from China to Japan, many are instead opting to relocate to more cost-competitive nations in South and Southeast Asia.

Despite its advantages in governance and innovation, Japan's high operating costs and sluggish economic growth make it less competitive in attracting large-scale manufacturing FDI compared to countries like Vietnam and India. For Japan to climb in future rankings, addressing labor shortages, improving cost efficiency, and boosting economic resilience will be critical. Without these changes, Japan is likely to remain a less popular choice for manufacturing relocation in the broader Asian context.

Philippines

The Philippines ranks 9th in the 2025 Asia Manufacturing Index, primarily due to challenges in infrastructure, political risk, international trade, and business environment tiers. The country's infrastructure and cost structures lag behind many of its regional peers, limiting its ability to support large-scale manufacturing operations. The political risk also remains high, with frequent changes in government leading to policy shifts and diplomatic instability, further discouraging long-term foreign investments.

In the international trade tier, the Philippines struggles with a small pool of domestic suppliers and slow, non-transparent trade and customs procedures. This inefficiency is reflected in its low trade balance ranking, making it harder for foreign companies to efficiently move goods in and out of the country. Additionally, the business environment is marked by high manufacturing requirements and restrictions on foreign direct investment (FDI) in key industries. However, the country does allow relatively easy hiring of foreign workers, with less stringent immigration policies compared to its peers.

Where the Philippines excels, however, is in its workforce. The country ranks 2nd in this tier, driven by the fastest population growth among all 11 economies, a young median age, low manufacturing wages, and widespread English proficiency. These factors have made the Philippines a major hub for business process outsourcing (BPO), where the workforce is its strongest asset. However, the country's lack of robust infrastructure has prevented it from translating this strength into a thriving manufacturing sector.

The Philippine government has signaled intentions to attract more manufacturing investment and shift towards becoming a more export-oriented economy. Yet, significant policy changes are still needed to support this transition, particularly in improving infrastructure, reducing trade inefficiencies, and easing restrictions on FDI. Until then, the Philippines will likely remain a strong BPO destination while struggling to develop its manufacturing capabilities.

Vietnam

For the second consecutive year, Vietnam ranks 2nd in the 2025 Asia Manufacturing Index, aligning perfectly with the current hype surrounding the country's rapid economic development. Economic growth from Q1 to Q3 has exceeded expectations, fueled by a significant uptick in manufacturing activity and exports. This momentum reflects Vietnam's well-rounded performance across all tiers and parameters in the index, revealing the secret formula behind its impressive growth figures.

Vietnam boasts a very favorable economic outlook, ranking 3rd overall, bolstered by the stabilization of its government after years of uncertainty regarding the succession of the former party secretary. This political stability is critical for investors, as it signals a consistent policy environment. The country has also cultivated a relatively open investment environment for foreign businesses, enhancing its attractiveness as a manufacturing hub.

Infrastructure plays a pivotal role in Vietnam's success, with the country ranking 3rd in this tier, yet it faces challenges in meeting growing infrastructure demands. Key projects like Ho Chi Minh City's Long Thanh airport and the high-speed railway, which is not expected to be completed until 2035, highlight the slow pace of expansion. Additionally, concerns over energy stability and the environmental toll of rapid manufacturing growth persist, with Vietnam ranking last out of 180 countries in the 2024 Environmental Performance Index (EPI) by Yale University. Despite this, setting up a factory in Vietnam offers a logistical advantage, as the country's long coastline ensures proximity to the sea and ports, reducing reliance on extensive railway and highway networks, which only rank 8th in the Infrastructure Quality parameter. Vietnam's significant infrastructure investment, however, ranking 2nd, underpins its ambition to become a global manufacturing leader. Coupled with its young, dynamic, and increasingly skilled workforce, this strengthens the country's competitiveness as a prime manufacturing destination.

One of Vietnam's standout strengths is its excellent integration into the global network of free trade agreements (FTAs). This strategic positioning makes Vietnam an ideal location for production, allowing companies to efficiently export to key markets, including China, Australia and New Zealand (ANZ), ASEAN nations, and the United States.

In summary, Vietnam's combination of a strong economic outlook, political stability, open investment climate, robust infrastructure, and advantageous trade agreements positions it as a top destination for manufacturing in Asia. As the country continues to build on these strengths, it is likely to remain a focal point for investors and manufacturers looking to tap into the growing markets of the region.

Singapore

Singapore ranks 5th overall in the 2025 Asia Manufacturing Index, a unique case where the country ranks either at the top or near the bottom in many categories. This disparity is largely due to Singapore's size, which shapes its economic landscape and competitive positioning in this index.

