Wedding invitations often include a “plus one,” meaning that the guest can bring a guest. There is often intense curiosity over who comes along to the party.
Over the past decade, this term has been appropriated by the architects of trade policy. Fueled by a rise in mistrust between Beijing and the West, COVID-19 and a decline in cost advantages, countries and companies are adopting a China plus one business model. Here, too, there is keen interest in who gets invited to the table.
The trend is visible in the decline in China’s share of imports to the U.S. and in rising cases of firms setting up new subsidiaries outside China. Large electronics manufacturers and venture capital firms have been shifting investment away from China. About 40% of the more than 500 European firms surveyed have either shifted or are considering moving future investments out of China.
All of this has presented a multi-billion dollar opportunity for other nations. South-east Asian economies, with longstanding ties to both China and America, have emerged as attractive destinations to set up shop. Mexico and India are also among the top contenders due to their links with the West, skilled workforces and business-friendly policies.
CHINA’S DOMINANCE AS MANUFACTURING HUB IS NOT AT IMMEDIATE RISK, BUT THE COMPETITION IS GETTING TOUGHER.
Costs alone may not be the sole driver of business decisions in today’s fragmented world. To avoid future disruptions, firms still need to consider the economic and political landscape of the “plus one” nation, such as its currency strength, labor laws, regulations and geopolitical alignment.
To maintain market share, Chinese brands are trying to qualify as “plus ones” by setting up new factories and headquarters outside the mainland to cater to foreign markets. This practice, known as “white labeling,” is under investigation among importers seeking to control reliance on China.
The allure of China as a global manufacturing hub is unlikely to fade anytime soon. The country has a strong infrastructure and supply chain network, which allows efficient transportation of goods. Major companies have operations entrenched there, which will be difficult to relocate.
“Plus ones” often represent longstanding relationships, but they can also be more fleeting. Choosing the right partner to dance with is critical.
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