As global supply chains continue to shift, businesses are exploring alternatives to China for manufacturing. But a China+1 strategy requires careful planning to ensure success. During our recent webinar, industry experts Kathy Liu (VP of Global Sales and Marketing, Dimerco) and Karen Kenney (Trade Compliance Expert) discuss the challenges and critical considerations for companies making this transition. Here are the key takeaways.
1. Freight Capacity Constraints in Southeast Asia
While many manufacturers have begun shifting operations to Southeast Asia, the region’s infrastructure cannot scale overnight. Limited air and ocean freight capacity, along with less automated port facilities, can result in higher logistics costs and longer lead times. According to Liu, many companies are leveraging China as a transportation hub to consolidate shipments from Southeast Asia, optimizing both cost and efficiency.
2. Infrastructure and Investment Challenges
Although investments are being made to enhance the logistics infrastructure (roads, ports, etc) in alternative manufacturing hubs, these are long-term projects. As Kenney points out, while countries like Vietnam and India are receiving global investments, many of these developments won’t be fully realized for years. Additionally, some U.S. policies discourage foreign investment in critical infrastructure, further complicating the landscape.
3. Cultural and Workforce Differences
Manufacturers must also adapt to cultural differences in work ethic and business operations. In China, a common practice known as “996” (working 9 AM to 9 PM, six days a week) boosts productivity. However, this approach does not necessarily translate to other regions, where work-life balance is prioritized. Understanding and adjusting to these differences is key to maintaining operational efficiency – and for accurately estimating labor costs.
4. Compliance and Country of Origin Risks
Many companies assume that shifting assembly to Southeast Asia automatically changes a product’s country of origin. However, if the majority of components still come from China, the final product may still be classified as Chinese under U.S. trade laws. As Kenney warns, stricter enforcement by the U.S. Customs and Border Protection (CBP) and new regulations mean that, to avoid penalties, companies must carefully evaluate their supply chains to ensure trade compliance.
5. The Importance of Strategic Partnerships
With evolving regulations, rising costs, and logistical challenges, companies need experienced partners to navigate the transition to new countries for production and distribution. Liu emphasizes the value of working with a knowledgeable global logistics provider, like Dimerco, that can offer tailored solutions and strong local market knowledge in Southeast Asia, India and other growing production hubs.
China+1: Careful Planning is Required to Make the Strategy Work
The China+1 strategy can be an effective way to diversify supply chains, but it comes with its own set of challenges. When evaluating the expansion of production to a new country, companies must carefully assess freight capacity, logistics infrastructure, trade compliance risks, and cultural differences in these markets before making a move. By working with knowledgeable partners and planning strategically, businesses can successfully adapt their supply chains to the shifting global manufacturing landscape.
Need expert guidance on supply chain transitions? Contact Dimerco today to explore customized logistics solutions for your business.