China+1 Is Not a Supply Chain Strategy

Over the past several years, "China+1" has become one of the most common phrases in sourcing conversations. The logic is intuitive. Pandemic disruptions, rising costs, tariffs and geopolitical tension exposed how many companies depended on a single country, and often a single supplier, for critical products. Adding a second production location seemed like the obvious answer.

It can be. But moving final assembly from Shenzhen to Ho Chi Minh City, Penang or Monterrey does not, by itself, make a supply chain resilient. In many cases it relocates the most visible part of the risk while leaving the underlying dependencies untouched, or adds new ones.

The dependency you can't see

Economists Laura Alfaro and Davin Chor, in research presented at the 2023 Jackson Hole symposium, documented how the share of US imports sourced directly from China fell after 2018 while countries such as Vietnam and Mexico gained share. They also cautioned that it was unclear whether this shift was actually reducing dependence on supply chains linked to China. Analyses of trade flows have since pointed to a reason: many of the economies gaining export share also source significant inputs from China.

In practical terms, a company may have moved its final supplier out of China while still depending on Chinese components, materials, tooling or sub-assemblies one or two tiers upstream. A disruption affecting those inputs would still reach the finished product, now through a longer and less visible route.

The same is true for many raw and processed materials. Supply of several critical minerals, components and chemical intermediates remains concentrated in a small number of countries, a pattern the International Energy Agency has documented for energy-transition minerals. Diversifying assembly does little if everyone's inputs come from the same refinery.

Why moving production is harder than it looks

Diversification decisions are often made on landed-cost spreadsheets. The harder issues tend to appear later.

Supplier capability. A supplier in a newer manufacturing location may be excellent at some processes and still developing in others. The depth of supporting industries — tooling shops, surface treatment,

precision machining, packaging, testing laboratories — varies significantly between locations and even between industrial clusters within a country.

Tooling ownership. Many companies discover during a move that they do not clearly own the moulds, dies and fixtures used to make their parts, or that transferring them is slow, contentious or technically difficult. Replacement tooling adds cost and time.

Qualification. In regulated and engineering-intensive industries, a new supplier must be qualified: first- article inspection, process validation, capability studies and sometimes customer approval. This can take many months and must happen before volume shifts.

Quality consistency. Early production at a new supplier often looks good. The real test is consistency across shifts, operators, material lots and months of production.

Logistics and complexity. Two production locations mean two sets of suppliers, logistics routes, customs procedures, quality interfaces and management relationships. The organisation needs the capacity to manage them.

Lead time versus landed cost. A location may offer a lower unit cost but longer or less reliable lead times, which increases inventory and working capital requirements. For some products, speed and reliability are worth more than a lower unit price.

Concentration risk is the real problem

The underlying issue is not China. It is concentration: too much dependence on one supplier, one location, one logistics route, one material source or one customer approval. A supply chain that depends heavily on a single supplier in Vietnam is not meaningfully less concentrated than one that depends on a single supplier in China.

Seen this way, resilience is a property of the whole network — the number of qualified alternatives, the visibility into upstream tiers, the inventory and capacity buffers, and the speed with which production can be shifted when something goes wrong.

Why China may remain part of a diversified network

For many products, China continues to offer unmatched supplier depth, manufacturing scale, engineering capability and speed. In some categories, alternative locations cannot yet replicate that ecosystem at comparable cost and quality.

A balanced strategy may therefore keep China as a significant source while developing qualified alternatives for critical items, shifting some volume to other regions, or separating production by destination market — for example, China for Asian demand and another location for North American demand. The right answer depends on the product, customer requirements, trade rules and the company's risk tolerance, not on a general position about any single country.

How to evaluate an alternative sourcing location

A useful evaluation looks beyond unit price:

Factor What to examine

Capability Process expertise, equipment, engineering support, supporting industries

Upstream dependency Where key materials and components come from

Quality Systems, certifications, track record, capability data

Cost Total landed cost including duties, freight, inventory and quality costs

Lead time and reliability Transit time, port and customs performance, variability

Scalability Capacity to grow with demand without degrading quality

Commercial and regulatory environment Trade agreements, rules of origin, investment rules, labour and environmental standards

Management capacity Whether your organisation can actually oversee another location

Questions to answer before moving production

• 1. Which risk are we trying to reduce — tariffs, disruption, single-supplier dependency, customer requirements — and will this move actually reduce it?

• 2. Where do our new supplier's critical materials and components come from?

• 3. Do we own our tooling, drawings and process documentation, and can they be transferred?

• 4. How long will qualification take, and what does it cost?

• 5. What is the total landed cost, including inventory, quality and management overhead?

• 6. How will lead times and their variability change?

• 7. Does the move reduce concentration, or simply move it?

• 8. Do rules of origin in our destination markets treat the new location as we expect?

• 9. Do we have people with the time and expertise to manage another supplier location?

• 10. What is the plan if the new location is also disrupted?

Conclusion

China+1 can be a useful step. It is not, by itself, a strategy. Resilience comes from understanding the full supply network, reducing concentration where it matters most, qualifying genuine alternatives and keeping enough visibility to act quickly when conditions change. The location of the final factory is only one part of that picture.

Omnidite Advisory supports sourcing and international market decisions across Asia-Pacific, including assessing alternative manufacturing locations and supplier networks.

This article provides general information and commercial commentary, not legal, investment, regulatory, medical or certification advice. Illustrative examples and calculations are not actual customer engagements or quotations.