The Philippines has captured “virtually none” of the manufacturing diversification away from China despite the ongoing “China+1” strategy adopted by global companies, according to think tank Oxford Economics.

In a report on Tuesday, June 30, Oxford Economics lead economist Alexandra Hermann Prasad said production relocation from China has so far benefited only a handful of emerging Asian economies, with Vietnam emerging as the clearest China+1 winner and India making gains in electronics manufacturing. China+1 is a supply chain strategy in which companies diversify manufacturing beyond China by expanding production in other countries.

“The Philippines, meanwhile, has captured virtually none of the regional diversification so far,” the report said.

Oxford Economics noted that global manufacturing foreign direct investment (FDI) has increasingly shifted away from China toward India and Southeast Asia in recent years, driven by companies seeking to diversify supply chains amid geopolitical tensions as well as tariff uncertainty.

However, the think tank said production shifts have occurred selectively in lower-value-added consumer goods and electronics assembly rather than across manufacturing more broadly.

Vietnam has emerged as the clearest China+1 winner, registering broad-based export market share gains in footwear, miscellaneous goods, textiles, as well as electronics and machinery parts. India’s gains, meanwhile, have been concentrated mainly in electronics.

By contrast, gains in the Philippines, Indonesia, Malaysia, and Thailand have been more limited.

According to the report, China has continued expanding its manufacturing dominance despite the China+1 strategy, increasing its share of global manufacturing value added by more than six percentage points (ppts) since 2017. Chinese manufacturers now account for over one-third of all manufactured goods worldwide.

Oxford Economics said China has retained its competitive advantages through its scale, lower production costs, integrated supply chains, and continued investment in higher-value manufacturing, allowing it to maintain leadership across most manufacturing segments.

Even in sectors where production has shifted elsewhere in Asia, China continues to dominate the higher-value portions of supply chains.

“Assembly has moved to the rest of emerging Asia faster than value added,” the think tank said.

Oxford Economics cited that Chinese value added embedded in gross electronics exports has steadily increased over the years, rising from about two percent in the early 2000s to nine percent in 2017 and 13 percent in 2022, citing the latest available data.

The report said China’s own companies have increasingly become major investors across emerging Asia, allowing manufacturing capacity to expand outside the mainland while preserving China’s role as the region’s supply-chain anchor.

“China’s cost, scale, and supply-chain advantages limit how much production the rest of emerging Asia will absorb, especially outside of downstream assembly,” the report added.

For Oxford Economics, the strongest opportunities for emerging Asia will come from complementing China’s industrial upgrading rather than replacing it.

The think tank said Thailand and Vietnam stand to benefit from lower-value component production as well as assembly in electronics and green technologies, while India can further strengthen its position as a global smartphone manufacturing hub.

Meanwhile, Malaysia is well-positioned to expand its higher-end semiconductor capabilities, while Indonesia could further embed itself in electric vehicle (EV) and battery supply chains by leveraging its nickel resources.

But “opportunities for the Philippines... look the scarcest given its weak integration into regional manufacturing ecosystems outside of semiconductor assembly, test, and packaging (ATP) processes,” according to Oxford Economics.