The first sight of the brand new ‘Minus China’ strategy

China has been the world’s manufacturing and sourcing hub for at least four decades, a trend initially triggered by globalisation and the advent of integrated supply chains. However, the last 3 years have changed the dynamics completely. The strong political tensions between China and the US, and the COVID-19 pandemic adding fuel to fire, is what compelled manufacturers to rethink about ‘essentially operating’ from China. 

You would already be aware of the ‘China plus one’ strategy and its application by companies to diversify their supply chains and reduce their reliance on China. But the new kid on the block is the ‘Minus China’ strategy. While the underlying sentiment there would be the same – distancing oneself from China – the methods are completely different. 

China Plus One includes companies turning their gaze towards other countries in Asia, such as Vietnam and India, as well as countries in other regions, such as Mexico and Eastern Europe, to source goods and set up manufacturing units. On the other hand, Minus China is about taking the dragon out of the equation altogether – winding up operations in China and ceasing to exist in the country

COVID-19, the US-China tensions and the war together made a dangerous cocktail which eventually secluded China from the rest of the world, sending global supply chains into a frenzy. Most Western economies are distrustful of China and Beijing’s recent threats to invade South Korea and its tacit support to Russia in the Ukraine conflict have widened this distrust. With the continued lockdowns, the pandemic’s crazy comeback in China recently, and the geopolitical chaos not dying down anytime sooner, companies have been triggered to pack up their bags and exit the country. 

Not long ago, Eric Feigl-Ding – an Epidemiologist and health economist in China – recently posted about the austerity of the situation in China on Twitter, where he repeatedly called it ‘thermonuclear bad’. For global supply chains already struggling to find a stable standing, this came as a severe threat. 

Amid all this, the labor and real estate costs in China have been rising steadily, leading to cost escalations and breaking the country’s image in terms of cost effective manufacturing and sourcing. 

Even though the world is currently hush-hush about riding the Minus China wave, there are companies seriously considering the strategy. In fact, an industry report by Gartner’s survey of 260 global supply chain leaders in February and March 2020 found that 33% had moved sourcing and manufacturing activities out of China or plan to do so in two to three years. 

Reportedly, California-based tech giant Apple may also exit China in light of the long-withstanding COVID-19-related restrictions and recent violent worker protests. Instead, it will focus on production hubs based out of India and Vietnam, and will source chips from Arizona, thereby advocating on behalf of nearshoring and reshoring.

The most conservative analysts have estimated that if Apple moves aggressively, it could get 20% of its supply chain out of China in 8 years. The more bullish ones say it will take at least 3 years to move half. 

With China completely out of the equation, it is time that global corporations would have to look at India for sure, say experts. No other geography will give them a comparable domestic market, cost effective talent pool, educated workforce, emerging opportunities, and so on, they argue. An added advantage will be India’s Free Trade Agreements with various developed and developing nations, which make India’s investment and manufacturing ecosystem conducive enough for setting up bases being unrooted from China.

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