CHINA + 1 STRATEGY | WHY COMPANIES LOOKING FOR OPTIONS
CHINA+1 SUPPLY CHAINS
Why the world is diversifying beyond China
Global supply chains, once optimised purely for lowest cost, are being redrawn around resilience and politics. The China+1 strategy captures this shift: companies keep China's scale and supplier depth while adding sourcing bases in Vietnam, India, Mexico and beyond. India is pushing hard to convert this opening into deeper manufacturing participation, even as it still trails rivals on components, logistics and lead firms.
Overview
Global supply chains are being reshaped by a wave of disruptions — the pandemic, the Russia-Ukraine war, Red Sea attacks, US-China tariffs — pushing companies to trade pure cost-efficiency for resilience. The China+1 strategy is the clearest expression of that shift: keep China in the network, but stop depending on it alone.
What are global supply chains
Global supply chains (GSCs) are the cross-border networks that move raw materials, components, manufacturing, logistics, services and final sales between countries, and they are closely tied to global value chains (GVCs), where different countries add value at different stages. The OECD estimates GVCs account for about 70% of international trade — and since COVID-19, the Russia-Ukraine war, Red Sea disruptions, US-China rivalry and tariff uncertainty, companies are shifting from "lowest-cost" chains to resilient, diversified, politically safer ones.
- Global networks across borders: Supply chains span raw materials, components, manufacturing, logistics, services and final sales, spread across many countries.
- Linked to global value chains: Different countries add value at different stages — design, components, assembly, branding, software and after-sales service.
- They dominate world trade: The OECD estimates global value chains account for roughly 70% of international trade, as goods, services, parts and data cross borders multiple times.
- A ladder for developing economies: Countries gain jobs, technology, productivity and export competitiveness when they plug into international production networks.
- Change is underway: Since COVID-19, the Russia–Ukraine war, Red Sea disruptions, US–China rivalry and tariff uncertainty, companies are shifting from lowest-cost supply chains to resilient, diversified and politically safer ones.
What is the China+1 strategy
China+1 means companies continue using China but add at least one more manufacturing or sourcing base outside it — reducing overdependence while keeping China's scale, supplier depth, ports and domestic market. The strategy grew out of rising Chinese wages, US-China tariffs, geopolitical risk and COVID-era disruptions, and now spans sectors from electronics to semiconductors, with 2025's tariff uncertainty keeping pressure on hubs such as Vietnam and Mexico.
- Not "leaving China": China+1 means companies keep using China but add at least one more manufacturing or sourcing base outside it.
- Reducing overdependence, not exit: The goal is to cut single-country risk while retaining China's scale, supplier depth, ports and domestic market.
- Born of rising costs and risk: The strategy grew out of rising Chinese wages, US–China tariffs, geopolitical risk, COVID-era disruptions and fears of single-country dependence.
- Wide sectoral spread: Typical China+1 sectors include electronics, textiles, toys, auto components, pharmaceuticals, chemicals, solar, batteries, semiconductors and consumer goods.
- Tariffs keep the pressure on: In 2025, Reuters reported that US–China tariff moves pressured China+1 hubs such as Vietnam and Mexico to protect their competitiveness.
Which countries are trying this
Vietnam is the biggest beneficiary of China+1, thanks to proximity to China, strong export orientation and trade agreements, while India is chasing electronics, pharma, automobiles and defence supply chains. Mexico rides nearshoring to the US market, ASEAN economies compete for the same opportunities, and Turkey, Poland, Morocco and Eastern Europe are gaining as nearshoring hubs for Europe.
- Vietnam leads the pack: Proximity to China, strong export orientation, low-cost manufacturing and trade agreements make Vietnam especially strong in electronics, garments, footwear and furniture.
- India casts a wide net: India is trying to attract supply chains in electronics, mobile phones, pharmaceuticals, automobiles, defence, textiles, chemicals and renewable-energy equipment.
- Mexico rides nearshoring to the US: Mexico benefits from nearshoring, especially in automobiles, electronics, machinery, medical devices and industrial goods.
- ASEAN is in the race: Indonesia, Malaysia, Thailand and the Philippines are competing too; McKinsey highlights Indonesia, Malaysia and Vietnam for specific export supply-chain opportunities.
- Europe's near-neighbours gain too: Turkey, Poland, Morocco and Eastern Europe are gaining from nearshoring for European markets, while Bangladesh remains important in garments and textiles.
Where India stands in global supply chains
India is a powerhouse in services-led global value chains — IT, business services, digital operations and back-office functions — with its share of global services exports rising to about 4.3% in 2023, up from 1.9% in 2005. Its manufacturing GVC presence is improving but still trails China, Vietnam, Mexico, Thailand and Malaysia, even as electronics exports surge and PLI schemes, the semiconductor mission and export-promotion measures push India from assembly towards deeper participation.
