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The China Plus One Strategy: Mitigating Supply Chain Risks with Thailand and Beyond

23 January 2025

In today’s volatile geopolitical landscape, businesses face unprecedented pressure to safeguard their supply chains against disruptions. The China Plus One (+1) Strategy has emerged as a critical solution, enabling companies to maintain operations in China while expanding into other countries. This article explores the significance of the China Plus One Strategy, its benefits, and how businesses can effectively implement it—with a focus on Thailand as a prime destination for diversification.

What is the China Plus One Strategy?

The China Plus One Strategy is a supply chain diversification approach where businesses maintain a presence in China while expanding operations to other countries. This strategy reduces over-reliance on a single country, mitigating risks from disruptions like geopolitical tensions or rising costs. According to Interos (2023), global supply chain disruptions have cost businesses $43-47 million annually, pushing companies to adopt diversification strategies like China Plus One.

 

Why is the China Plus One Strategy Necessary?

The China Plus One Strategy addresses three major challenges in modern supply chains:

By diversifying operations, businesses can reduce risks, improve efficiency, and build more resilient supply chains.

Benefits of the China Plus One Strategy

The benefits of implementing the China Plus One strategy include opportunities for cost savings, improved access to emerging markets in Southeast Asia, such as Thailand, Vietnam and India, enhanced project procurement practices, increased supply chain resilience, operational risk mitigation, and improved production efficiency.

  1. Cost Savings: Diversifying to countries with lower labor costs (e.g., Thailand, Vietnam) can significantly reduce production expenses.
  2.  Access to Emerging Markets: Expanding into Southeast Asia opens doors to a combined market of over 680 million consumers.
  3. Enhanced Resilience: A diversified supply chain is less vulnerable to localized disruptions, ensuring business continuity.
  4. Tariff Mitigation: By reducing reliance on China, businesses can avoid high tariffs imposed on U.S. imports.
  5. Operational Efficiency: Leveraging competitive sourcing and logistics optimization improves overall supply chain performance.

 

Identifying Suitable Locations for Diversification

Choosing suitable locations for diversification is crucial for the successful implementation of the China Plus One strategy. This strategy allows companies to select countries that best meet the specific requirements of their project components and supply chain needs. Regions like Southeast Asia, particularly Thailand, Vietnam, India, and other U.S. imports, present appealing alternatives that can enhance production efficiency and mitigate risks.

When evaluating potential sites, companies should consider the following factors:

  • Economic Stability: This refers to the level of protection that investments can expect from external factors, such as government regulations and market fluctuations. Businesses must have confidence that a country's currency will remain stable and that there will be a consistent supply of consumers.
  • Infrastructure: This encompasses essential utilities, transportation networks, energy sources, and communication systems. A robust and reliable infrastructure is vital for ensuring smooth business operations.
  • Logistics: This includes the time and cost associated with transporting goods, such as proximity to major shipping lanes and the availability of warehouses and distribution centers. Logistics can be a significant differentiating factor, especially for businesses that produce perishable items, sourcing alternatives, or rely on Just-in-Time (JIT) inventory systems.

The following points further clarify the key factors that businesses should consider when seeking potential diversification sites:

  • Economic Factors: Local market demand and growth trends are critical, as they offer insights into the future performance of a new facility or plant.
  • Infrastructure Quality: The quality and availability of roads, ports, utilities, and other infrastructure are essential to support business activities, including the high-speed rail sector.
  • Logistical Advantages: Understanding shipping routes and delivery times plays a crucial role in influencing the overall cost of doing business.

 

By taking these factors into account, businesses can make informed decisions that will support the long-term viability of their operations and optimize their supply chains in alignment with the China Plus One strategy.

 

Thailand's Strategic Advantages

Thailand stands out as a compelling choice for the "Plus One" in this strategy, offering several key benefits:

  • Geographical Location: Situated in the heart of Southeast Asia, Thailand serves as a gateway to the ASEAN market, facilitating efficient regional trade and distribution.
  • Robust Infrastructure: The country boasts well-developed transportation networks, including ports, highways, and airports, supporting seamless logistics and supply chain operations.
  • Skilled Workforce: With a literacy rate exceeding 93%, Thailand provides a capable and educated labor pool for various industries.
  • Government Incentives: Thailand's Board of Investment (BOI) offers attractive incentives, such as tax exemptions and investment promotions, to foreign investors in sectors like electronics, automotive, and logistics.

