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Supply Chain Diplomacy: How Re-Shoring And Friendshoring Are Redefining Global Power Centres – IMPRI Impact And Policy Research Institute

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Supply Chain Diplomacy: How Re-Shoring and Friendshoring Are Redefining Global Power Centres

Shouvik Banerjee

1) Introduction

The COVID-19 pandemic was a turning point in global trade, economics, and geopolitics. The disruptions it caused in manufacturing value chains left industries struggling with backorders, supplier failures, and economic uncertainty. However, this crisis also accelerated the restructuring of supply chains, with strategies like ‘Friendshoring’ and ‘Nearshoring’ gaining prominence in Western political circles.

For the first time in history, supply chains took on a political dimension, influencing global power dynamics. The concept of restructuring supply chains—moving production closer to home or to allied nations—became a strategic priority. In 2022, it was estimated that up to 26% of global exports could be re-shored within five years, amounting to $4.6 trillion (Maihold, 2022). This shift has significantly reshaped the global economic order, creating new regional centres of power, with Southeast Asia— particularly Vietnam and Malaysia—emerging as key beneficiaries.

2) Vietnam: A Rising Economic Power

Vietnam has undergone a remarkable economic transformation in recent years, fuelled by increased labour productivity, foreign direct investment (FDI), and a shift in electronic exports.

Labor Productivity and Economic Growth

Vietnam’s labour productivity has nearly doubled in the past decade, increasing from $4.7 per hour in 2010 to $9.75 in 2023. This growth enhances its attractiveness as a manufacturing destination, making it a viable alternative to China. The country’s GDP growth, which rebounded from the pandemic with an impressive 8.02% in 2022, continues to be driven by strong exports and FDI inflows.

Foreign Direct Investment (FDI) Boom

Foreign Direct Investment (FDI) into Vietnam witnessed a significant 32% year-on-year increase, reaching $36.6 billion in 2023. This upward trajectory reflects a broader strategic recalibration by multinational corporations aiming to reduce their exposure to geopolitical uncertainties associated with China. The electronics and automotive manufacturing sectors have emerged as primary beneficiaries, positioning Vietnam as a critical hub in the restructured global supply chain landscape.

Electronics Manufacturing Shift

Vietnam is now a major hub for electronics manufacturing. Electronic exports more than doubled from $28 billion in 2018 to $57 billion in 2023, driven by companies relocating their production from China. The country’s strategic location and favourable business climate have made it a prime destination for industries looking to mitigate supply chain risks.

Vietnam’s growing economic clout is also translating into a stronger geopolitical role, particularly in the Indo-Pacific region, where it is seen as a key partner for Western economies seeking alternatives to Chinese manufacturing.

3) Malaysia: The Semiconductor Powerhouse

Malaysia has rapidly enhanced and established its position as a key entity in the global value chain, with particular strength in the semiconductor sector. Its geographic location, a technically well-equipped workforce, and an investor-friendly environment have enabled the country to evolve into a high-tech manufacturing hub. These structural advantages make Malaysia a critical enabler in the diversification strategies of global technology firms.

Foreign Direct Investment Trends

Malaysia has remained an attractive destination for FDI, with inflows peaking at $20.25 billion in 2021. Although investment levels fluctuated due to global economic uncertainties, Malaysia continues to draw capital into high-value sectors like semiconductors and digital infrastructure.

Semiconductor Industry Expansion

Malaysia is now a global semiconductor hub, particularly in Penang, where companies like Intel, AMD, and Bosch have expanded operations. In 2021 alone, Penang attracted RM74.4 billion in FDI, with 95% of investments directed toward the electronics sector.

Digital Infrastructure and Manufacturing Growth

Malaysia has also made significant strides in digital infrastructure, approving RM127 billion in FDI- driven projects between 2021 and 2024. The country’s manufacturing sector has benefited from 898 foreign investment projects worth RM281.5 billion between 2022 and 2023, creating nearly 100,000 new jobs. Government initiatives like Malaysia Vision Valley 2.0 and The Greater Kedah 2050 plan aim to further diversify the economy and enhance regional connectivity.