- Services are India's strong suit: India leads in services-led global value chains — IT, business services, digital operations, engineering services and back-office functions — with its share of global services exports reaching about 4.3% in 2023, up from 1.9% in 2005.
- Manufacturing still trails: India is improving but remains behind China, Vietnam, Mexico, Thailand and Malaysia in many export-oriented sectors, due to weaker component ecosystems, import dependence, logistics gaps and fewer large lead firms; a 2026 CIGI paper notes India's strong GVC presence in services but weaker manufacturing integration.
- Electronics is the bright spot: India is now the second-largest mobile-phone producer, with mobile-phone exports rising from ₹1,566 crore in 2014-15 to ₹1.2 lakh crore in 2023-24.
- Exports growing, share still modest: India's merchandise exports reached about $443 billion in 2024, but its global merchandise export share remains around 1.8%.
- A serious policy push: PLI schemes, the semiconductor mission, electronics-component incentives, logistics reforms, FTAs and export-promotion measures aim to move India from assembly towards deeper supply-chain participation; Reuters reported India approved over $625 million in electronics-component projects in 2025.
What happens next
The future is neither pure globalisation nor pure reshoring, but multi-country, risk-managed globalisation built around China plus India, Vietnam, Mexico, ASEAN and local backup capacity. China stays central because of its supplier depth and scale, India's best opportunities lie in electronics, pharma and defence production, and services — AI, cloud, cybersecurity, fintech — will increasingly decide who wins the next phase.
- Not globalization or reshoring — both: The future is likely multi-country, risk-managed globalization: China plus India, Vietnam, Mexico, ASEAN, plus local backup capacity.
- China remains the anchor: China's supplier depth, infrastructure, ports, skilled workforce and scale mean most companies will diversify around China, not replace it.
- India's opening is wide: Electronics, mobile phones, pharma, APIs, chemicals, auto components, defence production, renewable-energy equipment, engineering goods and digital services offer India's best opportunities.
- Services will matter more: AI, cloud, cybersecurity, design, logistics software, fintech and engineering R&D will increasingly decide competitiveness, not just factory wages.
- The winning formula: Countries combining low-friction logistics, stable policy, skilled labour, reliable power, export finance, trade agreements and component ecosystems will win the next phase.
Key challenges and risks
Tariffs and geopolitics can flip supply-chain decisions quickly, and OECD-linked analysis warns that aggressive localisation can shrink global trade and GDP — diversification is usually safer than autarky. India's real test is moving beyond final assembly into components, tooling and precision manufacturing, at a time when Vietnam and Mexico hold sharper advantages in export manufacturing and US proximity respectively.
- Policy can flip fast: Tariffs and geopolitics can quickly change supply-chain decisions; 2025's US–China tariff uncertainty showed China+1 countries can gain or lose depending on trade policy.
- Over-reshoring has costs: OECD-linked analysis warns aggressive localisation can shrink global trade and GDP — diversification is usually safer than autarky.
- India must move up the chain: India's challenge is to go beyond final assembly into components, machinery, tooling, semiconductors, precision manufacturing and industrial design.
- Rivals hold sharper edges: Vietnam currently has an edge in export manufacturing and FTAs, Mexico in proximity to the US market.
- The real test for India: Whether India can convert its domestic market, talent base and policy push into globally competitive manufacturing ecosystems, not just isolated factories.
Glossary and related terms
- Global supply chain (GSC)
- The cross-border network through which raw materials, components, manufacturing, logistics, services and final sales are spread across countries.
- Global value chain (GVC)
- A production process in which different countries add value at different stages, from design and components through to branding and after-sales service.
- China+1 strategy
- Keeping China as a manufacturing base while adding at least one more country to reduce overdependence on any single location.
- Nearshoring
- Relocating or sourcing production closer to the end market to cut logistics time, cost and risk.
- Reshoring
- Bringing production back to a company's home country from overseas locations.
- Autarky
- A state of near-total economic self-sufficiency achieved by minimising trade with other countries.
- PLI scheme
- Production-Linked Incentive, an Indian government programme offering financial incentives tied to incremental manufacturing output.
- Semiconductor mission
- India's programme to build domestic chip design, fabrication and packaging capacity.
- Free trade agreement (FTA)
- A treaty between countries that reduces or removes tariffs and other trade barriers between them.
- Supplier depth
- The density and sophistication of component makers, subcontractors and support industries available in a location.
- Lead firm
- A large company that designs, coordinates and often sets the standards for a global value chain's structure.
- Component ecosystem
- The network of parts, materials and specialised manufacturers needed to support a finished product's assembly.
Conceptual references
- OECD estimates on global value chains' share of international trade.
- McKinsey analysis of Indonesia, Malaysia and Vietnam's export supply-chain opportunities.
- Reuters reporting on US–China tariff pressure on China+1 hubs and India's electronics-component approvals.
- A 2026 CIGI paper on India's services-versus-manufacturing global value chain integration.
- Indian government and trade data on mobile-phone exports and merchandise export share.
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