China Plus One Strategy and Why Companies Are Adopting It

For over two decades, the China Plus One Strategy has become increasingly relevant as China has been the world’s largest manufacturing hub, accounting for 28.7% of global industrial output (World Bank, 2023). Its extensive infrastructure, low-cost labor, and high production efficiency made it the preferred choice for businesses worldwide. However, over-reliance on a single country poses significant risks. 

Global supply chain disruptions, driven by trade wars, rising production costs, and geopolitical instability, have exposed vulnerabilities in centralized manufacturing strategies. The China Plus One Strategy has emerged as a strategic response—diversifying sourcing and production to alternative manufacturing hubs while maintaining a presence in China. This has made the China Plus One Strategy a compelling imperative for global manufacturers.

The shift towards supply chain diversification ensures continuity, cost optimization, and risk mitigation. Alternative sourcing models are now integrated into procurement strategies, allowing companies to establish resilient supply chains that adapt to market fluctuations. 

This blog explores the technical aspects of the China Plus One Strategy, key decision-making factors, and how India is positioned as a strong alternative for global manufacturing. 

Why Global Enterprises Are Rethinking Supply Chains? 

This section explains why more enterprises are shifting to the China Plus One Strategy to safeguard their global operations. Global enterprises are undergoing a fundamental shift in their supply chain strategies. The increasing complexity of international trade, geopolitical uncertainties, and vulnerabilities exposed by over-reliance on China have pushed companies to seek alternative sourcing destinations. Businesses are no longer prioritizing just cost efficiency but also resilience, agility, and long-term sustainability. This shift has led to the widespread adoption of the China Plus One Strategy, where companies diversify their manufacturing base beyond China to mitigate risks. Below are the key factors driving this transformation: 

Manufacturing Overconcentration Risks 

Supply Chain Disruptions Due to Geopolitical Tensions 

• Companies highly dependent on China face major disruptions due to geopolitical tensions, trade wars, and pandemic-related shutdowns, prompting many companies to adopt the China Plus One Strategy to diversify risk.

• The U.S.-China trade war alone has resulted in tariffs of up to 25% on Chinese imports, significantly increasing procurement costs for businesses. 

• Over-reliance on a single market creates vulnerabilities, especially in the automotive, semiconductors, and consumer electronics industries. 

Vulnerability of Key Industries 

• Over 85% of global electronics manufacturing depends on China, making industries like automotive and semiconductors highly susceptible to supply chain shocks. 

• The semiconductor shortage caused by pandemic lockdowns in China led to a $210 billion revenue loss in the global auto industry in 2021. 

• The textile and apparel industry, which sources 65% of its raw materials from China, faced severe disruptions due to lockdowns and port congestion. 

This reinforces the urgency of implementing a China Plus One Strategy across sensitive sectors.

Natural Disaster & Pandemic Risks 

• The COVID-19 pandemic highlighted major weaknesses in global supply chains, with nearly 75% of U.S. companies reporting disruptions due to strict lockdowns in China. 

• Disruptions in China’s Pearl River Delta, a major manufacturing hub, caused global shipping delays of 3-4 months, increasing logistics costs by over 300%. 

Events like COVID-19 have significantly accelerated the adoption of the China Plus One Strategy.

Regulatory Uncertainty & Compliance Challenges 

• China has introduced stricter environmental policies, forcing manufacturers to comply with higher emission standards or relocate. 

• The Data Security Law (DSL) and Personal Information Protection Law (PIPL) add legal complexities for foreign businesses operating in China. 

• Intellectual property (IP) theft concerns persist, with an estimated $600 billion annual loss due to counterfeiting and IP infringement. 

Redefining Global Value Chains 

Supply chain redesign through the China Plus One Strategy is now reshaping global value chains.

From Cost Efficiency to Supply Chain Resilience 

• Traditional supply chains prioritized cost efficiency over resilience, but shifting dynamics require more adaptable models. 

• Labor costs in China have risen from $2.00 per hour in 2010 to $7.10 per hour in 2024, pushing companies to explore India, Vietnam, and Mexico, where wages are significantly lower. 

