Recent world events including a global pandemic with its roots in China, a possible trade war and growing trade deficit between the US and China, and pro-trade government initiatives in other low cost sourcing countries have led many businesses to implement what experts are calling a China plus one strategy. The term China plus one refers to a business strategy in which companies source or manufacture products from another country as well as China, often as part of a global procurement strategy. Experts believe that doing so could reduce risk for companies by limiting their dependency on China and making them more resilient to a fast-changing global political climate.
Planning a china plus one strategy isn’t an easy process and requires a great deal of forethought and analysis. Companies must consider how a China plus one strategy will impact their global procurement processes and supply chain at large. Furthermore, they must streamline communication and collaboration within their organization to make sure it’s working as one cohesive team to plan and implement a china plus one strategy.
Let’s explore five concrete steps organizations can take when planning a China plus one strategy so they can become more diversified and resilient in the face of rapidly developing world events.
1. Define the Goals of your China Plus One Strategy
Key to planning a successful china plus one strategy is clearly understanding what you’re looking to accomplish from it. Some companies are pursuing the strategy in response to new or pending tariffs on specific categories of products exported from China into the US. If tariffs are the primary reason a company is planning a China plus one strategy, the organization should conduct a comprehensive analysis on the trade regulations and tariffs associated with the alternative low cost sourcing country they are considering manufacturing in.
A China Plus One Strategy in the Time of Coronavirus
The Covid-19 global pandemic has irrevocably altered world trade and wreaked havoc on many companies’ global supply chains. If the pandemic is one of the primary reasons a company is planning a China plus one strategy, the organization should do extensive research on how the pandemic has influenced whatever alternative low cost country sourcing options they’re considering. Among things to be considered are the political climate of the country, the ruling government’s stance on responding to the pandemic, and the extent to which the pandemic has disrupted the business culture in the country.
2. Research Possible Alternative Sourcing Locations
Companies should not take the decision of which country to source from lightly. Conducting a strategic SWOT analysis can be a good way to start to understand the strengths, weaknesses, opportunities, and threats presented by a country they are considering. A company should also do more specific research into the price points associated with the products they’re producing, the labor costs of producing them in the country, and the cost of shipping and tariffs when transporting them to their target market.
A China Plus One Strategy in Low Cost Countries
The administrative costs of complying with country-specific internal regulations should also be considered. The International Monetary Fund can be a great source of data related to the cost of doing business in a specific country. This data can be aggregated and organized into spreadsheets, financial reports, and company memos so that company stakeholders can provide insight into the most viable China plus one strategy.
3. Conduct a China Plus One Comparative Analysis
After company leadership has collected all the relevant data, the organization can then conduct comparative analysis of different countries and manufacturers they can consider. These analysis should include all of the key factors to consider when outsourcing.
They should also be looked at while considering the bigger picture of their global procurement strategy and how the manufacturers fit into that model.
Low cost sourcing countries companies consider for a China plus one strategy often include India, the Philippines, Vietnam, and many others.
4. Hire a Sourcing Agent or Sourcing Partner
In most cases, it is worth bringing on a consultant or organization with specific manufacturing and industry knowledge of the country you’ll be sourcing in. This company can act as a sourcing agent or sourcing partner to ensure your interests are being protected when sourcing overseas.
Investing in a sourcing agent will save you time and money down-the-line by helping you to avoid some of the most common sourcing mistakes.
If you’re interested in sourcing in India we might be able to provide the global procurement services to help in this capacity.
5. Keep Up with Global Sourcing Trends
Even after planning your China plus one strategy, it’s crucial to keep up with the latest data on world trade and global sourcing trends. Streamline communication with your sourcing partner and freely share data that might impact your China plus one strategy.
The World Trade Organization can be a great source of current and relevant information related to the latest developments in manufacturing overseas.
For more information on planning a China plus one strategy, contact us.