The Strategic Rise of China+1: From Operational Tactic to Board-Level Imperative

A 3-Part Bridge Connect Mini Blog Series: Part 1

For decades, China was the manufacturing bedrock of global supply chains. From smartphones to solar panels, consumer goods to telecom hardware, companies — multinational and domestic — built vast production and supply-chain infrastructures anchored in China. The logic was compelling: massive labour pools, mature industrial ecosystems, deep vertical supply-chains (components, sub-components, assembly, packaging, logistics), economies of scale — all under relatively stable cost structures.

But the world changed. Rising labour costs, supply-chain shocks, regulatory and geopolitical turbulence, tariffs and trade-policy volatility have reshaped what “optimal manufacturing” looks like. At the same time, boards and C-suites increasingly recognize that scale and cost-efficiency alone are no longer sufficient: resilience, flexibility, market access, and regulatory compliance have ascended.

That recrystallised focus has turned what was once a niche manufacturing approach into a near-universal supply-chain doctrine. This doctrine is known as “China+1” — the deliberate decision to maintain core manufacturing in China while simultaneously building meaningful production capability in at least one other geography.

More than a fringe remedial tactic, China+1 has rapidly matured into a board-level strategic imperative.

Origins: From Cost Arbitrage to Early Diversification

The concept behind China+1 is not new. As early as the 2010s, companies confronted rising wages in coastal China and began probing lower-cost manufacturing jurisdictions. Many experimented with secondary assembly or component production in Southeast Asia or South Asia. z2data.com+2arc-group.com+2

Initially, China+1 was often tactical, and often limited in scope: maybe a portion of final assembly moved, or labour-intensive packaging was relocated, while China remained the source for components, core assembly lines, or complex sub-assemblies. In practice, for many firms this meant that China remained the engine — and secondary locations functioned as satellites.

Over time, this dual-location “hedging” offered modest benefits: a small reduction in labour cost, some tariff or duty arbitrage — but mostly it increased operational complexity. For many, the benefits did not, at first, justify the costs and overhead. arc-group.com+1

The Catalysts of Acceleration (2018–2025)

What pushed China+1 from a cautious experiment to a mainstream global imperative were a combination of major external shocks — regulatory, economic, geopolitical, and logistic.

• Tariff wars & Trade Policy Volatility

From the mid-2010s onward, rising trade tensions — most visibly between the U.S. and China — began to erode the simplicity of “made-in-China for global export.” Tariffs, anti-dumping investigations, and unpredictable import duties introduced new cost risk and regulatory uncertainty. Companies confronted the prospect that goods assembled or exported from China could suddenly face punitive tariffs or duty classification issues. In response, firms began to view manufacturing location not just as an input-cost decision, but as a strategic lever for tariff avoidance and trade-policy resilience. z2data.com

• Geopolitical risk, supply-chain sanctions & Regulatory Compliance Pressure

As global powers grew more comfortable with export controls, sanctions, and scrutiny of supply-chain origins — particularly for dual-use or sensitive-tech goods — the risk of concentrating production in a single politically exposed region became more salient. For sectors such as telecoms, defence, energy storage or critical infrastructure, dependency on Chinese-only manufacturing became a vulnerability: regulatory, reputational and compliance risks became material.

• Pandemic Disruptions and Logistic Instability

The COVID-19 pandemic revealed how brittle global supply chains could be when heavily concentrated. Lockdowns, port closures, disruptions to logistics, and delays in component supply sharply demonstrated the costs of over-dependence. Post-pandemic corporate risk assessments began to re-weight resilience, redundancy and geographic diversification more heavily — even at the expense of some cost efficiency.

• Rising Chinese Labour & Operating Costs / Loss of Arbitrage Advantage

Over time, China’s labour advantage shrank. Wage inflation, rising real estate and operating costs meant that the differential between “China production” and “alternative jurisdiction production” diminished. For many product categories — consumer electronics, textiles, simpler hardware — lower-cost Asian countries (e.g. in Southeast Asia) became economically competitive. China Briefing

• Supply-Chain Restructuring: Vertical and Regional Integration

Modern supply-chain thinking began to shift away from single-region concentration toward distributed, modularised value-chains. Firms started to think in terms of component sourcing, assembly, testing, and logistics as geographically decoupled — and to place different functional nodes of the value chain where they made strategic sense: cost, market access, supply-chain risk, regulatory compliance. In short: re-architecture rather than relocation. pongoshare.com

As a result of these combined forces, China+1 moved from tactical hedging to structural redesign — and for many firms, it became part of core strategy rather than optional redundancy.