Distributed Manufacturing Models 

• Multinational corporations (MNCs) are diversifying manufacturing locations to reduce dependency on China. 

• Apple, for example, has moved 25% of iPhone production to India, and Tesla is considering expanding its gigafactory to Mexico. 

• Diversification improves supply continuity, reduces risks from trade restrictions, and enhances operational agility. 

This decentralization is a core principle of the China Plus One Strategy.

Nearshoring & Regionalization of Supply Chains 

A key trend within the China Plus One Strategy is regionalizing production to minimize disruptions.

• Many companies are shifting production closer to their target markets to reduce lead times and transportation costs. 

• Mexico and Eastern Europe have emerged as key nearshoring destinations for U.S. and European manufacturers. 

• Nearshoring can reduce logistics costs by 15-20% while improving delivery timelines. 

Sustainability & ESG Considerations 

• Companies are re-evaluating supply chains to meet global carbon-neutral goals and align with sustainability initiatives. 

• The European Union’s Carbon Border Adjustment Mechanism (CBAM) will impose carbon tariffs on imports, making low-emission manufacturing hubs more attractive. 

• Sustainability-driven supply chains can lower Scope 3 emissions, which account for over 75% of a company’s carbon footprint. 

Aligning supply chains with global ESG goals has become another pillar supporting the adoption of the China Plus One Strategy.

Rising Labor & Operational Costs in China 

Increasing Wages & Employee Attrition 

• The average manufacturing wage in China is $7.10 per hour, compared to $2.50 per hour in India and Vietnam. 

• As wages rise, companies are offshoring to Southeast Asia and Latin America to maintain competitiveness. 

These rising labor costs have accelerated the shift toward the China Plus One Strategy as companies explore lower-cost alternatives.

Aging Workforce & Labor Shortages 

• China’s working-age population is expected to decline by 200 million by 2050, creating labor shortages. 

• The government’s Three-Child Policy aims to address population decline, but birth rates remain historically low. 

Stringent Regulatory Policies on Foreign Companies 

• China has imposed new labor laws and worker protections, increasing compliance costs for foreign manufacturers. 

• New data security regulations require foreign firms to store and process data locally, adding operational burdens. 

Trade Barriers & Supply Chain Nationalization Trends 

Tariffs & Trade Barriers Increasing Production Costs 

• The U.S.-China trade war has led to $550 billion in tariffs, forcing businesses to relocate operations to tariff-free zones. 

• The European Union’s anti-dumping policies have further restricted Chinese exports in sectors like steel, aluminum, and solar panels. 

Government Incentives for Local Manufacturing 

• Countries like India, Vietnam, and Mexico offer aggressive tax incentives, land subsidies, and production-linked incentives (PLI) to attract foreign manufacturers. 

• India’s PLI scheme in electronics manufacturing has attracted over $20 billion in investments, leading to rapid growth in its semiconductor and smartphone industries. 

Shifts in Critical Sectors Like Semiconductors & Pharmaceuticals 

• The U.S. CHIPS Act allocates $52 billion to boost domestic semiconductor production, reducing reliance on Chinese suppliers. 

• Governments worldwide are reshoring pharmaceutical production to ensure medical supply security. 

Cost-Benefit Analysis: Financial & Operational Implications of Diversification 

Financially, the China Plus One Strategy offers companies a measurable cost-benefit advantage. Global supply chain diversification is no longer just a strategic choice; it is a necessity for businesses seeking long-term resilience and cost efficiency. Companies heavily reliant on single-country sourcing, particularly from China, have faced rising tariffs, geopolitical instability, and escalating labor costs, leading to higher procurement expenses and operational disruptions. By shifting to a multi-country manufacturing model, organizations can achieve cost savings, operational flexibility, and enhanced risk mitigation. Below is a detailed financial and operational analysis of supply chain diversification. 

CapEx vs. OpEx in New Manufacturing Hubs 

• Setting up a manufacturing hub requires capital investments in land, machinery, and workforce. India offers a 100% Foreign Direct Investment (FDI) allowance in manufacturing, making it an attractive destination. 

• Initial capital expenditures (CapEx) for setting up an electronics plant in China can range between $50 and $200 million, while in India, government incentives like the PLI scheme significantly reduce upfront costs. 

