The China Plus One strategy aims to diversify business operations away from manufacturing solely in China by investing in other promising developing economies like India, Thailand, Vietnam, and Malaysia. India can emerge a major beneficiary of this strategy due to its stable government, pro-business environment, and some unique advantages. Several sectors in India, such as textiles, metals, chemicals, pharmaceuticals, and semiconductors, stand to benefit from the strategy. Ajay Banga, World Bank Chief, emphasizes India's window of opportunity to attract investment through the China Plus One approach. Additionally, Apple Inc. plans to assemble iPhones in a new factory site in Karnataka, India, further exemplifying the strategy's implementation. Given the importance of this development, MBAUniverse.com recommends all MBA aspirants to prepare this topic for GD and Interview process during MBA admission. Continue reading this article for a good understanding of this topic. Also read hot GD topics for 2023 at the end of this article.
What is China Plus One Strategy
The China Plus One strategy, also known as Plus One or C+1, involves diversifying business operations away from relying solely on manufacturing in China. Instead, companies opt to invest in manufacturing and production in other promising developing economies like India, Thailand, Vietnam, or Malaysia. This strategy gains significance as it helps reduce dependence on China, where many US and European companies have heavily invested in the past two decades to lower production costs and access the vast domestic consumer market. Implementing the China Plus One approach can be motivated by factors such as cost, safety, and long-term stability considerations, aiming to mitigate risks associated with overconcentration of business interests in China.
Corporate C+1 strategies are implemented to diversify business operations away from China due to increasing operating costs, risk diversification, and access to new markets. Multinational corporations have been looking at countries like India, Vietnam, Indonesia, Malaysia, Thailand, Philippines, and Bangladesh for stable governments and cost advantages. However, this strategy comes with its own challenges, such as navigating new laws and streamlining business across multiple locations. Despite this, China still benefits from maintaining low-end manufacturing while growing higher-value sectors. Following the COVID-19 pandemic, many Indian companies are adopting the China Plus One strategy to find alternative supply chains and reduce reliance on China by shifting production to local vendors in India.
Key points regarding China Plus One Strategy
1. China as the ‘World’s factory’:
China, known as the ‘World’s factory’ has been the centre of global supply chains in the last few decades owing to following
- Favourable factors of production and
- Astrong business ecosystem.
When large manufacturing entities in the U.S. and Europe moved production to China in the 1990s, they knew they got a low manufacturing-cost base and also access to a big market for a large number of products.
2. Issues during pandemic:
- During the pandemic, there were a lot of disruptions in many of the economies. When the large economies came out of the pandemic, there was a sudden demand. China’s Zero-COVID Policy meant that there was industrial lockout and supply chains were not able to supply consistently. There was also the container shortage.
3. Evolution of China+1 strategy:
- Zero-COVID policy, supply chain disruption issues, high freight rates and lead times from China – the confluence of all these factors have resulted in a China+1 strategy for many global companies. As the Chinese economy is shutting itself, global companies are exploring other manufacturing locations.
4. Alternative supply chain:
Now many MNCs are adding new operations in other developing Asian countries like India, Vietnam, Thailand, Bangladesh and Malaysia, and are welcoming new manufacturing opportunities. A strategy that is an answer to having efficient supply chain management.
C+1 India Strategy - Benefits for India
India is emerging as a beneficiary of the China+1 Strategy due to its stable government, pro-business environment, and unique advantages like the Aadhaar Program and Unified Payments Interface. The country's diaspora, English-speaking workforce, and massive infrastructure projects make it an attractive destination for investors. Apple's mega factories in India indicate a significant manufacturing shift. Following are the potential sectors that can benefit from China plus one strategy
1. Textile:
- Textiles in the second largest employer after agriculture in India.
- It is a labour-intensive sector as India has cheap labour comparatively.
- It Contributes 5% to India’s GDP, 7% of industrial outputs in value terms, 12% of the country’s export earnings. Therefore, it will always be in the focus/priority of the government’s industry benefit list.
2. Metals:
- India has a competitive advantage in steel and aluminium on account of an adequate supply of raw materials and a growing market for finished goods.
- The PLI scheme for the specialty steel industry will apply for a 5-yr period from 2023-24 onwards.
- It is expected to bring in an investment of approximately Rs. 40,000 cr and capacity addition of 25 mn tonnes for specialty steel.
3. Chemicals:
- With a 35% market share in global exports, China is slowly losing its momentum due to changes in trade dynamics and stringent environment norms.
- These changes in China will help India increase its global market share from 3% to 9% as expected in the coming decade.
- The Indian chemical industry grew by 11.7% CAGR over CY 2015-20 and is valued at around $32 bn. It is expected to grow at a CAGR of 12.4% in the next 5 yrs.
4. Pharmaceuticals:
- Indian Generic medicines has 20% share in global supply by volume.
- China and India are the sources of 75-80% of the APIs imported to the US.
5. Semiconductors:
- U.S.-China tensions over Taiwan, and the supply chain blockages owing to the Russia-Ukraine conflict have led major economies to enter the chip-making sector with a renewed push.
- Indian government also recently announced the PLI and DLI schemes as major steps towards building a semiconductor ecosystem in the country.
Ajay Banga, World Bank Chief on India’s China Plus One Opportunity
India has a window of three-to-five years to seize this opportunity to attract investment, said Ajay Banga, the former Mastercard CEO who became World Bank chief last month. "I think India's opportunity currently is to cash in on the 'China plus one' opportunity. This opportunity won't stay open for 10 years," Banga told media in New Delhi during his first official visit to the country. Banga also said that India's growth has been cushioned by domestic consumption in the face of a global slowdown.
Apple iPhone China Plus One Strategy includes manufacturing in India
Apple Inc. is set to assemble iPhones at a new factory site in Karnataka, India. Partner Foxconn Technology Group plans to invest approximately $700 million in the project, with the state government allocating 300 acres for the factory. This move is expected to create 100,000 job opportunities in the next decade. As part of its strategy to diversify production away from China and mitigate disruptions caused by COVID-related restrictions, Apple already assembles iPhones in India through its suppliers Foxconn, Pegatron, and Wistron.
India has failed to create positive impression for China Plus One Strategy, says Parliamentary Panel Report
In a blow to India, a parliamentary panel on commerce in its report in March 2023 stated that India has not been able to establish a positive impression among businesses that moved away from China.
Despite appropriate resources, the country has not been able to utilise China Plus One via which several international companies moved manufacturing and production away from Xi Jinping's China, the report tabled in the Rajya Sabha stated. It said that the other southeast Asian countries such as Vietnam, Thailand, Cambodia, and Malaysia have become bigger beneficiaries of the strategy.
So, India must work hard to make the most of the opportunity.
We hope you have understood the importance of China Plus One Strategy, which aims to diversify business operations away from manufacturing solely in China by investing in other promising developing economies. India can emerge a major beneficiary of this strategy due to its stable government, pro-business environment, and some unique advantages. Given the importance of this development, MBAUniverse.com recommends all MBA aspirants to prepare this topic for GD and Interview process during MBA admission. Also read hot GD topics for 2023 at the end of this article.
