The “China Plus One” (C+1) strategy refers to a diversification approach adopted by businesses to reduce reliance on China as a manufacturing and supply chain hub. Under this strategy, companies maintain a strong presence in China but establish operations in at least one other country to mitigate risks associated with over-dependence on China.
Drivers of the C+1 Strategy
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- Trade Tensions: Escalating trade wars, especially between the U.S. and China, have made companies cautious about relying solely on China.
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- Geopolitical Risks: Concerns about political instability, regulatory unpredictability, and strained diplomatic relations involving China.
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- Rising Costs: Labor and operational costs in China have been increasing, pushing companies to explore cost-competitive alternatives.
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- Supply Chain Disruptions: Events like the COVID-19 pandemic and associated lockdowns exposed vulnerabilities in concentrated supply chains.
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- Regulatory Pressures: Governments and businesses are encouraging a shift from China to diversify global production.
Key Destinations for “Plus One”.
Countries in South and Southeast Asia are among the top beneficiaries of this strategy, offering cost-competitive environments, favourable trade policies, and geographical proximity to China. These include:
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- Vietnam: Strong manufacturing base, trade agreements, and proximity to China.
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- India: Large workforce, growing infrastructure, and government incentives for foreign investment.
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- Thailand: Well-developed logistics and supply chain networks.
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- Malaysia, Indonesia, and the Philippines: Emerging hubs with improving manufacturing capabilities.
Benefits of the C+1 Strategy:
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- Risk Mitigation: Reduces the impact of disruptions like tariffs, sanctions, or natural disasters.
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- Cost Optimisation: Allows companies to capitalise on lower operational costs in emerging markets.
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- Market Diversification: Expands access to other growing economies in Asia and beyond.
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- Resilience: Builds a more robust and flexible supply chain.
Challenges
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- Logistical Complexity: Managing multi-country operations can complicate supply chain logistics.
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- Infrastructure Gaps: Emerging countries often need more of China’s sophisticated infrastructure.
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- Skilled Labour Availability: Matching China’s manufacturing expertise may be challenging.
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- Policy and Bureaucratic Hurdles: Alternative countries’ regulatory environments may need more stability and efficiency.
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