Total Landed Cost (TLC) Considerations 

• When shifting production, companies need to assess the cost of logistics, tariffs, and regulatory compliance. For instance, the USMCA agreement allows duty-free trade between the U.S., Canada, and Mexico, making nearshoring attractive. 

• Due to U.S.-China trade tensions, tariff costs have increased by 20-25%, pushing companies to explore alternative sourcing locations. 

Manufacturing Productivity & Process Optimization 

• While China offers high production efficiency, automation adoption in India and Southeast Asia is closing the gap. In 2023, India’s industrial robot density grew by 25%, improving productivity. 

• AI-driven MES (Manufacturing Execution Systems) are optimizing workflows, reducing waste, and increasing output by 15-20% in new production hubs. 

Geopolitical & Regulatory Realignment: Compliance & Risk Factors 

As companies pursue the China Plus One Strategy, regulatory compliance across multiple countries becomes crucial. Global supply chains are becoming increasingly complex due to shifting geopolitical landscapes, evolving trade policies, and stringent regulatory requirements. Businesses expanding into new markets must navigate multi-jurisdictional trade agreements, regulatory compliance frameworks, and environmental, social, and governance (ESG) mandates. Companies that fail to align with these changes risk increased operational costs, trade restrictions, and reputational damage. Below are key factors driving supply chain realignment and compliance challenges in emerging markets. 

Navigating Multi-Jurisdictional Trade Policies 

Trade Agreements and Tariff Reductions 

• Countries like Vietnam, Thailand, and India have signed multiple Free Trade Agreements (FTAs) that lower trade barriers. 

• The ASEAN Free Trade Agreement (AFTA) enables duty-free trade among 10 Southeast Asian nations, reducing import/export costs. 

• India’s Comprehensive Economic Partnership Agreements (CEPAs) with Japan and UAE allow zero or reduced tariffs on key manufacturing inputs. 

Shift Away from China Due to WTO & Sanctions 

• Increasing sanctions on China, particularly in critical sectors like technology, semiconductors, and defense, are forcing companies to relocate. 

• The World Trade Organization (WTO) is reforming global trade rules to counteract China’s state-subsidized industries, limiting its competitive edge. 

• The U.S. Uyghur Forced Labor Prevention Act (UFLPA) bans imports linked to forced labor, affecting $1.3 billion of goods annually from China’s Xinjiang region. 

Regional Trade Blocs Enhancing Market Access 

• The Regional Comprehensive Economic Partnership (RCEP), covering 15 Asia-Pacific nations, eliminates 92% of tariffs on traded goods over time. 

• The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), with 11 member nations, enhances global supply chain flexibility for businesses relocating outside China. 

Foreign Investment Incentives in Emerging Markets 

• Governments in India, Vietnam, and Mexico offer corporate tax exemptions, land subsidies, and preferential trade tariffs to attract foreign direct investment (FDI). 

• India’s Production-Linked Incentive (PLI) scheme in electronics and pharmaceuticals has attracted over $20 billion in investments, reducing dependency on Chinese suppliers. 

Regulatory & ESG Compliance in New Markets 

Rising ESG Compliance Costs 

• Countries are enforcing stricter environmental and social governance (ESG) regulations, increasing compliance costs for manufacturers. 

• India’s mandatory carbon credit trading market is expected to reduce emissions by 30% by 2030, affecting heavy industries like automotive, cement, and steel. 

• The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) mandates companies to audit their supply chains for human rights and environmental risks. 

Tech Industry’s ESG Compliance Push 

• Companies like Apple, Intel, and Tesla require suppliers to reduce carbon footprints, eliminate unethical labor practices, and increase renewable energy usage. 

• Apple’s supply chain in India and Vietnam has been mandated to operate on 100% renewable energy by 2030. 

• ESG compliance failures result in supply contract terminations and financial penalties, with over $30 billion in ESG non-compliance fines issued globally in 2023. 

Global Carbon Tax & Sustainable Sourcing Initiatives 

• The EU’s Carbon Border Adjustment Mechanism (CBAM) will impose carbon tariffs on imports from countries with lax environmental laws, affecting steel, aluminum, and cement industries. 

