China Plus One: Why Putting All Production in One Country No Longer Enough

In March 2020, factories across China shut down almost simultaneously as the pandemic hit. Within weeks, a global supply chain that had run smoothly for decades came to a halt. Companies that relied entirely on Chinese production had no choice but to wait, and the losses ran into the billions.

It was not the first time concerns had been raised about over dependence on China. But it was the loudest wake up call yet. The lesson it drove home was straightforward, that concentrating all production in a single country carries risks that had long been underestimated. The strategy that gained traction in the aftermath has a simple name, China Plus One (C+1).

What Is China Plus One?

China + 1 is an approach where multinational companies do not abandon their operations in China, but build additional production bases elsewhere as a hedge. It is not a full relocation, it is diversification.

The form it takes varies. Some companies shift labor intensive production lines to lower wage countries while keeping high value manufacturing in China. Others build new facilities abroad to serve specific markets, a factory in India to serve the Indian and Middle Eastern markets, for instance, avoiding the rising logistics costs and tariffs on Chinese exports. Others simply diversify their supplier base without building their own factories.

Why the Pressure Has Intensified

The pandemic only accelerated a trend that had been building since the late 2000s. Several forces have been pushing companies to look beyond China.

Labor costs in China have risen significantly over the past two decades. The wage advantage that once made China the default manufacturing hub is no longer as compelling, while Vietnam, Indonesia, and Bangladesh offer far more competitive labor costs.

Escalating US China geopolitical tensions, particularly since the trade war of 2018, have added another layer of risk. Tariffs imposed by the US on Chinese made goods have pushed many American brands to seek production locations that are either tariff exempt or subject to lower duties. Apple has shifted a portion of iPhone production to India. Nike has diversified its footwear manufacturing to Vietnam and Indonesia. Foxconn, the world’s largest contract manufacturer, has been building capacity in both India and Vietnam.

A third factor is the growing discomfort among Western governments with strategic dependencies on China. The US and EU have been actively pushing for reshoring or friendshoring (moving production to geopolitically safer countries) especially in critical industries like semiconductors, pharmaceuticals, and clean energy.

Who Has Benefited Most?

Vietnam has been the biggest winner of the first wave of China + 1. Its geographic proximity to China, low labor costs, and an aggressively investment friendly government made it the default choice for many electronics and textile companies. 

Samsung has relocated a substantial portion of its smartphone production there. Dozens of Apple component factories now operate in Vietnam.

India is positioning itself as the main destination for the next wave, particularly after the Modi government launched its Production Linked Incentive (PLI) scheme, which offers direct subsidies to companies that manufacture in India. Apple, Hyundai, and BMW have all committed to building facilities there.

Indonesia sits somewhere in between, significant potential, but not yet fully capitalizing on it. Vietnam and Malaysia have moved faster in attracting China +1 investment, while Indonesia has been held back by regulations that analysts consider less flexible. But there are positive signals, investment in EV batteries and nickel processing, where Indonesia holds a comparative advantage no other country can easily replicate, has been drawing serious attention from global investors.

Where Indonesia Stands

Indonesia is not the first name on the China + 1 map but it is far from irrelevant. Its edge lies in natural resources, particularly nickel, which is a critical component in electric vehicle batteries. 

Industrial areas like Morowali and Weda Bay have already been integrated into global EV supply chains, attracting large scale investment from Chinese and South Korean companies alike.

Beyond nickel, Indonesia has other assets, is a population of 280 million with a median age of 29, a large domestic market, and a strategic geographic position at the heart of Southeast Asian trade routes. The government has also made meaningful improvements to the investment climate through the Omnibus Law and a simplified risk based licensing system.

The challenges remain real. Infrastructure outside Java is still far from adequate. The permitting process, though improved, is still seen as more cumbersome than Vietnam or Malaysia by many foreign investors. And competition for factory relocations from China is fierce, every country in Southeast Asia is racing to offer the most attractive incentives.

China + 1 is not a passing trend. It is a structural response to a world that has grown more uncertain, one where supply chains concentrated in a single location have been proven fragile.