Balancing Cost and Security: Implementing the China Plus One Strategy Outside Western Europe, but still in Europe

Manufacturing businesses are having a tough time lately. Geopolitical uncertainties have been at a peak and production costs are soaring a mile a minute– forcing businesses to explore the China Plus One strategy. It’s trending as a diversification approach to reduce dependency on China while expanding operations elsewhere.

While Western Europe offers logistical advantages and market access, high labor and operational costs can diminish profits. Alternative regions like Central and Eastern Europe (CEE) and the Balkans are emerging as ideal destinations for cost-effective, secure, and sustainable production.

Here, we will explain how Central and Eastern Europe and the Balkans offer a compelling balance between low operational costs, infrastructure development, and political stability– which manufacturing businesses shouldn’t ignore in the current era of global uncertainties.

Challenges of Sole Reliance on Western Europe and China

Before understanding the need to diversify, you should comprehend the challenges involved with solely relying on China or Western Europe for production:

• Geopolitical and Supply Chain Risks with China: The tension between China and Western economies is growing. The U.S.-China trade wars and export restrictions pose significant risks. On top of that, long lead times, pandemic-related disruptions, and container shortages have exposed the vulnerable choice of manufacturing only in China.
• High Costs in Western Europe: Despite having a well-developed infrastructure and proximity to major markets, Western Europe isn’t the smartest choice for manufacturing. It causes significant financial challenges arising due to high wages, rising energy prices, and strict environmental laws– making operations costlier.
• Supply Chain Bottlenecks: Sourcing products from China causes supply chain bottlenecks and even when production is done in Western Europe, the issue can appear due to labor shortages and congested ports. This increases the need for regional diversification.

Why You Should Have a Diversified Manufacturing Strategy?

There are too many disadvantages to solely relying on one region, whether China or Germany, for your manufacturing operations. The current dynamic market requires a diversified production strategy. It reduces operational risks, saves money, and makes your business more sustainable.

When you are manufacturing from multiple regions, the risks involved with supply chain disruptions and over-dependency on a single country are mitigated automatically. Companies can also counter geopolitical or economic challenges more effectively.

Diversification also lets you access regions like CEE and the Balkans with low labor costs, government incentives, and market proximity. This helps reduce operational expenses without compromising quality and even boosts customer satisfaction.

These regions also adhere to EU labor and environmental standards, making your production practices highly sustainable. This makes sure that you manage compliance effortlessly.

Identifying Key Alternatives: CEE and the Balkans

CEE and the Balkans have emerged as the top two alternative destinations to diversify production due to their strategic benefits, EU-powered security, and incredible cost-saving opportunities.

Why Central and Eastern Europe (CEE)?

Here’s why:

• Labor Costs: Wages in CEE countries like Poland, Hungary, and Romania are much lower than in Western European countries like Germany, France, etc. They are rapidly evolving into attractive hubs for mass production.
• Industrial Expertise: This region has excellent expertise in the automotive, electronics, and machinery sectors, making them an incredible choice for such manufacturers. Need proof? Major firms like Volkswagen and Bosch have already established major facilities there.
• Robust Infrastructure: These countries have invested a lot in modernizing road, rail, and port infrastructure. This has improved logistical efficiency greatly. For instance, Poland and Hungary have turned into logistics hubs with brilliant access to Western European and global markets.

Why The Balkans?

Here’s why:

• Cost Advantages: Serbia, North Macedonia, and Bosnia and Herzegovina offer some of the lowest labor costs in Europe. These regions are suitable for textile production, food processing, and basic manufacturing industries.
• Government Support: Governments in the Balkans provide tax incentives, subsidies, and industrial parks to attract foreign investors. Serbia’s special economic zones have already attracted investments from major manufacturers like Fiat Chrysler.
• Emerging Infrastructure: Although still developing, the Balkans’ transportation and logistics networks are improving, offering increased connectivity with both CEE and Western European markets.

Balancing Cost and Security: Why CEE and the Balkans Work

Now that you understand why CEE and the Balkans are emerging as top contenders to diversify your manufacturing footprint, here’s how these strategic locations balance cost and security for stable production despite global turbulence:

Regulatory Harmonization with EU Standards

Most CEE countries are members of the European Union and Balkan countries are in various stages of EU accession. This alignment makes sure that companies operating in these regions can easily access EU markets without facing compliance challenges.

Supply Chain Advantages

When you manufacture in the CEE or Balkan countries, delivery times are way faster than sourcing from Asia. For instance, delivery of goods from Poland to Germany takes a few days but it takes around a month when you source anything from China.

This also allows companies to operate with lower inventory levels and stay highly responsive to production schedules due to the incredible proximity of these regions to major markets.

Political and Economic Stability

CEE and Balkan countries have a predictable business environment with fewer political risks. Poland, Hungary, and Serbia benefit from economic cooperation agreements with the EU to boost the confidence of investors. However, this isn’t the case with regions like Asia, Africa, etc.

Skilled Workforce Availability

CEE and Balkan countries are goldmines for skilled workforce. Countries like Hungary, Romania, and the Czech Republic have plenty of skilled talent specializing in engineering, IT, and manufacturing sectors. Meanwhile, Balkan countries have also implemented vocational programs to produce industry-ready labor. The best part? The wages are significantly lower!

Comparative Analysis: CEE vs. Balkans

Now let’s compare CEE and the Balkans across key aspects:

How to Successfully Implement the China Plus One Strategy?

If you want to implement the China Plus One strategy to diversify production and tackle global market challenges properly, you must follow the right checklist. Firstly, choose the right location for your business focusing on labor availability, logistics infrastructure, and market proximity.

After that, develop the right plan for moving a part of your production to the new location. Make sure that you leverage government incentives to save costs. Transport your equipment in a phased approach to minimize downtime and prevent operational disruptions.

When settled at the new location, collaborate with local partners to navigate cultural differences and help your employees get accustomed to it. Finally, keep monitoring and optimizing.

If all of this seems complicated and frightening, don’t worry. We are here to help! 

Just let us handle the relocation on your behalf while you sit back and enjoy the perks of production diversification.

Заключительные слова

Gone are the times when you can produce just in China, source it back to Europe, and make money. In today’s competitive world, businesses need to implement smart strategies like China Plus One to balance cost-efficiency and operational security.

CEE and the Balkans are an ideal destination for the ‘One’ in this plan. They provide plenty of benefits that help companies cut costs, simplify and strengthen supply chains, and respond to market demands quickly– making them highly sustainable.

By leveraging regional expertise, government support, and improved infrastructure, companies can build resilient and sustainable operations in these regions. As businesses face growing uncertainties in global markets, CEE and the Balkans provide a practical solution for long-term growth and profitability.

Need help managing critical transitions in your business? CE Interim Group, member the global Valtus Alliance, provides expert interim management services to address challenges like factory relocation, supply chain optimization, and operational excellence. Our ability to intervene anywhere, at any time, ensures your business can navigate change confidently and sustain growth. Let’s discuss how we can help!