• Companies are prioritizing low-emission manufacturing hubs, with FDI growth of 12% year over year in Mexico’s renewable-powered industrial parks. 

• Sustainable sourcing initiatives now require companies to track Scope 3 emissions, which account for 75% of a company’s total carbon footprint. 

Compliance with Local Labor Laws 

• Vietnam and India have strengthened labor laws, enforcing minimum wage hikes, improved worker conditions, and stricter overtime regulations. 

• China’s 2022 Data Security Law (DSL) mandates foreign companies to store local data within China, increasing cybersecurity and compliance costs. 

• The U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act impose hefty fines on non-compliant businesses, with global penalties exceeding $7 billion in 2023 alone. 

The Rise of Nationalized Industrial Policies 

Localized Manufacturing Mandates 

• Governments are enforcing domestic production mandates to boost local employment and industrial self-reliance. 

• India’s “Make in India” initiative has led to 80% of smartphones sold in India being manufactured locally, reducing import dependency. 

• The U.S. CHIPS Act allocates $52 billion for domestic semiconductor manufacturing, reducing reliance on Asian suppliers. 

Technology Transfer & Local Partnerships 

• Many countries now require foreign firms to establish joint ventures with local companies to access their markets. 

• China mandates technology transfers for foreign firms in high-tech sectors, affecting industries like EV batteries, robotics, and AI. 

• Mexico’s “Maquiladora” program provides tax incentives for foreign companies to assemble products within its borders before exporting. 

Protectionism & Trade Nationalization Trends 

• The U.S. Inflation Reduction Act (IRA) prioritizes domestic sourcing of critical minerals, affecting global battery and EV supply chains. 

• The EU’s Strategic Autonomy Policy aims to reduce dependency on rare earth minerals in China, which make up 98% of Europe’s imports. 

• Countries like Japan and South Korea are increasing domestic chip production subsidies to compete with China’s dominance. 

The Role of Digital Transformation in Supply Chain Compliance 

Blockchain & AI-Powered Trade Compliance 

• Blockchain-based tracking systems ensure real-time visibility in global supply chains, reducing fraud and counterfeit risks. 

• AI-driven regulatory compliance tools analyze over 500 million trade regulations globally, ensuring businesses stay compliant. 

Digital Customs & Automated Documentation 

• Governments implement AI-driven customs processing to detect illegal trade practices and enforce real-time duty adjustments. 

• Japan’s electronic customs clearance system has reduced import/export processing times by 40%, improving global trade efficiency. 

Cybersecurity & Data Protection Regulations 

• Countries enforce strict data residency laws, requiring onshore storage of sensitive supply chain data. 

• The EU’s GDPR and China’s Data Security Law (DSL) impose fines of up to $20 million or 4% of global revenue for non-compliance. 

India as the Prime Beneficiary – Comparative Advantage in Manufacturing 

India has emerged as the most promising destination under the China Plus One Strategy due to its robust infrastructure, pro-business policies, and skilled workforce. The government’s strategic initiatives, including infrastructure expansion and financial incentives, have made India an attractive hub for export-driven manufacturing and high-tech industries. With a vast talent pool and competitive labor costs, India is well-positioned to capitalize on the evolving global manufacturing landscape. 

Infrastructure & Industrial Ecosystem Readiness 

Massive Infrastructure Investments 

• India has invested over $1.4 trillion in infrastructure through the National Infrastructure Pipeline (NIP), enhancing logistics, connectivity, and industrial zones. 

• The Dedicated Freight Corridors (DFCs) are reducing transit time for goods, making supply chains more efficient. 

Special Economic Zones (SEZs) & Industrial Clusters 

• The country has over 250 Special Economic Zones (SEZs) to facilitate export-driven manufacturing. 

• Industrial corridors like the Delhi-Mumbai Industrial Corridor (DMIC) and Chennai-Bengaluru Industrial Corridor (CBIC) provide businesses with world-class infrastructure and policy support. 

Government Incentives & Policy Frameworks 

Production-Linked Incentive (PLI) Scheme 

• India’s PLI scheme offers up to 6% financial incentives on incremental sales in key sectors such as electronics, automotive, pharmaceuticals, and semiconductors. 

