China plus one strategy is a fantastic way to take on your business in a new direction. Global companies can diversify supply chain risks and still tap opportunities in Asia’s developing countries. With China being such a big retail market, most of the international companies will only shift a part of the manufacturing to other countries instead of getting out of China completely.
There were several reasons such as the outbreak of the pandemic, dwindling US-China relationship and other political issues that made global firms to reduce their supply chain dependence on China. In the cause of moving out of China, governments are continuously supporting companies. But the hardcore reality is shifting manufacturing units out of China is a tough task. Hardly any other country offers the same business-friendly environment, infrastructure, labor, and a huge sourcing agent community as China.
China Plus One Strategy
Companies may rather go for the ‘China plus one strategy. With this, they can diversify supply chain risks and still tap opportunities in the country. Many companies are adding new operations to Asia’s developing countries like India, Vietnam, Malaysia, Singapore, Thailand, Indonesia, and the Philippines to supplement current production. These Southeast Asian nations are welcoming new manufacturing opportunities and streamlining the setup process for new companies.
Key Advantages of China Plus One Strategy
- Opting for an additional manufacturing outpost in a different country, companies can greatly reduce their dependency on a single country for manufacturing their products or sourcing items from there.
- Labor shortages and an aging population are leading to rising wages in China. China plus one move will help international firms to cut down their operating costs as well as access new business territories.
- The US and the European companies can use ASEAN’s Free Trade Agreement network to tap into global supply chains.
- Global companies usually prefer high growth, better managed and governed companies, with differentiated or ‘new’ stories. China plus one strategy gives them the scope to find value in other places and start a new success story.
The Reality Check of China Plus One Strategy
Despite the China plus one move, China will remain the largest manufacturing hub in the world and the largest trade partner for the US and major European countries. The widespread exodus from China is nearly impossible in the current situation. Most of the international companies will only shift a part of the manufacturing to other countries instead of getting out of China completely. With China being such a big retail market, these companies are trying to ensure they do not move too much manufacturing out of China as they do not want a backlash from Chinese government and loosing Chinese market.