Evidence of Momentum: Shifting Flows, Ramping Investments, Rising Production Outside China

The shift is not hypothetical — it shows up in data, FDI flows, export statistics and corporate announcements.

• According to recent analysis from McKinsey & Company, Southeast Asia is rapidly emerging as a global manufacturing hub, as companies diversify supply chains to reduce risk, manage costs, and tap new markets. McKinsey & Company

  
  

• By 2023, for example, countries such as Vietnam and Indonesia saw substantial greenfield manufacturing FDI inflows — evidence of deliberate shifts in production capacity outside China. McKinsey & Company

  
  

• Vietnam’s industrial capacity has expanded rapidly over the past decade, backed by rising foreign investment, and today that expansion underpins a booming manufacturing base for electronics, appliances, and consumer goods.

  
  

• As of 2025, Vietnamese electronics trade is hitting record highs, driven by surging exports — but notably, much of the upstream supply still originates in China. VietnamExportData

  
  

• The upstream-to-downstream supply-chain relationship remains deeply integrated: according to a recent supply-chain analysis, while assembly shifts outwards, Chinese firms continue to be top suppliers of intermediate components and semi-finished goods for many global manufacturers. Rhodium Group

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In other words — the visible uptick in manufacturing outside China does not equate to a clean “de-China-isation.” Instead, we are witnessing the rise of multi-geography supply chains: final assembly, packaging, and export may occur outside China, but upstream procurement, components supply, sub-assemblies, and input materials often remain rooted in Chinese production ecosystems — at least for now.

Why China+1 Is More Than Procurement — It’s a Strategic Operating Model

For firms operating in high-complexity, regulated, or capital-intensive sectors — telecoms, ICT infrastructure, energy storage, defence/hardware, data centres, satellite components, etc. — China+1 is not simply a way to lower cost or avoid tariffs. It’s a structural shift in how value-chains are designed, managed, and risk-assessed.

Resilience & Risk Management

A single-source (or single-geography) supply-chain presents systemic risk: political tensions, tariffs, supply-chain sanctions, export controls, labour disputes, natural disasters, pandemic lockdowns or logistic chokepoints. By embedding a second manufacturing node — or ideally multiple nodes — companies build geographic redundancy and option value. Should China become embroiled in further export-controls, sanctions, or supply-chain disruptions, the alternate manufacturing base becomes a lifeline.

Regulatory and Compliance Strategy

For companies that produce telecoms hardware, satellite components, dual-use systems, or defence-adjacent technology, regulators and governments are increasingly sensitive to supply-chain provenance, forced-labour risk, export-control compliance, and geopolitical exposure. China+1 provides a lever for compliance — enabling firms to claim diversified supply bases, avoid over-reliance on a single jurisdiction, and thus reduce risk of blacklisting or contracting limitations.

Market Access and Tariff / Trade-Policy Optimisation

As trade policies shift — with tariffs, quotas, anti-dumping suits, and shifting trade blocs — manufacturing location becomes a strategic variable. By producing (or final-assembling) in a country with favourable trade agreements, or more neutral political alignment, companies can preserve or expand market access. Moreover, diversified production can shield companies from tariff whiplash when global trade relationships shift.

Operational Flexibility and Scalability

Dual- or multi-location manufacturing allows companies to balance cost, capacity and market demand. They can scale up production in one region, ramp down in another, optimise for labour cost vs. skill, and respond more dynamically to demand shocks. For large systems vendors in telecoms or ICT infrastructure, this flexibility can substantially de-risk project fulfilment timelines, procurement cycles, and logistic bottlenecks.

Investor, Board and Financing Signaling

From a corporate-governance, investor-relations and financing perspective — firms that can show diversified supply chains, resilience strategies, and mitigating steps against geopolitical risk will increasingly attract favourable financing, lower insurance premiums, and better procurement credibility. For boards, especially those in sectors tied to national security, digital infrastructure, or critical supply-chains, China+1 becomes a signal of maturity, prudence, and forward planning.

Limits, Misconceptions and What China+1 Does Not Mean

It is important — especially for decision-makers — to grasp what China+1 can and cannot deliver.