• This has attracted global giants like Apple, Tesla, and Samsung, increasing local production. 

Business-Friendly Regulations & Fast Approvals 

• Fast-track regulatory approvals allow companies to set up factories in under 12 months, significantly reducing time-to-market. 

• Tax reforms, ease of doing business improvements, and FDI-friendly policies have boosted foreign investments in manufacturing. 

Workforce Scalability & Engineering Depth 

Large Pool of Skilled Talent 

• India produces over 1.5 million engineering graduates annually, offering a highly skilled technical workforce across multiple industries. 

• IT and automation expertise support Industry 4.0 adoption in manufacturing. 

Cost-Effective Labor Market 

• With nearly 65% lower labor costs than China, India provides an economically viable alternative for high-tech manufacturing. 

• The flexibility in labor laws has made hiring and scaling operations easier for global manufacturers. 

India’s Growing Role in Electronics & Semiconductor Manufacturing 

Smartphone & Electronics Manufacturing Hub 

• India has become the world’s second-largest smartphone producer, with 85% of mobile phones sold domestically now manufactured in India. 

• Companies like Apple and Samsung are expanding their assembly lines and supply chains within the country. 

India’s success in electronics assembly underscores its strategic importance in the China Plus One Strategy for technology firms.

Semiconductor & Chipmaking Ambitions 

• The Indian government has allocated $10 billion for semiconductor manufacturing, attracting investments from Intel, TSMC, and Vedanta. 

• Plans for chip fabrication units (fabs) and semiconductor assembly plants are underway to reduce import dependency. 

India’s Role in Sustainable & Green Manufacturing 

Renewable Energy Integration in Manufacturing 

• India has committed to 500 GW of renewable energy capacity by 2030, ensuring sustainable and cost-effective power for industries. 

• The Green Hydrogen Mission aims to decarbonize heavy industries like steel, cement, and chemicals. 

Carbon-Neutral Supply Chains & ESG Compliance 

• Companies investing in India benefit from incentives for green manufacturing, aligning with global ESG mandates. 

• India’s carbon credit trading market is projected to reduce emissions by 30% by 2030, making it a preferred location for sustainable production. 

Frigate’s China Plus One Strategy – Engineering a High-Resilience Manufacturing Hub in India 

As global manufacturers diversify their supply chains away from China, Frigate has strategically positioned India as a high-resilience manufacturing hub. By integrating advanced manufacturing technologies, streamlining supply chains, and ensuring global compliance, Frigate has built an end-to-end, scalable, and future-proof production ecosystem. 

End-to-End Supply Chain Control: Minimizing Risk, Maximizing Efficiency 

Frigate’s supply chain strategy reduces import dependency, ensures raw material security, and enhances cost efficiencies through vertical integration. 

Raw Material Sourcing & Localization 

• India ranks among the top five producers of aluminum, steel, and zinc, ensuring a stable supply of critical raw materials for Frigate’s operations. 

• Strategic partnerships with domestic metal foundries and specialty alloy suppliers reduce lead times by up to 40% compared to overseas procurement. 

• On-site metal refining and alloy processing facilities ensure Frigate meets custom material specifications for aerospace, automotive, and defense applications. 

Integrated Machining & Advanced Casting 

• Frigate integrates high-precision CNC machining, high-pressure die casting, and hot forging within its manufacturing ecosystem, eliminating third-party dependencies. 

• Multi-axis CNC machining centers operate with a positioning accuracy of ±2 microns, optimizing complex geometries for aerospace and automotive components. 

• Automated foundry operations reduce human intervention, improving casting repeatability by 25% and minimizing defect rates below 2%. 

Optimized Logistics & Cost Control 

• Digitized warehouse management systems (WMS) leverage AI-driven inventory forecasting, reducing material shortages and overstock risks. 

• A localized supplier network reduces logistics costs by up to 30%, mitigating risks associated with international freight disruptions. 

• On-site heat treatment, finishing, and assembly eliminate the need for third-party processing, reducing turnaround times by 50%. 

