September 26, 2023

China Plus One strategy offers best of both worlds for manufacturers, retailers

The days of spotting the ubiquitous “Made in China” stamp on virtually every product in the typical American home may be numbered. Large manufacturers and retailers are moving at least some of their efforts away from the country in droves. 

There are a myriad of factors pushing companies to diversify their geographic footprints away from China. The most impactful reasons include the ongoing U.S.-China trade war, increasing labor costs and fear surrounding a potential future manufacturing lockdown like those seen at the height of the COVID pandemic.

As Western companies work to safeguard their manufacturing efforts, there has been an increased focus on nearshoring. Another strategy — dubbed China Plus One — is also making waves, however. 

‘The phrase ‘China Plus One’ captures the strategy many large manufacturers and retailers are employing to reduce supply chain risk by moving certain sole-sourced China procurement and production operations to other countries,” Dimerco Express Group explained in a recent white paper

Often, companies employing this strategy are interested in setting up factories in Southeast Asia or India, which provide many of the perks that initially drew them to China, without the more recent challenges.

By employing the China Plus One strategy, companies can hedge against the headwinds they are facing in China, while still benefiting from the country’s wealth of resources and well-established supply chain processes.

“It is hard to just leave China completely. China has spent 20 to 30 years building out its electronic supply chains,” said Dimerco Chief Executive Management Jeffrey Shih. “We are seeing more and more companies shifting away from China for final manufacturing and assembly, but the raw materials are still coming from Chinese suppliers.”

The sheer length of manufacturing history in China makes it difficult for companies, especially those producing electronics, to just leave the country altogether. Moving final manufacturing efforts to other countries is an intuitive first step.

“In the future, finished goods coming out of China will be used mostly to supply developing countries,” Shih said. “Developed countries — including the United States and most of Europe — will be getting finished goods from Southeast Asia, India and Mexico.”

Despite growing excitement surrounding expansion into areas like Southeast Asia, launching a manufacturing operation in a new country does not happen overnight. Shih noted that the process of setting up a new factory typically takes about two years. As such, he expects to see increased production in these regions in 2024, with the bulk of the shift happening in 2025. 

Governments within the Association of Southeast Asian Nations (ASEAN) are eager to attract new manufacturing efforts, which would spur increased development and economic opportunities for their own countries and citizens. 

“To promote new investments, all ASEAN countries, to one degree or another, are implementing tax cuts, enacting business-friendly policies, offering fiscal incentives for special economic zones/industrial parks and boosting infrastructure spending,” the Dimerco white paper said. 

Three countries — Vietnam, Malaysia and Thailand — are poised to reap the greatest rewards from the increasingly popular China Plus One strategy. 

(Image: Dimerco)

“To set up a factory in every country is not possible,” Shih said. “The cultures, governments and policies are different in each country. Companies have to understand the local people and the supply chains in each country.”

Understanding the nuanced cultures of each individual country can help company leaders identify the unique opportunities — and challenges — that each locale offers. This is a critical component of ensuring the China Plus One strategy is a success. 

Ultimately, the key to navigating an expansion into Southeast Asia lies in choosing the right logistics partner.

“We know the regulations. Processes are more complicated in other countries, and there are many rules,” Shih said. “It can be frustrating for companies to understand the customs processes. We understand all the requirements and have sources to help companies find the best location for their factories and pass through the documentation requirements.”

Manufacturers should think critically when choosing logistics partners to help execute their China Plus One strategies. As this approach becomes more popular, more third-party partners will enter into the space. It is important to remember that they are not all created equal.

“Beware of consultants who promise full-service re-location advice but whose expertise is limited to overcoming governmental hurdles,” Dimerco warned in its white paper. “At the end of the day, products need to be optimally stored, consolidated, shipped and tracked. You need local experts to make these things happen with precision and 100% compliance.” 

Dimerco is well positioned to help companies implement a China Plus One strategy on every level. The company boasts a robust knowledge of the region, established infrastructure in Asia and a trusted presence throughout much of the continent.

Click here to learn more about how Dimerco can help you execute a successful China Plus One strategy. 

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