China Plus One: How Diversified Supply Chains Are Shaping Global Manufacturing
For decades, China has been the epicentre of global manufacturing, earning its reputation as the “world’s factory.” Its vast labour force, competitive costs, and robust infrastructure attracted multinational corporations seeking efficiency and scale. However, recent years have exposed the vulnerabilities of relying too heavily on a single country for critical supply chain operations.
Rising labour costs in China, geopolitical tensions, and pandemic-induced disruptions have prompted companies worldwide to rethink their strategies. Enter the China Plus One approach—a transformative shift in global supply chain management.
What is the “China Plus One” Strategy?
The China Plus One strategy is a proactive business approach where companies maintain a manufacturing presence in China but simultaneously expand operations into other countries. The goal is to reduce dependence on China, manage rising costs, and build a more resilient and diversified supply chain strategy. This strategy is not about abandoning China altogether, but about balancing risk and opportunity by adding new manufacturing bases in promising economies such as India, Vietnam, Thailand, and Malaysia.
Why Are Companies Moving Away From China?
1. Rising Labour and Compliance Costs
China’s rapid economic growth has led to increased wages and stricter environmental regulations. While these changes have improved living standards, they have also eroded the cost advantages that once made China the default choice for manufacturing. Companies now face higher labour costs, compliance expenses, and operational complexities, prompting them to seek alternatives.
2. Supply Chain Resilience and Risk Management
The COVID-19 pandemic was a wake-up call for global supply chains. Lockdowns, shipping delays, and China’s strict zero-COVID policies caused significant disruptions. Businesses realized that overconcentration in one country could jeopardize their entire supply chain. The China Plus One strategy allows companies to spread risk, ensuring continuity even if one region faces unexpected challenges.
3. Geopolitical and Trade Pressures
Trade tensions, tariffs, and shifting international relations have made it riskier to rely solely on China. Companies are increasingly factoring in political stability, free trade agreements, and regulatory environments when choosing new manufacturing destinations.
Key Benefits of the China Plus One Strategy
- Cost Optimization: Countries like India and Vietnam offer lower labour costs and attractive incentives, helping companies manage rising expenses in China.
- Diversified Supply Chain: By operating in multiple countries, businesses can better withstand disruptions, whether from natural disasters, policy changes, or global crises.
- Access to New Markets: Expanding manufacturing footprints opens doors to emerging markets and new customer bases.
- Improved Risk Management: A diversified supply chain reduces exposure to regulatory changes, currency fluctuations, and compliance risks.
Challenges in Adopting China Plus One
While the benefits are clear, implementing a China Plus One strategy is not without hurdles:
- Infrastructure Gaps: Few countries can match China’s mature logistics and supplier networks.
- Quality Control: Maintaining consistent standards across multiple locations requires robust processes and oversight.
- Regulatory Complexity: Each country brings unique legal, tax, and labour requirements, demanding careful navigation.
- Upfront Investment: Setting up new operations involves significant time, capital, and adaptation to local business cultures.
Top Destinations for China Plus One
India
India stands out with its large, youthful workforce, stable government, and pro-business reforms. Initiatives like “Make in India,” special economic zones, and digital infrastructure projects have made it an attractive destination for global manufacturers. Sectors such as textiles, electronics, pharmaceuticals, and semiconductors are seeing significant investment shifts.
Vietnam
Vietnam has rapidly emerged as a manufacturing hub, especially for electronics and textiles. Its proximity to China, competitive labour costs, and participation in multiple free trade agreements make it a preferred choice for companies seeking to diversify.
Thailand, Malaysia, and Indonesia
These Southeast Asian nations offer stable business environments, skilled labor, and growing infrastructure. They are particularly attractive for automotive, electronics, and consumer goods manufacturing.
Mexico
For North American companies, Mexico provides logistical advantages and cost efficiencies, especially under the USMCA free trade agreement.
Real-World Example: Apple’s Manufacturing Shift
Apple’s decision to assemble iPhones in India and Vietnam is a prime example of the China Plus One strategy in action. By investing in new factories and supply chain partners outside China, Apple is reducing its exposure to single-country risks while tapping into new markets and talent pools.
How to Implement a China Plus One Strategy
- Assess Current Supply Chain Risks: Map out existing suppliers and identify potential vulnerabilities.
- Evaluate Alternative Locations: Consider labour costs, infrastructure, trade agreements, and political stability.
- Pilot New Operations: Start with small-scale manufacturing in new countries before scaling up.
- Leverage Technology: Use digital tools for supply chain visibility, quality control, and risk monitoring.
- Stay Agile: Continuously monitor global trends and adapt strategies as needed.
Conclusion
The China Plus One strategy marks a pivotal shift in global manufacturing and supply chain management. As companies seek to balance cost, risk, and opportunity, diversifying operations beyond China is becoming essential. While challenges remain, the long-term benefits of a resilient, diversified supply chain are clear. For businesses aiming to thrive in an unpredictable world, China Plus One is not just a trend—it’s a strategic imperative.
Why are brands adopting the China Plus One strategy?
Brands are adopting the China Plus One strategy to reduce their dependence on China, manage rising costs, and build more resilient supply chains. The approach helps companies mitigate risks from geopolitical tensions, regulatory changes, and supply chain disruptions, ensuring business continuity and long-term stability.
What are the alternative countries people are selecting for China Plus One in supply chain?
Top alternative countries include India, Vietnam, Thailand, Malaysia, Indonesia, and Mexico. These nations offer competitive labour costs, improving infrastructure, and favourable business environments, making them attractive destinations for companies looking to diversify their supply chains.