The Supply Chain Strategy Redefining Global Trade

The "China Plus X" strategy is reshaping global trade as companies shift away from China, seeking supply chain resilience rather than a singular focus on cost-efficiency.

An electronic components factory in China

An electronic components factory in China (Photo: Reuters)

From "China Plus One" to "China Plus X"

The idea of diversifying production out of China is not new. Around 2019, many manufacturers began adopting a "China Plus One" strategy, establishing an additional facility outside China to hedge risks. But as a DHL report, co-authored by Lisa Harrington, President of the lharrington Group, and Robert H. Smith Senior Research Fellow at the University of Maryland’s School of Business, bluntly states: “China Plus One proved too limited to deliver the resiliency required in today’s supply chain environment.”

The pandemic made this abundantly clear. When China's strict Covid lockdowns shuttered factories, from semiconductors to auto parts, companies around the world found themselves stranded.

The report describes the past six years as a series of rolling shocks. First came the tariffs under Donald Trump, followed by the pandemic, then the escalating trade war with the US, Canada, and the EU, and finally the ongoing geopolitical tensions that still rattle global trade today. Each event eroded the stability companies once took for granted. The result is a new mantra: “risk hedging is the new global supply chain management.” In practice, that means "China Plus X" - production spread across multiple countries, not just a single backup.

Transportation and Cost

Transportation has become the most visible bottleneck. Disruptions at the Suez Canal, conflict in the Red Sea, and drought at the Panama Canal have all sent freight rates on a wild ride. The report notes: “Freight rates slumped to their lowest level in October 2023, at just US$1,342 for a 40-foot container. But by July 2024, they had skyrocketed to over US$5,900, the highest value on record.” For already-pressured manufacturers, such volatility only underscores the urgency of diversifying risk across trade lanes and geographies.

The report stresses the importance of due diligence: “When considering a country for Plus X, it is essential to study both its current and future transportation capabilities.” That means looking not just at ports and shipping routes, but also inland roads, airports, and rail connectivity. In some cases, companies are turning to creative solutions. For example, DHL’s multimodal service combines ocean freight from Asia to the U.S. West Coast with onward air freight to Europe, cutting delays without skyrocketing costs. As the report explains: “It brings the best of both modes to bear – ocean for affordability, air for speed.”

Meanwhile, cost is another complex calculation. While China is no longer the cheapest labor market, moving elsewhere doesn't automatically guarantee savings. “In a Deloitte survey, 43 percent of respondents noted cost as the top constraint in shifting to a Plus X strategy,” the report points out. The issue isn't just wages, but also raw material sourcing, supplier availability, and the hidden costs of longer transit times and higher inventory. The report argues that companies need to look at the bigger picture: “The perception that Plus X is too expensive is shortsighted. In the long term, when all variables are weighed, the short-term bump in costs may take a back seat to the longer-term benefits.”

The Foundational Factors

Beyond transport and cost, three other factors determine if a country can become a viable "Plus X" hub: infrastructure, labor, and the regulatory environment.

On infrastructure, the report is candid: “The countries competing to be the alternative to China are all lagging - a gap that’s not surprising given China’s 35-year head start as the world’s factory.” However, many are investing heavily to catch up. Vietnam has earmarked $43 to $65 billion for transport infrastructure between 2021-2030, while Mexico is expanding its ports and building what is set to become its largest air cargo hub.

Labor dynamics are just as critical. China’s workforce is aging, while "Plus X" nations like India and Vietnam boast younger, available populations. But it's not just about numbers. The report warns: “In China, a factory may need 500 workers. In a Plus X country, the same output might require 1,000 workers. The analysis must assess whether the return on investment adds up.” India’s push to become a semiconductor hub illustrates both the challenge and the opportunity. To succeed, the nation will need an additional 300,000 skilled workers within five years.

The regulatory landscape is the final piece of the puzzle. Trade agreements, tariffs, and tax incentives can make or break a "Plus X" decision. Vietnam’s 2020 free trade agreement with the EU eliminated 99% of tariffs, while Malaysia is leveraging its membership in the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade pact. As the report writes: “Financial incentives can significantly reduce the cost of setting up new operations and help companies gain a competitive advantage.”

Prioritizing Resilience Over Efficiency

Shifting production is never simple. Building new factories, training new workforces, and navigating unfamiliar regulations costs time and money. But for many companies, the risk of standing still is far greater. The report concludes: “Intentional redundancy is the new face of global supply chains,” Supply chains are now engineering redundancy into their networks to withstand the next crisis - be it tariffs, a pandemic, or a canal closure.

Examples abound. Samsung moved the bulk of its manufacturing to Vietnam years ago, while Apple is steadily ramping up iPhone production in India, targeting a quarter of its global output by 2028. But the overall trend is clear: the era of single-country dependency is over.

“For supply chains, migrating to smart resiliency and redundancy is not easy. But clearly worth it, as the likes of Samsung and Apple have proved.”

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