The China Plus One Strategy!

From the past few years we are witnessing a lot of changes in the global economy. And the China plus one strategy is one of the many changes that we are witnessing. So, what is this China plus one strategy? Why it is happening now. And who all can be the plus one's?
Well, stick with this video to find out. As you won't find a better one out there.
Since the introduction of economic reforms in 1978, China has become one of the world's fastest growing economy. Many multinationals moved to china to take advantage of the package they had on offer. And that was cheap labour, natural resources, low taxes, and loose environment laws. Initially, the Western companies had doubts about doing business, as the environment was risky for operating. But over the years, China took necessary actions and addressed most of the issues that concerned the Western companies. All these things helped the China to expand and become world's second largest economy.
Previously the western world took decades to achieve kind of growth. But China achieved this in only 35 years. And the reason for that was simple. They offered what was needed.
But from past few years things are changing. Many corporations are looking for a plus one, or you may call the China plus one strategy.
Now you must be curious. What is this plus one strategy?
Well to put it in simple words, it is an business strategy to diversify business in different countries rather than investing in only one particular country.
Now, what could be the reasons behind this China plus one strategy?
You see, the Chinese economy has matured now, and the advantages that companies enjoyed for all these years no longer exist. For instance, China no longer has cheap labor. From 2012 to 2019 the Average annual wage growth in China was around 10%, and in coming years due to labour shortage, this number could increase. In addition, some of the most meaningful tax incentives for Western companies have been eliminated. Since 2009, most of the tax privileges that foreign invested enterprises formerly enjoyed have expired. Plus tight environmental laws, Risk of stealing intellectual properties, and trade war are making the situation worse for international companies.
Considering today's trade war, and the geopolitical situation in front china, it is still better to have a plus one strategy, than sticking only with China. As this gives the companies other markets too.

One of the companies that has adopted this plus one strategy in a very early stage was Intel. Intel made a big bet in 2010, when the organization opened a $1 billion chip plant in Vietnam, as it became more expensive to do business in China. In the similar time frame many Japanese firms also shifted from china to other Asean countries.

Well, it depends on various factors. Such as labour cost, infrastructure, country risk, and market size. Now if you talk about labour cost then many south, and southeast asian countries are way cheaper than China. Countries such as Vietnam, Indonesia, Myanmar, India are among top in this list. But many of these lag in infrastructure, and supply chain management. Similarly in country risk, each country comes with different challenges. In Vietnam and India for instance, the main operational risks include corruption, lack of accountability, and the challenges of dealing with a bureaucracy. Meanwhile Thailand comes with the risk of social instability. And Indonesia with the risk natural disasters. So, every country has a bright and dark side, no one is perfect. It is upto the investors to choose, what suits them the best.
But even though companies adopt China plus one strategy, they could still face problems in the global value chain. Global value chains refer to international production sharing, a phenomenon where production is broken into activities and tasks carried out in different countries.
Now companies that are adopting china plus one strategy are mostly opening assembly lines of finished products in different countries.
So having a plus one would be great, but cutting off China completely doesn't seem sensible for any company. But we also have to understand if there is no business diversification at all, the risks would be more. So diversification or the China plus one strategy might be the perfect option.
Yes, it is true that, if a company opens another manufacturing unit in another country. It might not get the supply chains and production efficiency that they get in China. Also we cannot deny that leaving China will leaving a huge market.
But it still benefits them by looking at all the profit it could bring to the table.

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Видео The China Plus One Strategy! канала Global Economics