The global electronics supply chain is under immense pressure. Rising geopolitical tensions, trade restrictions, and pandemic-induced disruptions have exposed the vulnerabilities of relying too heavily on a single manufacturing hub — China. For decades, companies optimized their supply chains for cost and efficiency, but recent events have shown that resilience and diversification are just as critical.
Enter the China Plus One strategy — a proactive approach where businesses expand their supply chains beyond China while maintaining some presence in the country. This strategy isn’t about abandoning China; it’s about mitigating risk, improving flexibility, and ensuring business continuity in an era of uncertainty.
For industries reliant on electronic components, from automotive to telecommunications, the need for supply chain diversification is more urgent than ever. But transitioning to a more resilient model isn’t just about picking an alternative location—it requires careful planning, expert sourcing, and trusted partners. That’s where Microchip USA comes in. With expertise in supplying components, inventory management, and quality assurance, Microchip USA aligns seamlessly with the China Plus One strategy to help businesses future-proof their supply chains.
Understanding the China Plus One Strategy
The China Plus One strategy is a global supply chain approach where businesses diversify their manufacturing and sourcing operations beyond China. Rather than relying solely on China’s factories and logistics networks, companies establish additional production or supplier bases in other countries while still maintaining a presence in China.
This concept isn’t new. Companies started considering diversification as early as the mid-2010s, when rising wages in China made production more expensive. However, it wasn’t until the U.S.-China trade war and the COVID-19 pandemic that corporations felt an urgent need to reduce their dependence on a single country.
Driving Factors Behind China Plus One
Several key developments have pushed companies — especially in the electronics sector — to adopt a China Plus One strategy:
- Geopolitical Tensions and Trade Restrictions
Tariffs, sanctions, and shifting trade policies between the U.S. and China have made doing business in China more complex and expensive. Companies fear further restrictions could cut them off from critical suppliers. - Supply Chain Disruptions
The COVID-19 pandemic exposed just how fragile a China-centric supply chain can be. Factory shutdowns, port congestion, and material shortages caused severe delays for businesses worldwide. - Rising Costs in China
Labor and production costs in China have steadily increased over the years. As wages and regulatory compliance costs grow, companies are looking to Vietnam, India, Thailand, and Malaysia for lower-cost alternatives. - Government Incentives for Manufacturing Relocation
Countries like India and Vietnam are offering tax breaks, infrastructure investments, and streamlined regulations to attract businesses looking to diversify their manufacturing footprint.
As the global supply chain landscape shifts, the China Plus One strategy is a necessity, but while diversifying makes sense on paper, implementing it comes with its own set of challenges.
Benefits of Implementing China Plus One
By diversifying supply chains, companies can protect themselves from risk, improve cost efficiency, and unlock new growth opportunities.
Risk Mitigation: Avoiding Over-Reliance on a Single Country
For years, China has been the undisputed leader in electronics manufacturing. But relying too heavily on any one country is risky. Trade restrictions, political shifts, or even natural disasters could disrupt the entire supply chain overnight.
By adding alternative manufacturing hubs in places like Vietnam, India, and Malaysia, companies can mitigate their risk. If one region experiences instability, production and sourcing can continue elsewhere. This resilience is especially critical for industries like automotive, telecommunications, and consumer electronics, where supply chain disruptions can cost billions.
Cost Efficiency: Lower Labor and Production Expenses
While China still dominates in high-tech manufacturing, its labor costs have been rising steadily. Many companies are now shifting low-cost production to Southeast Asia and South Asia, where wages are lower and government incentives are attractive.
For example:
- Vietnam has emerged as a hotspot for assembling electronics like smartphones and consumer gadgets.
- India is aggressively expanding its semiconductor and PCB manufacturing capabilities and offering subsidies and incentives to global firms.
- Thailand and Malaysia are also strengthening their roles in the semiconductor and component supply chain.
By leveraging these lower-cost regions, businesses can maintain competitive pricing while reducing their dependence on one manufacturing base.
Market Expansion: Tapping Into New Opportunities
Diversifying production to other countries doesn’t mean giving up access to China. Instead, it allows companies to expand into new regions while still serving their Chinese customers.
Countries like India and Indonesia offer massive, growing consumer markets with rising demand for electronics, IoT devices, and automotive components. By adopting a China Plus One approach, companies can position themselves strategically in these high-growth regions while maintaining their foothold in China.
The benefits are clear, but shifting supply chains isn’t without its challenges. Managing logistics, ensuring quality control, and handling complex regulatory environments require careful execution. That’s where the right partner — like Microchip USA — is a huge asset.
Challenges in Adopting China Plus One
While the China Plus One strategy offers clear advantages, shifting supply chains away from China is not as simple as picking a new location. Companies face logistical, regulatory, and operational challenges that require careful planning and execution.
