In the past couple of years China+1 has been one of the most popular buzzwords used in the Indian market context. The term is popularly used to refer to a business strategy of diversifying ‘reliance’ from China to other jurisdictions. The reliance on China in this context could be for manufacturing of products; sourcing of key raw materials; customer base for products and services; and/or investments.
In the past couple of decades, since the China was admitted in WTO, a large number of global businesses, particularly from developed countries, have significantly increased their reliance on China, to take advantage of liberal government policies towards business, lower cost structure (wages, tariffs & taxation); relaxed emission norms; easy & cheaper access to finance and raw material, and massive local consumer base etc.
They offshored their manufacturing facilities to China; outsourced manufacturing to Chinese producers; developed China as a key market for their products; raised funds from Chinese lenders and investors; collaborated with Chinese research organizations to develop new products and technologies and used China as a hub for their global supply chains.
As the chart below shows, in two decades, China has replaced the USA as the top trading partner of the most countries in the world. However, due to factors like the Sino-US trade war that started in 2016, implementation of stricter emission norms by China, hike in domestic wages and zero Covid policy of China, many businesses and governments have felt a need to reduce their overreliance on China. Many emerging economies, including India, are competing to attract these businesses to their respective countries.
Many market participants have identified China+1 as a major opportunity for the business, and therefore, investors in India.
I find it worth examining what is a realistic size this opportunity. More on this later…
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