Siemens is seeking investment in Southeast Asia to diversify outside of China as multinationals work to reduce supply chain risks amid geopolitical tensions between the West and Beijing.
The German group, one of the world’s largest industrial conglomerates, is recruiting and considering opening factories in fast-growing economies including Indonesia, Vietnam and Thailand, Judith Wiese, Siemens chief executive and chief sustainability officer, said in an interview.
“It’s a very diverse region, but with a lot of potential, and since the world is talking a lot about the US and China in terms of diversification, it’s very exciting for us,” Wiese, also a member Siemens‘Board, said in Singapore.
Growing tensions between Washington and Beijing have made many multinational corporations wary of their dependence on China. Supply chains are suffering from US efforts to limit China’s access to advanced technology, exacerbating the shocks from the country’s previous Covid-19 policy and also slowing growth.
Wiese said that while China remained Asia’s main manufacturing hub, it was easier to replace as other places developed. Wiese said that Southeast Asia “has opportunities both in terms of the market and in terms of production.”
Siemens, a global economic leader with over 311,000 employees, has a large office in Singapore, but China is its largest market in Asia and its second largest overseas market after the US.
China accounted for 13 percent of the group’s sales in 2021, but the country is more important to some divisions, such as Siemens’ industrial automation and digitization division, which generated a fifth of revenue that year.
After Russia’s invasion of Ukraine, which forced Germany to reconsider why its economy could become so dependent on Russia, the country’s industrial giants have also come under increasing pressure to reconsider their dependence on China.
Philip Buller, an analyst at Berenberg, said that Siemens “cannot ignore geopolitics, and since Russia invaded Ukraine, every government on the planet has begun to rethink political ties, not only with Russia, but with China.”
But the driving force behind Siemens’ investment decision, Buller said, will be demand and growth prospects. “For several decades, China has been the engine of growth, but now it is slowing down,” he added.
A number of multinational corporations are reducing dependence on China and increasing the role of the supply chain for other countries as part of the China Plus One manufacturing strategy. Sony, Apple, Samsung and Adidas are among the companies that have shifted production from China to Southeast Asia, including Vietnam and Thailand.
“European companies have been slower to move their presence to Southeast Asia, but I think you will see the hype now due to the escalation of the threat of confrontation and conflict between the US and China,” said one Singaporean lawyer. which advises global manufacturing enterprises.
India has also benefited from companies moving or adding production lines from China. Unlike Southeast Asia, where groups have to navigate through a series of countries with varying regulations, India is a single large market and is touted as having the potential to recreate the conditions that have made China a global manufacturing powerhouse.
Wiese said: “As for the diversification [in Asia]are China, India and ASEAN [the Association of Southeast Asian Nations]”.