We’ve all heard of China Plus One, a strategy companies are employing to reduce supply chain risk associated with exclusive reliance on China factories for production. Discussions on this topic typically deal with high-level questions like “Does it make sense for my company?” and “What countries are best for expansion?” There’s simply not enough focus on the critical details of actually implementing a China Plus One strategy.
Moving physical operations from one country to another is complicated. On top of that, doing business in Malaysia, India, Thailand, Vietnam and other Asian countries can be tougher than doing business in China, where the supporting infrastructure is strong and the environment is business friendly.
Too often companies find this out the hard way, when a poorly planned transition leads to delays, budget overruns, and customer complaints.
Don’t make that mistake. Following are a few questions to consider when implementing your China Plus One strategy. For a more detailed look at the issue, read our eBook on “The Logistics of China Plus One.”
Is there adequate freight capacity?
Just because you can produce products in a new country doesn’t necessarily mean you can ship those products out at the speed and volumes required.
After moving one of its factories from South China to Penang, Malaysia, one heating products company struggled with the lack of air freight capacity out of Penang, which was just 3% that of its previous air freight gateway in Hong Kong. With support from its freight forwarder, the company is now able to secure the cargo capacity it needs. But occasionally it must route some shipments through other airports using a Road + Air solution.
Don’t get caught in a battle for limited cargo space in a new market. Make sure you consider the issue of freight capacity before a move.
Is there sufficient labor in the new market?
What if we told you it takes 1,000 workers in Malaysia to generate the same production output as 500 workers in China?
Well, that’s what the logistics director of a semiconductor supplier found after a move from China to Malaysia. The surprise came because the company failed to closely examine some key cultural differences. The skill level and work ethic of Malaysian production workers lag behind their counterparts in China. Also, Malaysians have more vacation days, more holidays, and a shorter workday. These critical differences ultimately impact budgets, so do your homework and plan accordingly.
If you need to hire professional-level talent like supply chain engineers or experienced import/export managers, that level of talent may be in short supply in a new market. That is one of the things that must be considered as you plan your China Plus One strategy.
Can you recreate your existing inbound supply chain in the new market?
The likely answer is yes. But that can take time and lots of money if you fail to plan. A major electronics firm relocated from China to Malaysia and had a commitment from its primary packaging supplier to establish operations near the new factory. When a COVID outbreak delayed that move, the manufacturer spent significant sums to ship bulky packaging material from China.
Much smart phone assembly work is shifting from China to India. But during the early days of the COVID pandemic Indian smartphone assemblers had to halt production for two months because factory shutdowns in China delayed the shipment of component parts.
When relocating production, invest the time to make sure your inbound supply chain is in place prior to go-live.
Will more complicated customs processes and government regulations create problems?
Every country has unique customs and regulatory requirements. Failure to research and ready your organization for such differences can result in chronic delays and frustrated customers. These issues are often far more complicated and damaging to your business than physically storing or shipping boxes. The good news is that the right logistics partner can assist with customs clearance, regulatory compliance and local tax requirements.
China Plus One strategy: choose the right logistics partner
Diversifying production outside China can be a game-changing strategy that reduces the risk associated with supply chain disruptions. But don’t underestimate the planning required to implement your China Plus One strategy effectively.
The right 3PL can provide much of the know-how needed for a successful transition – from legal guidance to specific logistics advice on warehousing and freight transportation. You’ll want a partner that knows your new market well. With 130 locations across China and Southeast Asia, Dimerco Express Group can provide the local market know-how you need. We’ve helped dozens of companies navigate the complexities of relocating factories and warehouses to another country. Contact us to discuss your particular challenge.