4) Key Re-Shoring Projects in Vietnam and Malaysia

The global re-shoring movement has brought several high-profile investment projects to Vietnam and Malaysia. Here are some of the most significant ones:

Vietnam

  • Semiconductors
    Amkor Technology: Investing $1.6 billion in a new advanced packaging plant, with
    equipment relocated from China.
    Hana Micron: South Korean firm investing $930 million by 2026 in chip packaging
    facilities.
  • Automotive Manufacturing
    Major global players like Ford, Honda, and VinFast have expanded their production
    lines in Vietnam.
  • Consumer Electronics
    Apple suppliers such as Foxconn and Luxshare have ramped up operations in Vietnam
    to mitigate risks associated with Chinese manufacturing.

Malaysia

  • Semiconductors
    Intel’s $7 billion investment in a chip packaging and testing facility in Penang.
    Bosch is also in the process of expanding its semiconductor operations to support global markets
  • Data Centers and AI Infrastructure
    Microsoft and ByteDance are investing in Johor, thereby positioning it one of the
    largest data center hubs in Asia.
  • High-Tech Manufacturing
    Tesla establishing its regional office in Malaysia as part of its expansion strategy in
    Asia.

5) The Geopolitical Implications of Supply Chain Shifts

The strategic repositioning of supply chains toward Southeast Asia—particularly Vietnam and Malaysia—signals a deeper recalibration of the global economic order. This transition is not merely an economic reconfiguration; it carries profound geopolitical ramifications that are reshaping the balance of power in the Indo-Pacific and beyond.

  1. The Regional Economic Alliances as Strategic Anchors
    The ASEAN bloc is emerging as a pivotal node in global trade architecture. As Western economies intensify engagement with Southeast Asia, intra-regional cooperation is expanding beyond traditional economic agreements. This evolution points to a more integrated and strategically relevant ASEAN, capable of negotiating from a position of collective strength.
  2. Strategic Hedging Against China
    The shift reflects a deliberate attempt to dilute overdependence on China for critical manufacturing and technology supply chains. By diversifying production bases, especially in sectors like electronics and consumer goods, nations aim to insulate their economies from external shocks stemming from trade disputes, sanctions, or political frictions with Beijing.
  3. Elevation of Bilateral and Multilateral Ties
    Vietnam and Malaysia, by virtue of their growing relevance in global value chains, are converting economic importance into geopolitical capital. Their strengthened ties with the U.S., EU, Japan, and India signify a broader alignment with the architecture of strategic partnerships that promote economic resilience and shared security interests.
  4. Southeast Asia’s Tech Leap and Strategic Autonomy
    The inflow of capital into advanced sectors—such as semiconductors, artificial intelligence, and digital infrastructure—underscores a long-term bet on Southeast Asia’s innovation potential. This trajectory not only fosters economic growth but also enhances these countries’ strategic autonomy, reducing technological dependence on traditional power centers.

6) Conclusion

The restructuring of global supply chains—driven by re-shoring and friendshoring strategies—is catalysing the emergence of new regional centers of economic and geopolitical influence. Vietnam and Malaysia have positioned themselves as frontrunners in this transformation, leveraging both policy agility and industrial competitiveness to attract investment and elevate their strategic relevance.

Beyond economic gains, these nations are accruing soft power and geopolitical capital, reshaping their roles within the Indo-Pacific’s strategic calculus. As the global trade landscape becomes increasingly fragmented yet selectively aligned, the practice of supply chain diplomacy is set to play a defining role in the future distribution of economic power.

The only question with regard to the future course is if Vietnam and Malaysia can sustain their upward trajectory? The evolving landscape of tariffs, trade regulations, and geopolitical alliances may either reinforce or recalibrate their ascent. Their ability to navigate these pressures will ultimately determine whether they remain central actors in the new architecture of global trade and politics—or transitional beneficiaries in a rapidly shifting order.

References

About the contributor:  Shouvik Banerjee is a fellow at DFPGYF Diplomacy, Foreign Policy & Geopolitics Youth Fellow at IMPRI and is a strategic thinker and execution leader with 15+ years of experience driving program operations, global delivery, and supply chain transformation across diverse industries and geographies. A Six Sigma Black Belt and Google-certified Agile Practitioner, he brings deep functional expertise in Supply Chain Management, GenAI/RPA solutions, and cost optimization initiatives—with a strong track record in managing large-scale, cross-border teams and supplier ecosystems.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

Read more at IMPRI:

Peace Left Hanging: The Missing Factor

The Indo-Pacific in the Age of Multipolarity: India’s Strategic Imperatives

Acknowledgment: This article was posted by Bhaktiba Jadeja, visiting researcher and assistant editor at IMPRI.

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