India and Vietnam becoming attractive alternatives for China Plus One strategy
The China Plus One is a business strategy to avoid investing only in China and diversify the business into other countries. For most industries and manufacturers around the world though, China has always been an important market and supplier for them, before the COVID-19 pandemic and trade war with the US. However, over the last few years, the pandemic and trade war has resulted in most manufacturers looking to alternatives, hoping they will not be sanctioned by the US or experience shortages due to supply chain disruptions in China.
While China has finally accepted the realities of the pandemic and reopened its international borders, it may just be too late. To avoid lockdown-related delays in manufacturing and shipping, companies will now look to move away from the highly globalized supply chain models of pre-pandemic times.
According to Container xChange’s Container LogTech predictions report for 2023, in the future, more companies will adopt near-sourcing, nearshoring, and reshoring trends to bring their manufacturing hubs closer to their end markets. These new sourcing strategies will aim to rebalance supply chains by deleveraging from areas of concentrated production activities and spreading them over a range of countries to increase flexibility and resilience.
At the same time, there is also the concern of inflation and recession. Experts believe that both of these will have a greater impact in 2023 and will be the biggest driver of disruptions as well. While the adoption of digital technologies in shipping for example through automation, artificial intelligence, and such can help with the situation, the industry’s major concern will be on having systems interact directly via automating the Data-Analysis-Decision-Action cycle.
And this is where the China Plus One strategy comes in. As western organizations have heavily invested in China over the last two decades due to its low production costs, the effects of the pandemic as well as increased fear of being sanctioned for using Chinese technology have now made them look to alternative countries. As such, the world is looking to make the most of the China Plus One strategy.
The alternatives, for now, are India and Vietnam. Both countries have recorded increased investments by American companies that have set up plants there. For example, to reduce its dependence on producing iPhones in China, Apple has explored India as an alternative. In Vietnam, Foxconn is also expanding production facilities, but it will take several years to move capacity out of China. The US itself continues to depend on China for hundreds of critical goods including textiles, chemicals, and electronics.
“The overall outlook for the year 2023 remains gloomy. Europe is hit hard with all-time high inflation; China struggles to cope with the virus and the US continues to witness hinterland transportation challenges and labor unrest. Most of these challenges will stay in 2023. Consumer confidence will pick up, but it really depends strongly on whether we witness more disruptions in the coming times.” said Christian Roeloffs, cofounder and CEO, of Container xChange.
Despite this, companies looking for sourcing alternatives will not diminish China’s vital role in global manufacturing in 2023. While there will be a gradual shift from industries relying solely on China for production capacity and skilled manpower, as the years move on, manufacturing and production companies will diversify and spread their businesses to ‘China+1’ or other viable locations in the region such as India and Vietnam.
The survey also highlighted that the US is set to emphasize more on ‘friendshoring’ in 2023 by relocating supply chains to countries that are ‘friends’ or allies of each other. The objective seems to be to prevent countries – especially China and Russia in the case of the US – from using their market advantages in key raw materials, foods, and products.
The survey also revealed that 70% of respondents find lockdowns in China to be the biggest global event impacting businesses in 2022 while 88% of respondents fear that the biggest impeding factor for businesses in 2023 will be inflation and recessionary fears, followed by ‘implications of war’, ‘impact of COVID in China’ and ‘worker strikes’. 60% of respondents also believe continued lockdowns in 2023 will impact businesses financially, and production-wise, and will also lead to a loss of global contracts/partnerships.
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