As global economic dynamics continue to evolve, the China Plus One strategy remains an essential approach for European companies seeking to optimise their supply chains and reduce their dependence on China.
Eastwise is aware of the current market challenges and is committed to supporting its clients in this transition toward strategic geographic diversification. In this article, we explore recent developments in this strategy and the underlying motivations for companies to adopt this approach.
The current context
The first thing to note is that the “China Plus One” movement is consolidating itself as a lasting trend. European customers are returning to Asia for their purchases, but with increased interest in South-East Asia, particularly Vietnam and India. This region is gradually emerging as an attractive pole for European sourcing. Supplier diversification requires continuous adaptation on our part at Eastwise.
At Eastwise, we are anticipating this development by investing in new countries, following the example of our expansion into Indonesia in 2023. This strategy aims to maintain essential proximity to our factories and customers, thereby strengthening our market position.
The reasons for strengthening the China Plus One strategy
A number of factors are helping to strengthen the China Plus One strategy in 2024:
1. Social and demographic changes in China: although China remains competitive in the global market, developments such as rising labour costs and the demographic transition to an ageing population may influence its relative competitiveness. This is prompting companies to consider alternatives and diversify their sources of supply.
2. Trade war and geopolitical tensions: persistent tensions between the United States and China, as well as heightened tensions between China and Taiwan, added to trade disagreements between the European Union and China, are generating growing uncertainty in international trade relations. European companies are seeking to reduce their exposure to these geopolitical risks by diversifying their supplier bases.
3. Impact of the Covid-19 pandemic: the pandemic revealed the vulnerabilities of global supply chains, highlighting the need for greater resilience. Logistical disruptions and restrictions caused many companies to reconsider their reliance on suppliers located in a single geographic region.
The challenges ahead
However, implementing the China Plus One strategy is not without its challenges. The lack of skills, experience and know-how in the new markets, as well as the development of infrastructures in the target countries, are obstacles to be overcome. Adapting operational processes to these distinct environments takes time (a minimum of three to five years) and resources.
The benefits of the China Plus One strategy
Despite the challenges associated with diversifying supply chains, the China Plus One strategy offers a number of advantages for European companies:
1. Reduced dependence on China: by broadening their sources of supply to other Asian countries, companies reduce their dependence on China, making them less vulnerable to disruptions in the Chinese market.
2. Labour cost optimisation strategy: price in itself is not a competitive advantage. Each market has its own particularities, and Eastwise adopts a customised approach aimed at ensuring that its customers are optimised both economically and qualitatively by exploiting the specific strengths of each production region.
3.Risk diversification: by spreading their activities over several sites, companies can better control the risks associated with supply chain disruptions, currency fluctuations and price risks.All the more so as some countries (such as Vietnam, for example) benefit from a free trade agreement with the European Union
Eastwise’s contribution
At Eastwise we have taken the lead in implementing the China Plus One strategy for our European customers. We have teams in several Asian countries, including Vietnam, India, Indonesia, Thailand, Cambodia and Malaysia. We have carefully qualified new suppliers, totalling more than 80 partners in 2023, with similar growth planned for 2024. This approach is designed to help our customers implement this strategy. Thanks to our network of reliable suppliers, we are able to guarantee compliant, fast and efficient deliveries, while minimising operational risks for our customers.
A concrete example of our commitment is our continued presence in Vietnam for almost five years, demonstrating our belief in the China Plus One strategy. Thanks to this free trade agreement with the European Union, Vietnam has become a destination of choice for this strategy. At Eastwise, we have recently strengthened our presence by establishing an office in Ho Chi Minh City, to further enhance our local support to our European customers.
In conclusion, the China Plus One strategy represents an effective response to the current challenges of the global market for all European companies, regardless of their size or sector of activity. By relying on the geographical diversification of suppliers, these companies can strengthen their resilience and competitiveness while limiting their dependence on China.
However, to ensure the success of this transition, expert support is essential. At Eastwise, building on our experience since 2006, we are committed to supporting our customers every step of the way as they move towards a more agile and diversified supply chain, ensuring their long-term success in the global marketplace.
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