CHINA PLUS ONE STRATEGY

  Three decades of globalisation have drastically changed the nature and structure of world economy with rapid integration of large emerging markets into the global production process and system .                    China has been in the forefront of manufacturing for three decades as indisputable "World's factory" and operating as the centre of global supply chains . However persistent trade war between USA and China along with Covid19 pandemic and the Zero Covid policy followed by Chinese Government have adversely impacted many manufacturing firms.Zero Covid policy in China has resulted in industrial lockout and supply chain disruptions. The term China-plus one or just plus one was coined in 2013 as a global business strategy mainly by multinational companies already invested in China who wish to relocate from China to  other countries.  China- plus - one or just plus one refers to a strategy in which companies avoid investing only in China and diversifying their businesses to alternate destinations.In a sense plus one strategy appears to be beneficial to both firms that pursue risk diversification,cost reduction or avoidance of overreliance on China to free up resources that can be applied to other high value activities and further plus one host economies can gain benefits from inward investment. Even though officials and companies particularly in the USA and Japan had begun diversification strategy way back  in 2008 itself from China ,but it gained further momentum in the last decade when US China trade tensions reached it's peak.Aftermath of pandemic Covid19 and Chinese zero covid policy and other driving factors like diminishing China's cost advantage and in recent years growing geopolitical distrust between China and the Western Countries, Australia,Japan and India. The concerns about the ever increasing cost of producing in China and the desire to diversify both operational and environmental risks which led to  investment in neighbouring countries like Vietnam, Cambodia, Thailand and Indonesia.Apart from risk diversification other benefits include- opportunities for lower costs, reduced dependence on Chinese market, knowledge transfer , access to new markets .Indirect  benefits in China  plus one strategy include increased specialisation, orderly regional development and stimulating competition in economies of the Asian region. Despite the above mentioned benefits of the China plus one strategy,also asome associated costs  like non-availability of adequate skilled labour, inadequate economies of scale and lack of adequate infrastructure are likely to adversely affect China plus one strategy.

Reasons for adopting a China plus strategy is primarily due to rising costs of production mainly labour costs and many international businesses complained against increasing costs. Secondly concerns about the rising costs of producing in China given the risks of political economic and social changes. Similarly changes in Government policies particularly attitudes towards foreign business is very vital. There also exist desire to avoid over dependence on China as a market or a production centre location.It has been observed that the clear winners of the China-plus one model have been the EU, Mexico, Taiwan, and Vietnam in sectors like automobiles, transport,machinery, and electrical equipment. Unfortunately except from making marginal gains in the machinery sector India is yet to make any significant advantage from trade diversion.The main reason attributed to India's poor performance is due to declining participation in global value chains.The country is also very reluctant in forging preferential trade agreement or regional/ free trade agreements According to a research study on Covid -19 pandemic and the future of China plus one strategy in Apparel trade from Bangladesh and Vietnam showed that the orders of EU and USA are gradually shifting from China to some other developing South Asian countries like Bangladesh, Vietnam,India and Pakistan. While Vietnam is  availing the benefits of TPP ( Trans-Pacific Partnership) whereas Bangladesh is getting GSP (Generalised System of Preference) facility from European Union (EU) countries.While Bangladesh is ahead of Vietnam in low wages and manufacturing cost advantage, Vietnam is far ahead of Bangladesh in product and market diversification and access to raw materials.Namura study for the period April-August 2019 showed that out of the 56 manufacturing units relocated from China only 3 were located in India as against 26 in Vietnam and 11 in Thailand. Similarly studies also indicated that the quality of our workforce is low at 11,compared to Thailand 23.2,Vietnam 24.3 and high level of 31.2 in Indonesia. On the other hand average wages in China is reported to be $5.5 as against $ 4.5 in Mexico. 

India being the largest democracy and most populous country with encouraging pro business environment and political stability have tremendous potential to become significant beneficiary of the China-plus one strategy to diversify and setup industries and offices India. Other favourable factors include that India has not only the World's largest diaspora that makes Indians adapt to foreign culture and language but also second largest English speaking population after USA.Recently India has developed various Greenfield Special Economic Zones, Express Ways, National Highways and other world class infrastructure projects.NitiAyog also taken initiatives on block chain usages in e- governance and India Chain is the name given to develop a nation wide block chain network along with development of digital infrastructure.Other Government program mes like Startup India,Skill India, Stand up India and Swatch Bharat Mission can make revolutionary changes.More over specific project like PLI(Production Linked Incentive) is bound to directly impact Plus one strategy in India.Recently Apple manufacturer of IPhone and Ipad started Mega factories in Tamil Nadu India and they wants to manufacture about 25% of their iPhones output from India.Recent pact by India and USA on Semiconductor Supply chain and innovation partnership on operation will lead to greater role of India in electronic supply chain and technology partnership. Apart from Apple,One plus,Hyundai and BMW set up manufacturing units in India.India has the largest number of FDA compliant pharmaceutical plants outside USA and has a 33% lower manufacturing costs. The Indian Pharma industry is expected to grow to ₹10 lakh crores by 2030.While tariff adjustments, labour market flexibility, better infrastructure, and upskilling are the changes that will enable the manufacturing sector to scale up,supply chain disruptions, rising labour costs and growing strategic concerns around the concentration of production provide some concerns. 

 Eventhough we are in the process of achieving China plus one strategy our continued dependence on sectors like API ( Active  Pharmaceutical Ingredients),solar equipments, semiconductors, electronics, IT and mobile equipments etc persist as a challenge. But streamlining emerging advantages like World's largest young manpower, infrastructure and logistics development,more  free-trade agreements, technology research, innovation and investment and focused implementation of PLI (Production Linked Incentive) along with coordinated policy measures is expected to go a long way in achieving China plus growth strategy.