Top 5 Reasons for German Manufacturers to Invest in Southeast Asia

Living in Southeast Asia, I witnessed firsthand the dynamic growth and evolving opportunities this region offers. It is a vibrant market where innovation meets demand, making it an exciting frontier for businesses. German engineering and products are held in high regard across the region, synonymous with quality, reliability, and precision. This strong reputation positions German companies advantageously in tapping into Southeast Asia’s burgeoning industries.

Southeast Asia (SEA) continues to emerge as a dynamic and attractive market for foreign investment. German mid-sized companies in the electrical and mechanical equipment industries can benefit significantly by exploring this region. Here are the top five reasons to consider investing in SEA:

1. Rapid Economic Growth

The Asian Development Bank (ADB) forecasts that Southeast Asia's economy will grow by 4.7% in 2025, up from 4.6% in 2024, driven by robust domestic demand and a continued recovery in tourism. Indonesia, for instance, is expected to maintain a 5.0% growth rate over the next two years, supported by strong private consumption and public infrastructure spending. This economic expansion is complemented by a young and growing workforce, with a median age of around 30 years, and increasing consumer spending, providing fertile ground for business expansion.

Recommendation: Conduct comprehensive market studies to identify high-growth sectors and tailor your product offerings to meet the unique demands of these markets. Establish partnerships with local distributors to build a strong foothold. Additionally, consider leveraging digital platforms, as social media and virtual exhibitions to connect with consumers in these rapidly digitizing economies.

2.Expanding Infrastructure Development

SEA governments are investing heavily in infrastructure to support economic growth. The region needs to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, to maintain growth, eradicate poverty, and respond to climate change, according to ADB. In Malaysia, for example, infrastructure spending is expected by PricewaterhouseCoopers (PwC) to grow to around $165 billion by 2025, with public investment spending growing by around 7% per year. This surge creates opportunities for manufacturers of industrial equipment, automation systems, and energy-efficient solutions to tap into large-scale projects.

Recommendation: Engage with government agencies, consultants and contractors to position your products as key components in infrastructure projects. Participate in regional trade fairs and exhibitions to showcase your expertise in industrial solutions. Furthermore, collaborating with local engineering firms can help adapt products to specific project requirements.

3. Strategic Location

Located at the crossroads of global trade, SEA serves as a gateway to key markets such as China, India, and Australia. Establishing a presence in SEA can significantly reduce transportation costs and lead times for German exporters. For instance, Malaysia is positioning itself to become a prominent hub for energy and chip manufacturing, leveraging its strategic location, stable economy, and increasing foreign investments.

Recommendation: Set up regional hubs, distribution, service or training centers in strategically located countries like Singapore or Malaysia to optimize supply chain logistics and enhance market accessibility. Consider partnerships with local logistics providers to streamline operations and ensure timely delivery of goods and spare parts.

4. Strong Demand for High-Quality Engineering

With industrialization and urbanization accelerating across SEA, there is a growing demand for precision engineering, automation, and sustainable technologies—areas where German manufacturers excel. A Source of Asia report shows that the region's digital economy is set to reach $330 billion by 2025, with countries investing in advanced 5G technology, Industry 4.0, data centers, and digital platforms, especially in Singapore and Thailand. This will strengthen ASEANs (Association of Southeast Asian Nations) position as digital leader in emerging countries, especially in artificial intelligence (AI).

Recommendation: Develop targeted marketing campaigns to highlight your brand’s reputation for engineering excellence. Collaborate with local universities and technical institutes to train and upskill the workforce, ensuring a steady talent pipeline. Establish demonstration centers or pilot projects to showcase your cutting-edge technologies and solutions in real-world scenarios.

5. Supportive Government Policies

Many SEA governments offer tax incentives, subsidies, and streamlined regulatory processes to attract foreign investment. For example, Malaysia's government aims to enhance its capabilities in oil &, gas and semiconductors, planning to produce Malaysian-made GPUs and chips within five to ten years. Additionally, the region has been resilient in attracting foreign investments, averaging $220 billion per year between 2021 and 2023, solidifying ASEAN's status as among the top Foreign Direct Investment (FDI) destinations globally, according to UN Trade and Development.

Recommendation: Work with local legal and consulting firms to navigate regulatory frameworks and take full advantage of investment incentives. Engage in public-private partnerships to align your business objectives with national development goals. Additionally, participate in policy discussions and industry associations, as the AHKs (German Chambers of Commerce Abroad), to stay ahead of regulatory changes and opportunities.

Key Takeaways

For German mid-sized companies, Mittelstand, in the electrical and mechanical equipment sectors, Southeast Asia presents a compelling case for investment. The region’s rapid growth, strategic location, and supportive policies make it a promising market for expanding your global footprint. To overcome challenges in market entry or expansion, collaborating with local partners, including interim managers, can be invaluable. These experts provide on-the-ground knowledge and networks to ensure a smooth and successful transition into the SEA market. By leveraging the region’s opportunities and aligning with local expertise, German companies can unlock the full potential of this thriving market.

Want to learn more? Reach out to discuss cross-border interim management solution for entering or expanding your business in Southeast Asia. Let’s grow together.