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

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:

Lower labor costs: These countries have wages significantly lower than in Western Europe, presenting great opportunities to reduce operational costs and increase profitability.
Upgraded infrastructure: CEE countries have heavily invested in modern road, rail, and air networks. It makes sure that logistics are smooth and supply chains are resilient.
Proximity to Western markets: These countries are located at the heart of Europe. So, delivery times are shorter and market access is easier.
Sector expertise: The talent in these countries is highly skilled in sectors like automotive and electronics. It’s one of the key reasons to diversify here.

The Balkans

Countries like Serbia, North Macedonia, and Bosnia and Herzegovina are increasingly attracting foreign investment for several reasons:

Cost-efficient labor: The Balkans offer some of the lowest labor costs in Europe, reducing operational expenses.
Government incentives: The tax exemptions, incentives, and grants are lucrative. They attract foreign direct investment (FDI).
Strategic location: The Balkans serve as a gateway between Europe, Asia, and the Middle East, facilitating trade routes.
Emerging industries: The region shows growth potential in textiles, metal processing, automotive components, and IT services.

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:

Choose a strategic location after analyzing key factors like labor availability, operational costs, and market proximity.
Build agile supply chains to switch production based on demand or disruptions.
Leverage government incentives to reduce setup costs and boost profitability.
Work with local partners to accelerate entry and navigate regulatory frameworks.
Monitor and optimize the relocation to make sure things are going fine.

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.

Závěrečný záběr

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 optimizing your supply chain. Our worldwide capabilities mean we can assist you anywhere, anytime, ensuring smooth transitions and continued growth. Let’s explore how we can help your business succeed!