The ‘China Plus One’ Strategy: A Shipper’s Guide to Diversifying Your Sourcing
This is a guest post by Ellie Gabel.
Because of China’s enormous supplier base, well-developed logistics network and production expertise, it has been the centerpiece of global supply chains for decades. However, the rising complexity in supply chains and recent tariffs led to the rise of the “China Plus One” strategy. Importers and exporters are building up their supply chains in one or more countries rather than relying on one. The goal is to ensure supply continuity, decrease exposure to tariffs and increase supply and shipping flexibility.
A Changing Global Supply Chain
In the early 2000s, globalization rewarded firms for centralizing production work in countries where it was least expensive and most efficient, even with slightly higher tariffs. Typically, Asian countries were among of the best options for importers/exporters wishing to control costs and make high profits. Fluctuations in global labor prices, changes caused by the pandemic, and recent disruptions exposed the operational risks of centralized sourcing.
Shippers have suffered from port congestion and longer lead times, which can stretch to several weeks or months. They’ve also dealt with volatility in freight rates. The market changes forced many to consider other options.
The shift is evident in the numbers. Vietnam’s footwear exports were up 13% this year, mainly because of production shifts by foreign investors. The India Times reports that India’s exports of electronics grew 47% year on year. Reuters shared that automotive and semiconductor manufacturing in Malaysia and Thailand also improved. The trend is that diversification leads to more flexibility and allows importers to pivot as needed.
What It Means for Shippers
Importers and exporters can quickly suffer delays from production bottlenecks and unreliable supply. Diversifying sources reduces chokepoints. Dividing production between China and another market — such as textiles in Vietnam or automotive components in Mexico — provides routing flexibility and carrier options. If a changing tariff, new regulation, or natural disaster interrupts one lane, leadership can transfer orders to another lane without disruption.
Many importers work with 3PLs or freight forwarders to navigate the complexities of dealing with multiple carriers, currencies, and customs. Using a third-party helps companies comply with laws and rules while shortening lead times and increasing operational stability. Third-party partnerships can also make supply chains more resilient and cost-effective during tariff fluctuations, and help business owners understand total supply chain costs.
Choosing the “Plus One”
When deciding which secondary source to pursue, shippers may want to consider several factors. These include access to ports and infrastructure, political stability and trade agreements.
- Vietnam: It is a leading center for electronics, furniture and textiles, with ports at Hai Phong and Ho Chi Minh City. It is especially strong for those seeking reliable exports from Asia to the U.S. for consumer electronics and apparel.
- Malaysia: Became an essential center for high-tech components and semiconductors. Has a balance of governance and logistics.
- India: Expanded ports and export incentives helped growth sectors like automobiles, consumer electronics and pharmaceuticals.
- Mexico: The United States-Mexico-Canada Agreement gives Mexico a comparative advantage in nearshoring for automotive, machine, and consumer goods industries, given its proximity and regulatory ease for North American supply chains.
Local customs, costs and compliance requirements vary from location to location. Shippers should conduct cost-to-serve and lane optimization studies before committing long-term to these locations.
Steps to Take to Diversify
To avoid a misstep with sourcing diversification, a step-by-step analysis, mapping out supplier exposures and pilot-testing alternative trade routes can help importers and exporters navigate the adjustment process:
- Evaluate current exposure: Start by auditing suppliers. Note which product ranges and raw materials are subject to tariffs, longer lead times, or political risk.
- Research potential hubs: Shippers should consider trade flows, data on port performance, and regional free-trade agreements. They should target suppliers already exporting in the same category.
- Test shipments: Move some volume through the alternative country, measuring reliability, customs throughput, and total landed cost. Repeat with other options before signing a contract with a new supplier.
- Compare the economics: To understand total costs, compare avoided tariffs with inland transport, compliance, or insurance costs. The big picture is about much more than labor rates.
- Access comparison tools: Shipment-tracking dashboards and supplier-performance metrics can help identify when delays occur within various origins. Real-time stats give organizations instant feedback.
- Refine the plan: Companies can keep existing suppliers while seeking other options. For instance, an importer may retain a component sourced from China while completing final assembly elsewhere.
Gain an Edge With Risk Management
Changes in politics, trade, and currency can change the economics of where to source overnight. Securing a distributed manufacturing base offers instant options when there is a disruption in the supply chain. When the tariffs on some Chinese goods increased between 2017 and 2021, importers and exporters with factories in Vietnam or Thailand could deliver their orders on time with little disruption.
Companies with mixed origin sourcing rerouted goods through other ports during the 2021 container shortage. Those dependent on a single port saw weeks-long delays.
Global Sourcing’s Future
What began as a common-sense guess is fast becoming a long-term strategy. The “China Plus One” model is developing into a multi-market strategy balancing cost, proximity, and resilience. With South Asia and Latin America increasing production capacity, shippers will have more supplier choices, lower freight rates and improved inland access. While China will likely remain a significant component in the global manufacturing system, it will eventually be one of many as the international trading system diversifies.
Stronger Supply Chains Start With Strategic Choices
For many import and export companies, flexibility has become as important as cost factors. Keeping production in a single market puts the supply chain at risk. Adopting a “China Plus One” method helps business owners consider risk, cost and lead time. Instead of panicking about fluctuations in tariffs and regulations, agile shippers can stabilize supplies and keep building their organization without lengthy stops and starts.
This was a guest post by Ellie Gabel.
Author Bio
Ellie is a freelance writer who loves exploring the latest advancements in tech and science and how they’re impacting the world we live and work in. She’s also the associate editor of Revolutionized.com.
