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  June 19th, 2024 | Written by

Achieving Global Supply Chain Resilience: The Imperative of Diversifying Beyond China

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In today’s risk-laden global supply chain landscape, the strategic approach of “China Plus One” has emerged as a critical imperative for businesses operating on a worldwide scale. This strategy aims to diversify manufacturing operations beyond China, mitigating supply chain risks and enabling companies to adapt to dynamic market conditions. The concept gained traction around 2014-2015 as rising labor costs in China prompted companies to explore sourcing from other regions, further accelerating during the COVID-19 pandemic when supply chain challenges reached unprecedented levels.

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The China Plus One concept represents a strategic evolution – one that empowers businesses to maintain competitiveness and agility in an increasingly volatile global market. By diversifying their manufacturing footprint, companies can effectively hedge against potential disruptions, geopolitical tensions, and economic uncertainties that could otherwise cripple their operations.

China’s dominance in global manufacturing has been unparalleled for well over a decade. According to the United Nations Statistics Division, in 2019, China accounted for a staggering 28.7 percent of global manufacturing output, surpassing the United States by more than 10 percentage points. This shift occurred in 2010 when China overtook the U.S. to become the world’s largest manufacturing economy. Moreover, in 2019, the total value added by China’s manufacturing sector was nearly $4 trillion, contributing to almost 30 percent of the country’s total economic output.

However, overreliance on China for manufacturing and sourcing carries inherent risks, including potential delays, quality control issues, escalating costs, economic tensions, and geopolitical instabilities. The U.S.-China trade war has underscored the perils of such over-dependence, prompting many businesses to reevaluate their supply chain strategies and diversify their manufacturing locations. The COVID-19 pandemic further highlighted the vulnerabilities, with China’s stringent zero-COVID policy resulting in factory shutdowns and disruptions in production, exacerbating supply chain challenges worldwide.

As companies seek to mitigate risks and bolster supply chain resilience, the Association of Southeast Asian Nations (ASEAN) region and Mexico have emerged as promising destinations for implementing the China Plus One strategy. These regions offer a strategic geographical location, economic and political stability, favorable investment climates, market openness, trade liberalization, well-developed infrastructure, and competitive labor capabilities.

The ASEAN nations – which include Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Brunei, Laos, Burma, and Cambodia – have actively promoted new investments through tax incentives, business-friendly policies, fiscal incentives, and infrastructure development. Notable investments in the region include chip-testing factories in Malaysia, electric vehicle supply chains in Indonesia, and electronics facilities in Vietnam.

Meanwhile, Mexico’s proximity to the North American market, competitive labor costs, and streamlined logistics make it an attractive alternative for companies seeking to diversify their manufacturing operations beyond China. Mexican manufacturers have significantly enhanced their electronics and PCBA manufacturing capabilities, offering ample capacity for high-volume production and a more accessible environment for U.S. companies.

As businesses navigate the complexities of global supply chains, leveraging data-driven approaches and advanced technologies is increasingly crucial. By associating components to suppliers’ manufacturing locations – including FABs, factories, and assembly, packaging, and testing sites – modern supply chain visibility tools can help identify high- and low-risk parts, pinpoint single-sourced components from China, and guide diversification strategies.

Embracing this approach empowers businesses to gain comprehensive insights into their sourcing landscape, identifying whether their parts are sourced from single or multiple origins, and determining which manufacturers have diversified their global footprint. This invaluable insight enables informed decision-making and ensures the continuity of supply chains, ultimately enhancing resilience and competitiveness in the ever-evolving global marketplace.

In addition, the integration of artificial intelligence (AI) and machine learning (ML) technologies is revolutionizing supply chain management. These cutting-edge technologies can analyze vast amounts of data to identify optimal sourcing locations, predict potential disruptions, and streamline operations. By harnessing the power of AI and ML, companies can make informed decisions, mitigate risks, and ensure the smooth operation of their supply chains in an increasingly complex global market.

The successful implementation of a China Plus One strategy, however, requires a holistic and strategic approach that extends beyond mere geographical diversification. Businesses must carefully evaluate the potential risks and opportunities associated with each region, considering factors such as political stability, regulatory environments, infrastructure quality, and the availability of skilled labor. Fostering strong partnerships with local suppliers and manufacturers is paramount to ensuring seamless integration and collaboration within the diversified supply chain network.

As businesses navigate the complexities of global supply chains, they should embrace a mindset of continuous improvement and adaptation. The global landscape is constantly evolving, with new challenges and opportunities emerging regularly. Companies must remain agile and proactive in their approach, continuously monitoring and analyzing supply chain data, identifying potential bottlenecks or vulnerabilities, and promptly implementing corrective measures to mitigate risks and optimize operations.

The China Plus One strategy represents a critical imperative for businesses seeking to fortify their global supply chain resilience in an increasingly uncertain and dynamic market environment. By diversifying their manufacturing footprint beyond China and leveraging advanced technologies and data-driven approaches, companies can effectively mitigate risks, enhance adaptability, and maintain a competitive edge in the ever-evolving global marketplace.