About: Performance Improvement Archives

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

Not enough time to read the full article? Listen to the summary in 2 minutes. 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

From Crisis to Opportunity: How the China Plus One Strategy Can Protect Your Supply Chain and Enhance Profitability

Not enough time to read the full article? Listen to the summary in 2 minutes. Ongoing events like trade wars, rising energy prices, and geopolitical tensions have made the global business landscape unpredictable. It’s normal for companies to struggle amid the chaos. However, there’s one move that’s giving a sigh of relief to manufacturing businesses. It’s the China Plus One strategy. It is basically a diversification model where companies move a part of their production outside China, preferably to strategic locations like Central and Eastern Europe (CEE) or the Balkans to reap benefits from these emerging manufacturing hubs. Previously, businesses explored this plan as a way to mitigate risks involved with relying on a single manufacturing location. However, it’s increasingly being adopted now to counter the unstable business environment of China, enhance profitability, and build supply chain resilience. From a crisis to an opportunity, let’s uncover how the new-age China Plus One approach transforms manufacturing businesses. Exploring the Crisis of Global Supply Chains Managing global supply chains is hard. When events like the COVID-19 pandemic, container shortages, and the Suez Canal accident happen, you are exposed to the vulnerabilities of longer supply chains. Companies are more concerned than ever. The sole reliance on China won’t help your manufacturing business. It’s bound to face production delays, material shortages, and escalating logistics costs. This will lead to unmet market demands and missed opportunities. The trade war, particularly between the U.S. and China is set to make things worse. It introduces tariffs and export restrictions that increase production costs. Another concerning factor is the increase in operational costs. Labor and energy costs are rising in China, and also in Western Europe. This significantly reduces the profitability if your company is relying on a single-source production model. Turning Crisis into Opportunity with the China Plus One Strategy Modern manufacturing companies are adapting and turning crisis into opportunity with the smart China Plus One strategy. Instead of struggling with disruptions, they are leveraging them to build strong supply chains and make operations more profitable. Want to know why diversifying production beyond China helps your manufacturing businesses? Let’s find: Risk Mitigation through Supply Chain Diversification When you are manufacturing both in China and Poland, you can switch production based on market demands or disruptions. The China Plus One strategy spreads manufacturing across multiple countries and prevents dependency on a single source. Cost Optimization and Increased Profit Margins CEE and the Balkan countries have extensive cost advantages. They provide skilled labor at comparatively lower wages, better infrastructure with nominal investments, government incentives and tax grants, and shorter supply chains. This is great for boosting profitability. Access to Emerging Markets The China Plus One method isn’t only limited to shifting operational bases. It also lets your company tap into untapped markets. For instance, you can expand into CEE and the Balkans to access new consumer bases, local suppliers, and government incentives. It’s a sure-shot opportunity for growth. Building Sustainable and Compliant Operations When you shift production to regions that align with environmental, social, and governance standards, it improves the sustainability of your company. CEE and the Balkan countries are often targeted for diversification as they align with European Union (EU) regulations. It comes with two main perks– seamless compliance management and enhanced brand reputation. Why CEE and The Balkans are Ideal Destinations For this Strategy? CEE and the Balkans are emerging as the two ideal destinations for companies diversifying production outside China and within Europe. Let’s understand why manufacturing companies are after these countries to improve their profitability and supply chains: Central and Eastern Europe (CEE): CEE countries such as Poland, Hungary, Romania, Slovakia and the Czech Republic are turning into manufacturing powerhouses. Here’s how: The Balkans Countries like Serbia, North Macedonia, and Bosnia and Herzegovina are increasingly attracting foreign investment for several reasons: How the China Plus One Strategy Enhances Profitability The China Plus One model is turning out to be an incredible way to enhance the profitability of manufacturing companies, especially the ones from Europe. Let’s understand in detail: Reduced Operational Costs Companies moving production to CEE and the Balkans can reduce labor and operational expenses while maintaining product quality. For instance, automobile manufacturers shifting operations to Hungary or Romania benefit from cheaper production without compromising output. Less resource burn, more money. Shorter Lead Times and Greater Market Agility When you manufacture close to European markets, you can minimize the risk of stockouts and have a faster time-to-market. This makes your company adapt to market demand fluctuations. This agility is essential in fast-moving industries like electronics and consumer goods. Government Incentives and Tax Relief Many CEE and Balkan countries offer tax breaks, land grants, and R&D incentives. Poland’s Special Economic Zones and Serbia’s FDI programs enable companies to maximize profits by reducing setup costs. Steps to Implement the China Plus One Strategy Effectively Now that you have decided to move further with the China Plus One strategy to diversify production and enhance profitability and supply chain resilience, let’s understand how to proceed. Here are some steps you’ll have to follow: If all of this sounds daunting and complicated, let us help you build or relocate your factory with ease and gain the maximum advantage without breaking a sweat. Final Take The China Plus One strategy is great. Combining it with diversification to CEE or the Balkans makes it ‘best for business’. Manufacturing businesses can subdue unpredictability and fight risks before they overwhelm them. Most importantly, companies can boost profitability and build supply chains as resilient as titanium. These regions provide an incredible mix of low costs, skilled labor, and market access for long-term business growth while still aligning with EU standards. What else does a manufacturing business need in today’s competitive world? So, don’t waste more time and prepare for a move right now. Struggling with complex operational challenges? CE Interim, part of the Valtus Alliance global network, is here to provide expert interim management support for greenfield investments, factory relocations, achieving operational excellence, and