by: Dr.

PIYUSH CHAUBEY

CHINA PLUS ONE

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CHINA PLUS ONE STRATEGY

The China Plus One Strategy, also known as Plus One or C+1, is a supply chain strategy that
encourages companies to minimize their supply chain dependency on China by diversifying the
countries they source parts from. The goal here is to reduce the risk of over relying on a single
country for sourcing and manufacturing–if you’ve ever heard the famous saying, “don’t put all
your eggs in one basket”, it’s a very similar approach.
 The strategy emerged in 2013 due to concerns about global dependency on China and has
gained ground with trade tensions, COVID-19 disruptions, and rising labour costs.
 New markets are emerging as great alternatives to China, including Vietnam and India.
 Choosing a “plus one” location includes evaluating costs, geopolitical stability, infrastructure,
supplier reputation, and more.
 The US-China trade war and the pandemic-induced supply chain disruptions emanating
from China have indeed paved the way for many western corporates to consider a China
Plus One (C+1) strategy.
 The strategy would entail diversifying investments from China to other countries, to mitigate
the economic and geopolitical risks associated with the former.
 While many also hail Vietnam as another economy to be in the race of attracting investments
fleeing China, India could be the potential frontrunner in the C+1 game.
 Dr Jagannath P. Panda- “The COVID-19 pandemic has brought to the fore drawbacks of
over-reliance on a single source for manufacturing, launching a serious debate on the need
to diversify away from China-centric supply chains. However, owing to a low possibility of
complete decoupling from Beijing due to the country’s deep-seated economic integration
with the global economy, the impetus has birthed strategies such as “China Plus One”
that emphasize expanding and diversifying global supply chain networks with additional
manufacturing sites outside China”.
China Plus One: Opportunity for India
 India is in a unique position, both geographically and figuratively. It is one of the only
countries with a labour force and market size comparable to China, and boasts a strategically
sound location as well. It also is an attractive alternative on the manufacturing front, with
comparable cost-savings to China along with attractive government policies and incentives.
As a “plus one” country, India’s strategic advantages, coupled with its growing economic
power and market accessibility, position it as a compelling choice.
 World Bank Chief Ajay Banga- “India has an opportunity to cash in on global companies’
efforts to build factories outside China and it has a window of three-to-five years to seize this
opportunity to attract investment”.
 India’s economic advancement: India has a demographic advantage over China, with a
larger percentage of its population under 30. This young population is expected to drive
consumption, savings, and investments, leading to India’s goal of a multi-trillion dollar
economy.

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 Low cost of labour is an advantage: India’s low labour and capital costs enhance global
competitiveness, especially in electronics and semiconductor manufacturing, with labour
costs being half that of Vietnam.
 India’s heavy infrastructure investment: Heavy investment in the National Infrastructure
Pipeline (NIP) aims to cut manufacturing costs and reduce transportation time and expenses
by 20%, offering a contrast to China’s more fragmented transportation processes that lead
to increased costs.
 India’s conducive business environment: Recent policy interventions in India, including
the PLI scheme, tax reforms, liberalised FDI policies, and Make in India initiative, have
attracted investments. Efforts to promote competitive federalism and reduce transaction
costs further support these initiatives.
 India’s digital advantage: India’s 43% internet penetration facilitates digital skilling
initiatives, benefiting diverse economic sectors, especially services. Home-grown
technologies and access to Google and Facebook, banned in China, provide Indian youth
a digital advantage.
 Dynamic Indian diplomacy: India’s strong economy thrives on diplomatic ties (QUAD,
I2U2) and agreements with Australia, Canada, EU, and African nations. These partnerships
provide Indian businesses with finance, tech, and new markets. As India assumes G20 and
Shanghai Cooperation Organization presidencies, it stands well-positioned to navigate
global changes and advocate for the Global South.
 Most important is the large domestic market: India’s large domestic market with
a population of 1.3 billion and increasing incomes at 6.9 percent per annum offers a
competitive alternative to China’s massive domestic market. With a population base of 98
million, Vietnam’s market is much smaller in comparison.

Challenges

 Former Governor of Reserve Bank of India (RBI) Raghuram Rajan said India is not
attracting enough manufacturing through the China Plus One. Mexico and Vietnam are
attracting lots of manufacturing. However, India is attracting much less than it should. Mass
deprivation and inequality are the major challenges to be addressed in India, with corruption
being another issue, Mr. Ram said.
 China’s Zero-Covid policy disrupted supply chains, pushing multinational corporations
towards a China-Plus-One strategy. The EU, Mexico, Taiwan, and Vietnam gained in various
industries, while India saw limited benefits, mainly in equipment.
 One of the causes is India’s diminishing involvement in global value chains. Compared
to other emerging nations, it has a more restrictive trade policy that is not motivated by the
desire to integrate with global value chains.
 Infrastructure Deficiencies: Despite India’s strides towards enhancing its infrastructure,
challenges persist in transportation, logistics, and power supply across some areas.
 Bureaucratic Red Tape: The bureaucratic procedures and regulatory framework in India
can often be intricate and lengthy.
 Labour Regulations: India’s labor laws are strict and differ across states, making adherence
to them a complex task.

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 Skill Mismatch: India boasts a vast reservoir of educated and skilled labor, yet there often
exists a disparity between the industry’s skill requirements and the workforce’s available
competencies.
 Cultural and Language Differences: India’s diversity encompasses numerous languages
and cultural distinctions. Grasping and adjusting to these regional variances is essential for
effective market penetration and business activities.

Way Forward

 The emerging Supply Chain Resilience Initiative (SCRI) is a viable tool for implementing
the “China Plus One” strategy. Through meticulous implementation, the SCRI can play a
significant role across various sectors to potentially enable partial decoupling from China.
 Despite the challenges, many companies have successfully implemented the China Plus One
strategy in India and have leveraged the country’s vast market potential and competitive
advantages.
 But to benefit from the increasingly well-liked China-plus-one approach, India has to change
its trade strategy.Thorough market research, local partnerships, and a long-term perspective
are essential for navigating the complexities and seizing opportunities in India.
 Companies looking to expand their operations to India need to conduct thorough market
research and understand the specific opportunities and risks involved in each sector and
location.

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