Future of Logistics: Electronics Production Transition to Southeast Asia Changes Global Logistics Directions

For a decade, the global logistics industry for electronics was driven by strengthening ties between China and other regions, which mostly included China receiving electronic components needed to assemble complete products that then were sold worldwide. Nowadays, however, a different trend is gaining pace as China boosts its intermediate goods production, whereas the final electronics assembly is shifting to lower-cost Southeast Asian countries. These developments are having a significant impact on the logistics industry, as it is breaking up some of the global trade routes for electronics and enhancing the regional logistics networks.

This piece is part of the global briefing Key Future Trends in the Global Logistics Industry for 2025, which analyses the prospects of the global logistics industry.

Growing electronics hubs of Southeast Asia

China has long been an irreplaceable electronics production hub that has attracted numerous global electronics companies. As a result, as of 2016, it produced around half of the world’s computers and office machinery, as well as communications equipment. However, today, investment is starting to dry up, as labour costs in China are rising drastically. China is therefore seeking to reinvent itself as a producer of complex products, like electronic components. In 2016, 43% of the world’s electronic components already came from China, up from 30% in 2010, with this share set to rise to 51% by 2020. At the same time, operations with low levels of added value are moving to Southeast Asia.

Largest 15 Electronic Components Producers’ Production Growth Forecasts Over 2015-2025

Source: Euromonitor International from national statistics

Vietnam, thanks to investment incentives, is becoming the next big production hub for electronics. This is primarily connected to funding by the major Korean electronics giants such as Samsung Electronics and LG Electronics. Multi-billion investments have turned Vietnam into a global electronics player, which has also boosted the country’s relevance in the electronics logistics chain. By 2016, Vietnam had risen to fourth position among the largest producers of mobile phones, radio transmitters and television cameras in the world, with production being valued at USD31.7 billion. Vietnam’s exports reached USD27.0 billion in 2015, placing the country in second place globally, behind only China.

Another way of changing electronics production patterns is through protectionist policies, as countries like the Philippines and Indonesia seek to bolster national influence in the electronics industries. In recent years Indonesia was particularly active in the field, pressuring companies to establish domestic production, while liberalisation reforms were few. For instance, in 2016 legislation came into force requiring the local production of at least 20% of total nationally sold 4G-capable devices (rising to 30% in 2017). At least 20 major electronics companies had to invest in the country to maintain their position in the market, which spurred components shipments from other Asian countries.

Logistics routes shift to Asia Pacific

With the onset of the Asian century, this is moving electronics logistics chains to Asia Pacific and, at the same time, disrupting traditional ties. Overall, in the logistics industries of nine core countries (US, China, Japan, Germany, UK, France, India, Brazil, Russia), transportation and storage of semi-conductors and other electronic components was estimated to be a USD14.6 billion business in 2015, out of USD82.8 billion spent on electronics logistics in total during this year. Nowadays, an increasing share of this business is moving to Asia Pacific, together with growing electronics production in the region and rising demand for final products.

Electronics Industries Spending on Logistics in Nine Core Countries in 2010 and 2015, US Billion

Source: Euromonitor International from national statistics

Note: Nine core countries include US, China, Japan, Germany, UK, France, India, Brazil and Russia.

Trade routes across the Pacific Ocean, on the other hand, are experiencing a tendency to decline in importance. Based on Euromonitor International data, total electronic components exports from the US, a prominent producer of electronic components, fell by 3% over 2010-2015, while the country’s exports to Asia Pacific showed an even greater decline of 8% in value terms. In the past, the fabless (contract manufacturing) model, which has been widely adopted by American electronic components producers, allowed companies to become leaner, achieve stronger growth and attain greater competitive strength. However, this is increasingly becoming a limiting factor for the support industries, such as logistics, outside of the Asia Pacific region.

Meanwhile, overall global components trade continues growing, up by 8% over 2010-2015. Intra-regional logistics chains in particular are gaining a greater presence. China exported 30% more electronic components over 2010-2015, driven by exports to Asian countries like Hong Kong (China), up 89%, Japan, up 90%, and Vietnam, up ninefold. As Asian countries become the main providers and recipients of electronic components, this creates a vibrant environment for logistics sector growth in the region, but, at the same time, diminishes established global trade connections.
You can find out more about logistics sectors’ prominent trends in the global briefing Key Future Trends in Global Logistics Industry for 2025.

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