It doesn’t mean “exit China” or “fully de-China-ise” (at least not yet)

Even as more final assembly migrates to secondary hubs, China continues to play a central role in upstream supply-chains. Chinese firms remain top suppliers of intermediate inputs, sub-assemblies, raw materials, components — particularly in high-complexity manufacturing. Rhodium Group+2ctmfile.com+2

As a result, many “China+1” products remain heavily dependent on Chinese upstream elements. For strategic sectors — telecoms, energy storage, semiconductors — replacing that upstream dependency is a far tougher challenge than relocating final assembly.

It introduces complexity, cost and quality-control challenges

Managing multi-geography supply-chains is harder. You need robust logistics, quality control across different jurisdictions, consistent supplier standards, compliance frameworks, traceability — all of which require investment, oversight, and governance. What was once a lean supply-chain becomes a distributed ecosystem — with all its managerial overhead.

Moreover, some “+1” jurisdictions may lack the industrial maturity, infrastructure or regulatory stability of China (or may present new political or logistic risks). Not all manufacturing can be relocated profitably, especially high-precision or heavy-industry production. arc-group.com+2BCG Global+2

It doesn’t guarantee insulation from all geopolitical/supply risks

Because upstream supply often remains China-centric, companies may still be exposed to geopolitical risk, Chinese export-controls, component-shortages or upstream supply bottlenecks. China+1 makes dependency more distributed, but does not eliminate dependency entirely — at least in many sectors.

Thus, the "plus" in China+1 is more often about geographic spread of assembly rather than full value-chain independence. For firms seeking full decoupling, a far deeper supply-chain redesign (including upstream sourcing, utilities, raw materials, compliance, certification) would be required.

What This Means for Boards, Investors and Strategy Leaders

Given these dynamics, what should decision-makers in telecoms, ICT, infrastructure, energy, defence-tech, and related sectors be thinking today?

1. Recognise China+1 as strategic design — not just cost optimisation

Boards should treat China+1 not as a procurement exercise, but as a structural supply-chain architecture decision. This means building multi-node value chains, embedding them in governance, risk and compliance frameworks, and aligning procurement policies accordingly.

2. Stress-test supply chains through multiple scenarios

Organisations should run scenario planning: What happens if Chinese exports are restricted next year? What if tariffs spike? What if logistics through Taiwan Strait are disrupted, or Chinese component suppliers are black-listed? Supply-chain design needs to withstand multiple geopolitical, regulatory and logistic shocks.

3. Map upstream dependencies, not just final-assembly location

It’s not enough to have final assembly outside China. Boards must understand where upstream inputs come from — components, sub-assemblies, raw materials — to truly assess supply-chain vulnerability. Without that mapping, firms may be exposed even if they have a “plus-one” factory.

4. Embed compliance, traceability and supply-chain governance

Given growing regulatory scrutiny (forced labour, export control, national security, dual-use goods), companies should build compliance and traceability into supply-chain design: supplier auditing, provenance tracking, alternative sourcing for critical inputs, certification, third-party due diligence, vendor diversification, and inventory buffers.

5. Use China+1 as a competitive differentiator

For firms targeting governments, regulated industries, or defence/critical infrastructure clients, being able to pitch diversified, resilient manufacturing can become a differentiator. It can improve access to financing, reduce insurance costs, satisfy procurement risk requirements, and boost credibility with regulators and stakeholders who prioritise supply-chain resilience.

Conclusion: China+1 Is Not a Contingency — It’s the Default Architecture

What once began as a somewhat tentative attempt to hedge risk or shave a few percentage points off labour cost has now transformed into something far more fundamental: a redesign of how global manufacturing works.

China remains central — and likely will remain so for the foreseeable future, particularly for upstream supply and complex sub-assemblies. But for final assembly, consumer-facing manufacturing, logistics hubs and export manufacturing, China increasingly shares the stage with a network of alternative jurisdictions.

For boards, investors, and strategists — especially in sectors where supply-chain resilience, regulatory compliance, geopolitical exposure, and long-term viability matter — China+1 is no longer a niche tactic. It is a structural strategy. It demands rethinking of sourcing, supply-chain governance, vendor relations, compliance, and market-access planning.

Leaders who treat it simply as an add-on risk missing the bigger shift. Winners will be those who embed China+1 into their operating model — building distributed, resilient, multi-node supply chains that balance cost, flexibility, regulatory compliance and global exposure.

And for sectors like telecoms, ICT infrastructure, energy storage, satellites, data centres and defence-tech — where supply-chain risk is often mission-critical — China+1 may not just be a competitive advantage. It may soon become a board-level obligation.