In today’s rapidly evolving global landscape, businesses are faced with the pressing need to adapt their supply chain strategies to mitigate risks and maintain competitiveness. The “China Plus One” approach has emerged as a key solution, encouraging companies to diversify their manufacturing and sourcing beyond China to build resilience and flexibility in the face of changing market conditions.
China Plus One Overview
- Diversification is crucial for building supply chain resilience and adaptability.
- ASEAN and Mexico are attractive alternatives for manufacturing diversification.
- Technology helps companies gain supply chain visibility and identify risks.
- Key factors in choosing new locations include geopolitical relationships and economic stability.
- China remains a dominant force in global manufacturing despite diversification efforts.
The Risks of Over-Reliance on China
While China has been the global manufacturing powerhouse for over a decade, accounting for 28.7% of global manufacturing output in 2019, heavy reliance on the country comes with significant risks. These include delays, quality control issues, rising costs, economic tensions, and geopolitical uncertainties.
Recent events, such as the U.S.-China trade war and China’s strict zero-COVID policy, have further underscored the dangers of over-dependence on a single country for manufacturing and sourcing.
Leveraging Technology for Supply Chain Visibility
To effectively implement a China Plus One strategy, companies must gain comprehensive visibility into their supply chains. Innovative tools that associate components with suppliers’ manufacturing locations can help identify risks at the bill of materials, parts, and manufacturing levels.
Additionally, artificial intelligence and machine learning can analyze vast amounts of data to identify optimal sourcing locations and predict potential disruptions, enabling companies to make informed decisions and ensure supply chain continuity.
Choosing New Manufacturing Locations
As businesses seek to diversify their supply chains, careful consideration must be given to several key factors when selecting new manufacturing locations. These include strategic geographical positioning, geopolitical relationships, economic and financial stability, political stability, favorable investment climate, market openness, trade liberalization, infrastructure quality, and competitive labor capabilities.
Mexico: A Rising Star in the China Plus One Landscape
Mexico has emerged as a compelling option for companies looking to diversify their manufacturing base, particularly for North American brands. With competitive labor costs, low distribution expenses, and streamlined logistics, Mexico offers an attractive alternative to China.
Mexican manufacturers have significantly enhanced their electronics and printed circuit board assembly (PCBA) manufacturing capabilities, making it an ideal location for U.S. companies with electronics products seeking to nearshore their operations.
ASEAN: Harnessing the Potential of Southeast Asia
The Association of Southeast Asian Nations (ASEAN) has also gained prominence as a promising China Plus One destination. With its strategic proximity to China, strong economic ties with both China and the U.S., and political stability, ASEAN countries provide a favorable environment for businesses seeking to diversify their manufacturing base. Many Chinese factory owners are buying or opening factories in Vietnam to reduce their exposure to the shift away from China.
This trend is further evidence of the growing importance of ASEAN in the China Plus One strategy. Notable investments in the region include chip-testing factories in Malaysia, electric vehicle supply chains in Indonesia, and electronics facilities in Vietnam.
China’s Dominance in Global Manufacturing
Despite the growing importance of the China Plus One strategy, it is crucial to acknowledge China’s continued dominance in global manufacturing. In 2019, China’s manufacturing sector contributed nearly $4 trillion, accounting for almost 30% of the country’s total economic output.
While diversification is essential, Chinese manufacturing cannot be ignored, and businesses must strike a balance between mitigating risks and leveraging China’s strengths. As global supply chains continue to navigate the complexities and uncertainties of the modern world, embracing the China Plus One strategy has become a critical imperative for businesses seeking to build resilience and adaptability.
By diversifying manufacturing outside of China, leveraging technology for supply chain visibility, and exploring promising alternatives like Mexico and ASEAN countries, companies can mitigate risks, ensure continuity, and remain competitive in an ever-changing global market.
Navigate the China Plus One Strategy with Confidence
Overreliance on a single country for manufacturing can expose your business to significant risks. Embracing China Plus One is crucial for building supply chain resilience and adaptability.
Gembah can guide you in diversifying your manufacturing base, leveraging their extensive network and deep understanding of global market dynamics. They’ll help you identify the most suitable locations, considering factors such as geographical positioning and economic stability.
With Gembah’s cutting-edge technology solutions, you can gain complete supply chain visibility, identify potential risks, and make informed decisions to ensure continuity.
Contact Gembah to build a resilient, diversified supply chain that positions your business for long-term success in an ever-changing global landscape.
