The China-Plus-One strategy, often referred to simply as Plus One, is a business approach where companies diversify their investments and operations beyond China to other countries. With companies looking to diversify their operations, countries like India and Vietnam have become prime destinations for foreign investment. This influx of capital helps boost various sectors, including electronics, automobiles, and capital goods.
This strategy aims to mitigate risks associated with over-reliance on China, such as geopolitical tensions, rising labor costs, and supply chain disruptions. The strategy encourages investment in labor-intensive manufacturing sectors, creating numerous job opportunities. This is crucial for a country with a large workforce like India.
The Reason Behind the Strategy
In late July, a group of 18 major economies, including India, the United States, and the European Union, announced a comprehensive plan to create robust and resilient collective supply chains. This initiative was largely a response to the significant disruptions experienced during the Covid-19 pandemic. The pandemic exposed vulnerabilities in global supply chains, particularly due to China’s strict Zero-Covid Policy, which caused widespread industrial shutdowns and supply-chain interruptions.
These disruptions led to longer lead times—the period between the initiation and completion of a production process—and undermined the reliability of the global supply chain. Companies faced delays in receiving raw materials and components, which in turn delayed the production and delivery of finished goods. This situation highlighted the need for a more diversified and resilient supply chain network that could withstand such shocks.
Winners of the China-Plus-One Model
Several regions have emerged as clear beneficiaries of the China-Plus-One strategy. The European Union, Mexico, Taiwan, Vietnam, and India have seen growth across sectors such as machinery, automobiles, transport, and electrical equipment. Countries with competitive production capabilities and favorable investment environments, like Vietnam and India, have particularly benefited. Mexico has also gained due to its proximity to the US.
Who are the biggest beneficiaries?
According to a report by equity research and rating firm Nomura, India and Vietnam are the biggest beneficiaries of the shifts in global supply chains due to the China-Plus-One strategy. Nomura’s findings are based on empirical evidence and a survey of around 130 firms. India’s gains are attributed to its large domestic consumer market and a robust pipeline of projects in electronics (smartphones), automobiles, capital goods, and semiconductor assembly and testing. Most investments into India come from US companies and developed Asian nations.
Vietnam is also expected to see significant investments in sectors like automobiles (EVs), electronics (PCs), energy (solar panels), and other industries such as shipping containers and chemicals. Nomura projects that Vietnam’s exports could rise from $353 billion in 2023 to $750 billion by 2030, achieving a compound annual growth rate (CAGR) of 11.4%. Other countries expected to benefit include Mexico, Thailand, Indonesia, and the Philippines.
The Asian Development Bank (ADB) projects that India will grow at 7% this year and 7.2% next year, the highest growth rate for any economy in Asia. The research by the World Economic Forum says that India’s nominal GDP is projected to surpass Japan’s by 2025, and by 2030, it is anticipated to overtake Germany, becoming the world’s third-largest economy with an estimated GDP of US$7 trillion.
According to ADB Chief Economist Albert Park, this growth is fueled by a reduction in poverty and inequality and a focus on creating jobs in labor-intensive manufacturing sectors where India has a comparative advantage. The success of states like Tamil Nadu and Gujarat serves as a model for other regions to emulate.
These states have implemented policies and initiatives that have fostered industrial growth and job creation. Tamil Nadu, for instance, has become a hub for automobile manufacturing and electronics, while Gujarat has excelled in sectors like chemicals, petrochemicals, and pharmaceuticals.
Manbilas Singh is a talented writer and journalist who focuses on the finer details in every story and values integrity above everything. A self-proclaimed sleuth, he strives to expose the fine print behind seemingly mundane activities and aims to uncover the truth that is hidden from the general public. In his time away from work, he is a music aficionado and a nerd who revels in video & board games, books and Formula 1.
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