 

Comparative Analysis of Top Destinations: Thailand vs. Vietnam, India, and Mexico

 

Metric

Thailand

Vietnam

India

Mexico

Labor Cost (USD/hr)

2.99

2.38

1.68

4.23

Ease of Doing Business

77.7

69.8

71.0

72.4

Infrastructure Quality

4.2

3.6

4.0

3.8

Government Incentives

4.5

4.2

4.0

3.7

 

Thailand offers a balanced mix of cost-effectiveness, business-friendly policies, and infrastructure readiness, outperforming competitors in several metrics.

How Can Businesses Implement the China Plus One Strategy? 

Implementing the China Plus One Strategy involves a structured approach:

1. Conduct Risk Assessments

  • Identify Vulnerabilities: Evaluate your current supply chain for weaknesses, such as over-reliance on a single supplier or region.
  • Analyze Geopolitical Risks: Assess the political and economic stability of potential diversification locations.
  • Use Data Analytics: Leverage technology to streamline risk assessments and identify optimal sourcing alternatives.

2. Identify Suitable Locations

Key Factors to Consider:

  • Economic Stability: Ensure the country has a stable currency and growing consumer demand.
  • Infrastructure: Look for robust transportation networks, utilities, and communication systems.
  • Logistics: Proximity to shipping lanes and availability of warehouses are critical for efficient operations.

3. Partner with Local Companies

Benefits of Local Partnerships:

  • Access to local market knowledge and consumer insights.
  • Faster regulatory compliance through established relationships with government agencies.
  • Improved supply chain responsiveness and cost-effectiveness.

 

How Frasers Property Industrial (Thailand) Supports the China Plus One Strategy

Frasers Property Industrial (Thailand) is a leading provider of industrial property solutions, helping businesses implement the China Plus One Strategy with customised warehouse and factory solutions. With over 50 locations across Thailand, the company offers:

  • Customized Facilities: Built-to-suit warehouses and factories tailored to specific business needs.
  • Logistics Optimization: Advanced infrastructure to enhance supply chain efficiency.
  • Green Building Standards: Commitment to sustainability and innovation.

 

Conclusion: The Importance of Implementing the China Plus One Strategy

In an era of uncertainty, the China Plus One Strategy is essential for businesses navigating global uncertainties. By diversifying operations into markets like Thailand and India, companies gain access to resilient infrastructure, government support, and new market opportunities. Frasers Property Industrial (Thailand) ensures a seamless supply chain transition into Thailand, making it an invaluable partner in implementing this strategy.

 

For businesses looking to establish a presence in Thailand, Frasers provide Factories and Warehouses for rent with tailored solutions to meet diverse operational needs. Additionally, understanding the regulatory landscape is crucial, and our guide on getting a factory license in Thailand can help streamline the process.

Frequently Asked Questions

  • Why is the China Plus One Strategy becoming increasingly popular among businesses?

In recent years, businesses have faced challenges such as rising labor costs, trade tensions in the form of Tarifs, disruptions caused by natural disasters, and events like the Covid-19 pandemic and the Suez Canal blockage. As a result, the China Plus One Strategy has gained popularity as a way to mitigate these risks and ensure a more resilient supply chain.

  • What are the benefits of implementing the China Plus One Strategy?

By diversifying production and distribution across multiple countries, businesses can reduce their reliance on a single supplier or market. This leads to increased flexibility, lower costs, and improved risk management, ultimately resulting in a more stable and sustainable supply chain. This approach is endorsed by industry leaders and supported by entities like UNCTAD (United Nations Conference on Trade and Development).

  • How does Frasers Property Industrial (Thailand) support the China Plus One Strategy?

Frasers Property Industrial (Thailand) offers comprehensive warehouse and factory solutions across 50+ strategic locations in Thailand, which is a key player in South-East Asia. Their facilities are designed with green building standards and robotics, providing businesses with the necessary infrastructure to diversify their operations and implement the China Plus One Strategy effectively.

  • Can the China Plus One Strategy be applied to any industry or business?

Yes, the China Plus One Strategy can be applied to any industry or business that relies on global supply chains. It is particularly beneficial for businesses in manufacturing sectors, retail, and consumer goods, but can also be implemented in other sectors such as technology and healthcare. This strategy has been noted for its effectiveness in reducing reliance on U.S. imports and promoting resilient business operations.

  • Are there any potential challenges or drawbacks to implementing the China Plus One Strategy?

While the China Plus One Strategy offers many benefits, it also comes with its own set of challenges. Setting up operations in a new country can be costly and time-consuming, and businesses must also navigate cultural differences and potential trade barriers. Companies may also need to invest in production monitoring to ensure quality and efficiency. It is important for businesses to thoroughly research and plan before implementing this strategy.

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