Navigating Uncertainty: Expanding into Central and Eastern Europe with the China plus One Manufacturing Footprint for Cost-Effective Production

China, the global manufacturing hub for years, isn’t that glorious anymore. The region is struggling with new-age challenges which make it less predictable and cost-efficient. If your business is solely relying on China for production, the complex web spun by rising costs, geopolitical uncertainties, and market volatility will bring it doomsday.

Companies are concerned with minimizing risks and cutting costs. The China Plus One strategy is surging in popularity. It diversifies production between the Asian hub and other regions.

More companies are looking to Central and Eastern Europe (CEE) or the Balkans as the ideal location for their “Plus One” strategy. With its proximity to European markets, skilled workforce, and lower operating costs, the CEE region is emerging as a key player in global manufacturing.

Understanding China’s Decline as the Primary Manufacturing Hub

China built its manufacturing fort on three key pillars– scalability, cost efficiency, and infrastructure. It provides large-scale production capabilities at fair costs that only a few other countries can match. 

It has a vast industrial base with the ability to produce high volumes quickly, efficiently, and at scale. The relatively lower labor costs compared to the West is another advantage despite the global hike in wages by 70% in the last decade (McKinsey).

Moreover, it has world-class infrastructure with ports, railways, and factories, all designed to support traditional large-scale production and efficient global logistics. These factors make China the go-to option for high-volume manufacturing.

However, the dominating fort is beginning to show cracks. Logistics costs are rising (by 20% in recent years according to the World Bank), the U.S.-China trade wars are creating political instability, and events like the COVID-19 pandemic and the Suez Canal accident have exposed vulnerabilities in the global supply chains.

Why is it the Perfect Time to Opt For the China Plus One Strategy?

The aforementioned factors are worsened due to the volatile global economy where regulatory changes or trade sanctions can severely break down production and distribution networks. Businesses are pressured to think beyond China and explore diversification options.

The China Plus One Strategy emerges as the perfect material to fix the cracks. It allows companies to maintain operations in China while simultaneously establishing production sites in other regions like the CEE or Balkans. These alternative destinations provide a combination of cost savings, market proximity, and political stability. It’s the best approach during the current times of global economic turmoil.

The Emergence of CEE/Balkans as the Ideal Destination For China Plus One Plan

Central and Eastern Europe presents an attractive option for businesses looking to establish a secondary manufacturing footprint. This region has significant opportunities to save costs with an abundance of skilled labor available at comparatively lower wages than the West, closer proximity to key markets, simplifying supply chains, and excellent regulatory standards.

Big names like Bosch, Mercedes-Benzy Samsung have already expanded production to these regions. More businesses are willing to follow the same diversification path due to a number of advantages.

Geographical Proximity and Shorter Lead Times

Shipping goods from China to Europe typically takes 30-45 days via sea freight. In contrast, transporting goods from a CEE country can take 1-3 days via road or rail, allowing companies to implement more effective just-in-time supply chains. When shipping times are reduced, it saves money, makes deliveries faster, and you can respond to the market demands quickly.

Lower Labor Costs Without Sacrificing Skills

While labor costs in China remain competitive, countries like Hungary, Romania and Bulgaria offer labor rates that are 40-60% lower than in Western Europe. These countries also have a highly skilled workforce, specifically for automotive, electronics, and machinery. This makes them an appealing destination for businesses needing skilled labor at nominal wages.

Investment in Infrastructure and Technological Advancements

CEE countries have significantly upgraded their infrastructure, making them more attractive to global manufacturers. The Czech Republic, for example, ranks in the top 30 globally for logistics performance, according to the World Bank. Countries in the region are investing heavily in smart factories, automation, and Industry 4.0 capabilities, giving businesses access to cutting-edge manufacturing technology without the high price tag associated with Western Europe.

Regulatory Alignment with EU for Compliance Management

CEE and Balkan countries align with European Union (EU) regulations. This makes sure that companies comply with strict environmental, labor, and safety standards, reducing the risk of costly legal battles or non-compliance penalties that might arise from operating in regions with less stringent standards. The EU’s unified market also provides easier access to cross-border trade, simplifying operations for businesses serving multiple European countries.

Political Stability Promising Long-Term Growth

Political stability helps build the foundation of a successful manufacturing business. CEE and Balkan countries, being a part of the EU, offer a favorable, stable, and political business environment. Companies can plan their investments with confidence. However, this can’t be said for many Asian and African countries. 

How Does China Plus CEE/Balkans Manufacturing Make Production Cost Effective?

A combination of lower labor costs, shorter shipping distances, and enhanced infrastructure makes manufacturing in the CEE more cost-effective than maintaining operations solely in China. This move also lets businesses benefit from reduced tariffs and tax incentives, and fewer supply chain delays and lower transportation costs.

With freight costs rising by over 300% in recent years (according to Bloomberg), reducing dependency on long-distance shipping from Asia to Europe can result in significant cost savings.

Businesses can remain agile by having the ability to switch between production locations based on costs, demand, and political developments. This flexibility is crucial to maintaining cost efficiency in the long run and staying competitive.

How to Execute the China Plus One Strategy in the Right Way?

Implementing a successful China Plus One (CEE/Balkans) strategy requires a deep understanding and planning of both China and CEE’s unique advantages. Keep total logistics cost, local incentives, workforce capabilities, supply chain flexibility, and other important factors in focus while strategizing.

When your plan is ready, you can begin moving a part of your production base from China to CEE or the Balkans with a phased approach to minimize downtime. If packing, transportation, unpacking, and setting up units at the new base seems daunting, you can take an expert’s help.

We have been completing such assignments with cent percent precision and accuracy for the last decades, serving over 100 clients globally. If you want a smooth transition, build or relocate your manufacturing site with the help of our experienced Interim Managers.

Palabras finales

Global uncertainty is reaching new heights and businesses that solely rely on China for their manufacturing operations are facing critical threats. The China Plus One strategy involving diversification of manufacturing footprint into CEE and the Balkans emerges as their savior.

This smart approach mitigates logistical challenges, reduces costs, and ensures regulatory compliance. The CEE region offers the perfect combination of lower labor costs, proximity to European markets, and political stability, making it an attractive option for companies seeking to navigate the complexities of the modern global economy.

Ready to diversify your manufacturing operations? CE Interim, as part of the Valtus Alliance—a global network of leading Executive Interim Management companies—can provide the expertise you need. From factory relocations to optimizing your supply chain and ensuring operational excellence, we deliver tailored solutions that keep your business moving forward. With the ability to intervene anywhere, anytime, we’re ready to help you navigate these transitions smoothly. Let’s talk today!