On the one hand, Singapore is expensive, particularly when it comes to labor and resources, which is reflected in its low rankings in cost, workforce, and infrastructure. With a relatively small population, high wages, and resource constraints, Singapore ranks 10th in these categories, making it less appealing for labor-intensive or large-scale manufacturing. Moreover, the city-state's economy is heavily reliant on trade and shipping, contributing to its low economic growth, weak economic resilience, and a 10th place ranking in the economy tier.

However, Singapore shines in several other key areas. It ranks 1st in political risk, offering unmatched stability and predictability, which is a crucial factor for foreign investors. The business environment is also a significant strength, with Singapore ranking 1st in this tier as well. The country's openness to foreign direct investment (FDI), coupled with its highly efficient, transparent, and fully digitalized regulatory processes, makes it one of the most business-friendly environments in the world. Additionally, Singapore ranks 1st in tax policy, offering competitive corporate tax rates and robust tax incentives for businesses operating in the high-tech and R&D sectors.

These strengths make the city-state an ideal destination for ultra-high-end manufacturing and research and development (R&D) activities. While it may not be suited for mass production or cost-sensitive industries, Singapore excels in advanced manufacturing sectors requiring precision, technological sophistication, and a highly skilled workforce.

In summary, Singapore's high costs and small size limit its appeal for traditional manufacturing, but its top-tier governance, business environment, and tax policies make it a perfect fit for cutting-edge, high-tech manufacturing and R&D. Despite its limitations, Singapore remains a powerful player in the region, attracting global companies focused on innovation and excellence, and coupled with its location, it makes an excellent regional hub to manage operations, finances, and oversee manufacturing across ASEAN.

South Korea

South Korea ranks 4th in the 2025 Asia Manufacturing Index, and performs similarly to Japan in several tiers, facing many of the same challenges such as an aging population and high labor and operational costs. However, South Korea's economic outlook is notably more robust. The country ranks 3rd in manufacturing growth, with strong prospects for continued expansion. Inflation remains low, and the country's economic resilience is far stronger than Japan's, positioning it for sustainable growth in the coming years.

South Korea also excels in other critical areas. It ranks 3rd in both tax policy and political risk, offering a favorable environment for foreign investors. Additionally, the country's strong integration into the global economy makes it a leader in international trade, where it ranks 2nd. This is largely due to its extensive network of free trade agreements (FTAs), low tariff barriers, and transparent customs procedures, which provide foreign manufacturers with easy access to international markets.

One of South Korea's most impressive strengths is its innovation. The country ranks 1st in innovation, driven by its world-leading R&D spending as a percentage of GDP. This focus on technological advancement makes South Korea an attractive destination for super high-end manufacturing, particularly in sectors like semiconductors, electronics, and other advanced technologies.

While South Korea's costs are rising, particularly in labor and energy, it remains a unique case in the region. Its strong economy, emphasis on innovation, and strategic positioning in global trade make it a top destination for manufacturers focusing on cutting-edge products. As demand for advanced manufacturing increases, South Korea is likely to attract more investment in these high-tech sectors, balancing out the high cost of doing business with its unmatched strengths in innovation and trade integration.

Thailand

Thailand ranks 10th in the 2025 Asia Manufacturing Index, weighed down by a bleak economic outlook and a lack of economic resilience. The country's economy remains heavily reliant on its tourism sector, which creates vulnerabilities in times of global travel downturns. Additionally, Thailand's business environment is relatively closed toward foreign direct investment (FDI), with several key sectors restricting full foreign ownership—especially in comparison to neighboring countries where foreign-owned enterprises (WFOEs) face fewer barriers. Furthermore, seeking approval from the Board of Investment (BOI) and obtaining the necessary manufacturing licenses can be a time-consuming and bureaucratic process.

The workforce tier also sees Thailand underperforming, ranking in the lower half of the assessed countries due to higher labor costs and workforce limitations. However, Thailand attracts a significant amount of guest labor from neighboring countries such as Laos, Myanmar, and Cambodia. While this influx helps fill labor gaps, it also creates a murky operational environment as manufacturers must ensure compliance with worker rights and obtain the correct documentation, adding risks to the labor market. Political risk is also high in Thailand, with frequent government changes and the tumultuous involvement of various political actors, which contribute to an unstable business climate.

Despite these challenges, Thailand does perform well in several specific areas. The country ranks in the top 3 for parameters such as water cost, internet speed, environmental regulations, energy stability, tax incentives for manufacturers, and low inflation. Once approval is granted, the actual time it takes to set up a company is relatively short, and American firms have an easier time navigating Thailand's business landscape through the Treaty of Amity with the U.S., which offers some benefits.

In summary, Thailand presents a mixed bag for manufacturers. While it boasts attractive parameters in infrastructure and certain business processes, its political instability, reliance on tourism, and restricted FDI environment hinder its overall competitiveness. There is potential for growth, particularly as a destination for travel and living, but the country's political uncertainties continue to hold it back from fully realizing its potential as a manufacturing hub.