Trade relations between the U.S. and China haven’t been at their best in the past few years. Add to it supply-chain disruptions brought on by the pandemic, exacerbated now by the war in Ukraine- disruptions that have made global majors look beyond China for manufacturing bases or partners, in an approach now named the ‘China PLUS One Strategy’ said Srivats Ram, MD, Wheels India in an interview with The Hindu.
From the above news piece, you know the pandemic, you might have heard about the U.S.- China spat and you obviously are aware of the war in Ukraine unless you were living under a rock all this time, but if are wondering what exactly is China PLUS One Strategy, you are the right place.
What is China Plus One Strategy?
Western businesses have made significant investments in China over the past 30 years, drawn by the country's low labour and manufacturing costs as well as the enormous and expanding local consumer market resulting in an excess of their business interests being concentrated in China.
However, 2013 saw an introduction of a phrase known as "China Plus One," or simply "Plus One," which aims to encourage firms and enterprises to expand their operations outside of China.
As Rome was not built in a day, this strategy was also not formed overnight.
What led to the formation of China Plus One Strategy?
During Trump's presidency, with his "Make America Great again" mantra, the attitude toward China changed. He put in place a tariff system that made it difficult for Chinese goods to enter the country.
As early as 2008, officials and businesses in Japan and the US had started to consider a diversification strategy away from China. However, China-plus-one did not really take off as an alternate strategy for MNCs until the close of the previous decade, at the height of US-China trade tensions.
The driving forces majorly include a variety of geopolitical reasons, including a decline in China's cost advantage in recent years and a rise in mistrust between China and the West.
Okay now that you understand the basics of the strategy, you might have an important question.
How can India benefit from China Plus One strategy?
Given the size of Chinese exports, it is a tremendous opportunity for Indian manufacturers. Even though we must compete with other nations in this regard, multinational corporations cannot avoid India because they have to consider de- risking their supply chain.
From the perspective of reduced cost sourcing for multinational corporations, India's cost advantage in manufacturing is still a crucial element. Indian businesses must recognize what worked well for China.
The Indian government has already made significant progress, particularly in enhancing corporate accessibility. The PLI initiative is a major push for local production and technology localization, boosting our own manufacturing.
However, Indian businesses must be confident in their outlook going forward, particularly as they work to recover from the pandemic, resolve supply chain challenges, and deal with general uncertainty.