Beyond Borders: Leveraging the China Plus One Strategy to Cut Costs and Stay Profitable in the EU

China has been the world’s go-to manufacturing hub due to extensive benefits. However, the recent global events have exposed the vulnerabilities of relying on the country as your manufacturing base. You must have a backup plan in case things go downhill. 

Logistics costs are rising, trade wars are happening, political instability is persistent, and consumers are growing skeptical. This has driven businesses to diversify production networks– leading to the rise of the “China Plus One Strategy.”

It’s a smart approach that allows companies to retain their Chinese manufacturing facility while combining its benefits with production at strategic locations like Central and Eastern Europe (CEE) or the Balkans. This significantly minimizes risks and improves resilience while maintaining profitability and competitiveness.

Let’s dive deep into this tactical approach to figure out if it’s the right strategy for you.

The Benefits & Limitations of China as a Manufacturing Hub

To begin with, you must understand the benefits and challenges of having a manufacturing hub only in China:

Key Benefits:

Massive production capacity: China still offers incredible scalability. If your company aims at high-volume production, then it’s a highly beneficial location.

Low labor costs: While China’s labor costs have risen significantly—by up to 70% in the last decade, according to McKinsey—they remain competitive for many industries.

Infrastructure and supply chain efficiency: China’s well-developed infrastructure supports its robust supply chains, making it difficult for other regions to replicate its logistics efficiency.

Challenges:

Rising logistics costs: Shipping costs from China to Europe have surged by over 300% in recent years as reported by Bloomberg. The reasons are rising fuel prices, global supply chain bottlenecks, and container shortages. This has put a severe strain on profitability.

Embargos and trade wars: The ongoing U.S.-China trade war and other geopolitical tensions have caused businesses to reassess their overreliance on China, leading to increased tariffs, disrupted supply chains, and uncertainty.

Political instability: With policies like embargos and trade restrictions frequently shifting, companies depending solely on Chinese manufacturing face significant risks in maintaining stable supply chains.

Why Has China Plus One Strategy Become the Need of the Hour?

Diversifying beyond China isn’t just an option anymore, it’s a necessity due to dreadful risks. The China Plus One strategy prevents you from relying too much on a single production location and offers protection against global uncertainties. 

Here are the 3 key reasons why it’s the right approach:

Mitigating risks: Companies employing the China Plus One Strategy reduce their exposure to trade wars, tariffs, and other economic and geopolitical risks.

Just-in-time logistics: Manufacturing closer to Europe enables companies to adhere to just-in-time principles more effectively. Goods shipped from China take 30 to 45 days for shipping while intra-European shipments arrive in just 1 to 3 days. Note this difference.

Freight costs: Rising fuel prices and transportation bottlenecks are making long-haul shipping from China prohibitively expensive. So, get production near your home and cut costs on freight.

Why Choose Central and Eastern Europe (CEE) or the Balkans for the Plus One Strategy?

Central and Eastern Europe and the Balkans have become emerging destinations for companies to move their production base or invest in a new manufacturing facility. Countries like Romania,  Hungary, Poland, and others have tactical benefits like market proximity, plenty of skilled talent, cost-saving opportunities, great regulatory alignment, and more.

Geographical Proximity and Reduced Shipping Costs

CEE countries are proximal to key European markets and The shorter distance also makes delivery times faster, lead times shorter, and market response times quicker.

Companies can slash the shipping costs by half compared to transporting things from China.

Lower Labor Costs Compared to Western Europe

According to the OECD, labor costs in CEE and Balkan countries are 40 to 60% lower than in Western Europe despite having an equally skilled workforce. This helps companies save money without fighting the logistical and geopolitical challenges of Asian countries.

Infrastructure and Logistics Network

Countries like Poland and the Czech Republic have made significant investments in infrastructure over the last decade. This makes them a brilliant destination for manufacturing operations. 

The World Bank had ranked Poland among the top 25 nations globally for logistics performance.

Political Stability

Many CEE and Balkan nations are members of the European Union. This ensures regulatory alignment with EU standards, which reduces legal and compliance risks.

Political stability in these countries contrasts with the more unpredictable environments found in certain other low-cost manufacturing destinations like Southeast Asia.

Comparing CEE/Balkans with Other Low-Cost Manufacturing Destinations

Now let’s compare strategic locations like CEE and the Balkans with traditional manufacturing hubs like Asia (Vietnam, Bangladesh, etc.), Latin America, and Africa.

Asian countries are inexpensive labor but there are crucial skill issues and shipping times are too high. Meanwhile, Latin America may be an ideal solution for the U.S.-based companies but it still presents logistical challenges and regulatory issues for European firms. 

Finally, Africa is an emerging market for companies but the underdeveloped infrastructure, political instability, and lack of skilled labor shoo away manufacturing companies.

Key Advantages of the China Plus CEE/Balkans Strategy for European Businesses

With the China Plus CEE/Balkans manufacturing strategy, companies can unlock access to an extensive list of benefits:

Reduced Dependency on China: When you diversify out of China, it spreads the concentrated risks and your business won’t be halted due to issues in one region.

Cost-Efficient Logistics: When you manufacture in the CEE or Balkans, the transportation costs are 30-40% lower than those in China. This also boosts profits while reducing delivery times.

Resilience and Flexibility: By diversifying production between China and Europe, companies can easily shift operations based on market demand or geopolitical developments, offering greater operational flexibility.

Regulatory Alignment with EU Standards: Manufacturing in CEE ensures full compliance with EU environmental, labor, and safety regulations, reducing the risk of fines, legal disputes, and compliance violations.

How to Implement an Effective China Plus One Plan?

Implementing an effective China Plus One plan isn’t a cakewalk. You must perform proper market research, strategize, and prepare for an impeccable execution. Finding the right destination was the first step and you have hit the bullseye by choosing CEE or Balkans.

The next step is to prepare your plan for setting up a new manufacturing facility or relocating your existing one there. We can help with either of these. After decades of helping businesses move their product bases, we have mastered the art of cutting costs and boosting profitability by leveraging the China Plus One strategy.

The client matrimonials and experiences available on our website will help you trust us. Once you do, give us a chance to revamp your production profits.

Final Words

Relying solely on China for manufacturing isn’t a viable option in today’s cut-throat business landscape. Implementing a China Plus One strategy and relocating part of the production to Central and Eastern Europe or the Balkans is becoming a smart choice for European manufacturing businesses.

By diversifying, you not only reduce vulnerabilities but also increase your chances of staying profitable and competitive in the Western market. As more companies choose this move, the CEE region is growing as the prime destination for cost-effective and stable manufacturing.

Planning a relocation to transform your business’s financial reports but not sure how to tackle urgent business challenges? CE Interim, part of the globally recognized Valtus Alliance, offers expert interim management services to guide your business through factory relocations, operational excellence initiatives, and supply chain optimizations. Our worldwide reach and experience mean we can provide support wherever and whenever you need it. Contact us and let’s ensure your organization stays on course.