The Philippines is projected to emerge as a hub for manufacturing operations as companies continue to expand beyond China.

JLL, a global commercial real estate and investment management company, said in a report that manufacturing companies are diversifying their locations across India and Southeast Asia, including the Philippines, to complement their bases in China.

“For decades, China has dominated global manufacturing. However, companies are increasingly diversifying their operations elsewhere, adding manufacturing bases outside of China to hedge against supply chain disruptions,” it said.

The firm, citing multiple sources, said that rising costs in China over the past decade prompted manufacturers to expand their bases outside the country.

It added that higher demand for industrial land, coupled with rising wages and material costs, pushed up land prices in China, which may be up to two times higher than those in Southeast Asian countries and India.

“Diversification within supply chains is a natural step for companies involved in manufacturing within the wider economic lifecycle of this region,” said Michael Ignatiadis, JLL Asia-Pacific head of manufacturing strategy, Asia Pacific.

“We see Southeast Asia and India representing a natural complement to the existing production strength of China but feel that for companies to respond quickly to supply chain shifts, they need to adopt a flexible mindset towards land selection and funding options,” Ignatiadis added.

It cited the Philippines as one of the seven regions the United States of America partnered with in its CHIPS Act, which aims to expand and diversify the semiconductor supply chain such as integrated circuits, RF/microwave, and assembly and testing services.

JLL also emphasized the all-time high of $49.1 billion in electronics exports in 2022, which includes consumer and industrial electronics, as well as telecommunication equipment.

The firm, however, said that the manufacturing sector should make a careful evaluation of non-cost or qualitative factors if they plan to diversify their bases.

These factors include skilled labor, infrastructure, environmental regulations, proximity to suppliers and customers, and political stability that will contribute to a factory’s long-term success and sustainability.

“Each economy in Southeast Asia is at a different level of its manufacturing story, but we can confidently say that policymakers are extremely keen to take advantage of diversification initiatives of supply chains,” said Peter Guevarra, JLL Asia Pacific director and research consultancy.

“Companies need to carefully evaluate various factors such as costs, market access, infrastructure, labour, and governmental support before determining their global manufacturing investment strategies,” Guevarra added.