Skip to Content
International business professionals walking across a world map.
Article

De-risking offshore manufacturing: The “China plus” strategy

October 21, 2024 / 7 min read

As U.S. tariffs and rising geopolitical concerns prompt manufacturers to reassess global supply chains, Southeast Asia is emerging as a viable alternative. Read on to explore your options and find the right location for your company.

Over the past 20 years, China has become a favored global manufacturing hub with its vast labor market, low production costs, established infrastructure, and favorable government incentives. But in recent years, geopolitical risk, shifting trade policies, and supply chain disruption have altered the equation. Today, company priorities are moving from low cost to low risk.

Tariffs and geopolitical concerns

Several factors are responsible for the shift in outlook. First, high tariffs in the United States on Chinese-produced goods are driving more companies to relocate manufacturing and sourcing centers away from China. Tariffs on Chinese-manufactured products are currently at 25% and tariffs on a new range of products took effect in September 2024. Some expect the problem to get worse with both leading candidates in the U.S. presidential election signaling a willingness to keep or even increase the tariffs. In addition, CHIPS Act restrictions and U.S. export controls are creating hurdles for Chinese manufacturers in the semiconductor and high-tech industries.

High tariffs in the United States on Chinese-produced goods are driving more companies to relocate manufacturing and sourcing centers away from China.

These aren’t the only problems manufacturers are facing. Rising geopolitical concerns — for example, the tensions between China and Taiwan — are leading some manufacturers to relocate to more stable regions with countries that have solid relationships with the United States. In some cases, such as automotive suppliers, OEMs are actively requiring their suppliers to move production out of China.

What are the alternatives to China?

Companies looking to mitigate supply chain risk are considering a range of choices in Southeast Asia, North America, and Eastern Europe. Countries in Southeast Asia, including Singapore, Thailand, Vietnam, Malaysia, Indonesia, and the Philippines — part of the Association of Southeast Asian Nations (ASEAN) group of countries — are well positioned to benefit from this shifting trend. They’re moving quickly to attract business and foreign investment in key industry sectors.

The Association of Southeast Asian Nations (ASEAN) group of countries — are well positioned to benefit from this shifting trend.

Advantages to locating operations in Southeast Asia

There are several advantages to considering Southeast Asia as an alternative to some or all of your Chinese operations.

Challenges to manufacturing in Southeast Asia

While relocating manufacturing operations to Southeast Asia offers many benefits, it also comes with some challenges to consider and prepare for.

Choosing the location that’s right for you

Site selection in Southeast Asia encompasses cost and logistics considerations and extends to a variety of additional factors depending on your industry and customers.

At the end of the day, you’ll have to compare and contrast the options and evaluate them based on your industry, customers, and cost structure. There are many trade-offs to consider. If you’re in the auto industry, one set of options may apply. If you’re in another industry, the factors to consider are similar, but the weight and the importance of those variables will be different.  

You’ll have to compare and contrast the options and evaluate them based on your industry, customers, and cost structure.

If you’re locating in Southeast Asia, get help

If you’re considering a move out of China to a Southeast Asia location, get help navigating the alternatives. Professional guidance is necessary to get the insights you need on local regulatory and compliance requirements and supply chain resources readiness. Your consultant should have a methodology and approach to evaluating options for a variety of industries and service offerings that include a market entry and compliance analysis and assistance with local regulatory requirements, tax implications, legal entity setup procedures, and a timeline for incorporation. Established relationships in the target region are a must. Your consultant should also be able to help with supplier search and assessment, coordination of on-site meetings, contract terms negotiation, sample ordering, international logistics support, etc.

The bottom line

In the emerging China trade and geopolitical environment, you need to be agile and ready to move quickly. If you’re planning to relocate a part or all of your supply chain to Southeast Asia, it’s important to consider the opportunities and challenges well in advance and understand what they mean to your operations. Whether you’re tapping into a new consumer market, exploring new manufacturing opportunities, or evaluating potential suppliers or trading partners in the local market, local knowledge and assistance are critical to your success.

Related Thinking

View of U.S. government building during the day.
October 10, 2024

India’s Union Budget 2024–2025 confirms priorities of government’s 5-year term

Article 7 min read
Aerial view of shipping port.
August 19, 2024

Should your business nearshore operations back to North America?

Article 10 min read
Shopper looking at products in grocery store aisle, considering SKU rationalization and accurate costing data.
April 22, 2024

The art of SKU rationalization: Getting accurate costing data

Article 5 min read