Smart Manufacturing & Industry 4.0 Implementation 

Frigate has embraced Industry 4.0 principles, integrating automation, AI, IoT, and advanced analytics to enhance production efficiency, precision, and real-time decision-making. 

AI-Driven Manufacturing Execution Systems (MES) 

• MES platforms powered by machine learning (ML) algorithms optimize real-time production scheduling, leading to a 20% increase in output efficiency. 

• Predictive maintenance AI monitors over 250 machine parameters, reducing unplanned downtime by 40% and increasing equipment lifespan. 

• Digital twins simulate production workflows, allowing Frigate to resolve inefficiencies preemptively before production begins. 

Robotics & Automation in Machining & Assembly 

• Six-axis robotic arms handle high-precision CNC machining, reducing manual errors by 70% and improving accuracy by 35%. 

• Automated guided vehicles (AGVs) transport materials within the factory floor, optimizing workflow and reducing material handling costs. 

• Co-bots (collaborative robots) assist in intricate assembly operations, ensuring consistent quality and reducing operator fatigue. 

IoT-Enabled Smart Factories 

• Over 5,000 IoT sensors monitor temperature, pressure, and tool wear across Frigate’s facilities, enabling real-time process optimization. 

• Cloud-based production analytics provide insights into defect patterns, leading to a 25% reduction in rejection rates. 

• Blockchain-integrated supply chain tracking ensures end-to-end visibility, enhancing traceability for mission-critical aerospace and defense components. 

Global Quality & Compliance Assurance 

Frigate’s manufacturing facilities adhere to the highest global quality certifications and compliance standards, ensuring product reliability for aerospace, automotive, and industrial applications. 

Aerospace & Defense Compliance (AS9100 & NADCAP) 

• AS9100-certified processes ensure strict adherence to aerospace-grade quality controls, meeting NASA and DoD (Department of Defense) specifications. 

• NADCAP-certified surface and heat treatment facilities ensure high fatigue resistance for jet engine and missile components. 

Automotive & Heavy Industry Standards (IATF 16949 & ISO 9001) 

• IATF 16949 compliance guarantees defect-free parts for Tier-1 automotive suppliers with zero-defect manufacturing methodologies. 

• ISO 9001-certified production systems incorporate statistical process control (SPC), reducing dimensional deviations by 60%. 

Advanced Metrology & Precision Inspection 

• 5-axis CMM (Coordinate Measuring Machines) verify tolerances as tight as ±0.005 mm, critical for high-performance components. 

• Laser-based surface profilometry ensures micro-finish accuracy below Ra 0.2 μm, reducing friction and wear in engine components. 

• Inline X-ray defect analysis for castings detects subsurface porosity below 0.01 mm, improving structural integrity and longevity. 

Agile & Scalable Production Capacity 

Frigate has developed a modular and scalable production model that enables rapid adaptation to changing market demands, batch-size variations, and prototyping requirements. 

Modular Production Cells & Rapid Scale-Ups 

• Flexible manufacturing cells can switch between product lines in under 30 minutes, reducing downtime and ensuring just-in-time production. 

• Prototyping-to-mass production transitions occur within weeks rather than months, allowing faster market entry for new product designs. 

Adaptive Automation for Demand Fluctuations 

• Smart conveyors and automated retooling stations allow seamless transitions between low-volume and high-volume production. 

• AI-driven demand forecasting models optimize material procurement and workforce allocation, preventing overproduction and inventory waste. 

Global Supply Chain Resilience 

• Dual-sourcing strategies across different regions in India ensure uninterrupted material supply even during geopolitical disruptions. 

• Dedicated supplier risk assessment frameworks help Frigate proactively identify and mitigate risks in critical component sourcing. 

These measures align with the goals of a robust China Plus One Strategy.

Conclusion 

The China Plus One Strategy is no longer an option but is necessary for businesses seeking supply chain resilience and cost optimization. Companies must proactively realign their manufacturing footprints, leveraging emerging hubs like India for operational efficiency. Frigate is at the forefront of this shift, providing end-to-end manufacturing solutions with cutting-edge technology and quality assurance. Get Instant Quote today to future-proof your supply chain!