Infrastructure Variability: Not Every Country is Ready
One of the biggest hurdles is infrastructure variability. China has spent decades building a world-class manufacturing ecosystem with efficient logistics, modern ports, and deeply integrated supply chains. Many alternative countries are still developing these capabilities. Vietnam, for example, has made impressive strides in electronics assembly but lacks the large-scale semiconductor fabrication facilities found in China. India is heavily investing in manufacturing but still faces logistics bottlenecks and bureaucratic red tape that can slow production. Even Thailand and Malaysia, which have established electronics industries, cannot yet match China’s scale and efficiency. Without the right partners and logistical networks, companies risk delays and increased costs when shifting their operations.
Supply Chain Complexity: Managing Multi-Country Operations
Another key challenge is supply chain complexity. Moving production from China means managing new suppliers, understanding different regulations, and dealing with multiple customs processes. This can create inefficiencies, increase lead times, and complicate logistics. Trade agreements and tariff differences between countries add an extra layer of compliance that companies must navigate. Additionally, many critical raw materials and components are still produced in China, so businesses that move assembly elsewhere may still depend on Chinese imports. Finding reliable suppliers in new locations takes time, and ensuring product consistency across multiple regions requires strong supply chain coordination.
Skilled Labor Availability: The Talent Gap
The availability of skilled labor is also a major concern. China’s dominance in manufacturing isn’t just about infrastructure — it’s also about people. The country has a highly trained workforce of engineers, technicians, and factory workers who specialize in high-tech manufacturing. Alternative locations may offer lower labor costs, but they often lack the same level of experience in advanced electronics assembly. Companies expanding into these regions may need to invest in extensive workforce training, which can add to costs and slow the transition. Ensuring consistent product quality across different production hubs requires rigorous quality control measures and supplier oversight.
Successfully implementing a China Plus One strategy demands expert planning, strong supplier relationships, and robust quality assurance processes. This is where Microchip USA plays a crucial role, helping businesses navigate supply chain transitions, source high-quality components, and maintain manufacturing reliability across multiple regions.
Microchip USA: Aligning with the China Plus One Strategy
Transitioning to a China Plus One approach is a complex process, but companies don’t have to navigate it alone. With expertise in component supplying, inventory management, and quality assurance, Microchip USA enables companies to implement China Plus One without disruptions to production or product quality.
Reliable Component Supplying for a Diversified Supply Chain
One of the biggest challenges of shifting manufacturing beyond China is ensuring access to high-quality, reliable electronic components. Many critical semiconductor and passive components are still heavily sourced from China, making it essential for businesses to establish alternative procurement channels.
Microchip USA specializes in global component supplying, ensuring that manufacturers can secure critical parts from multiple regions. Whether it’s semiconductors, PCBs, capacitors, or resistors, Microchip USA helps companies reduce their dependence on a single country while maintaining consistent supply levels.
Excess Inventory Management and Cost Optimization
Supply chain shifts often lead to fluctuations in inventory levels. Companies moving production to new regions may face overstock issues or obsolete components tied to their previous manufacturing locations.
Microchip USA provides excess inventory management solutions and allows manufacturers to sell unused components through strategic sales channels. This service minimizes waste, optimizes cash flow, and prevents supply chain bottlenecks to ensure that businesses can transition smoothly without excess stock becoming a liability.
Ensuring Quality Control Across Multiple Regions
Diversifying supply chains introduces the risk of inconsistent product quality, as new suppliers may not meet the same rigorous standards as those in China. Ensuring that components sourced from multiple regions meet high reliability standards is critical, especially for industries like automotive, telecommunications, and aerospace, where quality issues can lead to serious failures.
Microchip USA mitigates these risks by using certified third-party labs to inspect and authenticate components before they reach manufacturers. This rigorous quality control process ensures that businesses can trust their diversified supply chains without compromising on performance, safety, or compliance.
Streamlining Tail Spend for Supply Chain Efficiency
Companies expanding into new regions often deal with low-value, high-volume procurement challenges, also known as tail spend. Managing thousands of small, non-strategic component purchases can be time-consuming and inefficient, draining resources from more critical operations.
Microchip USA offers tail spend management services, consolidating and streamlining these purchases. This allows manufacturers to focus on high-priority supply chain functions while reducing operational inefficiencies.
A Trusted Partner in Supply Chain Diversification
The China Plus One strategy is about more than just moving production—it’s about building a smarter, more resilient supply chain. Microchip USA provides the expertise, supplier networks, and quality assurance capabilities to make this transition seamless. By working with Microchip USA, companies can embrace China Plus One with confidence, efficiency, and long-term success, so contact us today!
