India, Indonesia, Thailand, Vietnam, Mexico, and Poland, are challenging China’s dominance in global manufacturing, emerging as preferred alternatives for transnational companies looking to reconfigure their supply chains and mitigate geopolitical risks.

These six countries have benefited from the “China Plus One” (Plus One or C+1) supply chain strategy pursued by global corporations to avoid investing solely in China by diversifying production and sourcing activities into other countries (please see the CTMfile article, Strained US-China relations: key considerations for treasurers, CEOs and CFOs), thereby reducing dependence on the world’s manufacturing superpower.

The C+1 alternative gained momentum in recent years due to the US-China trade tensions, COVID-19 lockdowns in China, a faltering Chinese economy, and international conflicts that exacerbated global supply chain disruptions and fuelled inflationary pressures worldwide.

No “Next China”: Companies shifting from “China Plus One” to a “China Plus Many” phase

Despite the rise of the China Plus One strategy, China remains a dominant force in global manufacturing, amplified by its high value-added production prowess.

As the world’s largest manufacturing economy and exporter of goods, China’s superior manufacturing power cannot be dethroned by any country anytime soon. Why is this the case? Lazard Geopolitical Advisory’s August 2024 report, The Geopolitics of Supply Chains outlines the reason: “Companies seeking to diversify and de-risk supply chains outside of China will find an ambiguous, complex operating environment with no obvious single candidate to replace China. Foreign companies are unlikely to move their entire manufacturing facilities to another nation. Instead, they will have to engage with different geographies to find solutions to their own manufacturing needs.”

This context explains why, instead of limiting themselves to a China Plus One strategy, organizations across the globe are now navigating a “China Plus Many” approach.

Furthermore, rising labour wages increasing overall manufacturing costs, corporate tax rates above the global average, and the efforts by some of the countries mentioned above to engage in geopolitical cooperation through the pursuit of “Multi-aligned strategies with both the United States and China, seeking to benefit from both and alienate neither”, as per Lazard Geopolitical Advisory’s supply chain report have eroded China's manufacturing competitive advantage, and led global corporations to diversify manufacturing and sourcing away from China to various countries.

India, Indonesia, Thailand, Vietnam, Mexico, and Poland gaining manufacturing share from China

India, poised to surpass Japan and Germany to become the world’s third largest economy by 2027, Indonesia, forecasted to become the world’s sixth largest economy by 2027, Thailand, experiencing a five-year high in investment applications, Vietnam, positioned to see the sharpest spike in wealth growth globally over the next 10 years, Mexico, with its geographical proximity to the US making it a preferred nearshoring (moving or relocating manufacturing closer to home or to a nearby country) destination, and Poland, with the UK’s Prime Minister, Sir Keir Starmer, cautioning that it is on track to overtake the British economy by 2030—are compelling indicators that these countries offer incredible opportunities for multinational corporations to enter, establish, and expand in.

With S&P Global Ratings projecting India to continue as the fastest-growing major economy for the next three years, Indonesia attracting US$47.34 billion in foreign direct investment (FDI) last year, Automaker BYD establishing an electric vehicle factory in Thailand, Nvidia, one of the world’s most valuable companies, planning to expand its operations in Vietnam, Mexico surpassing China as the leading exporter to the US in 2023, and Poland, a long-standing vital trade route linking Europe with Asia, emerging as a popular nearshoring destination for enterprises looking to export their products to both the East and the West—these developments suggest that these six countries are becoming attractive manufacturing alternatives and investment hubs. 

Moreover, among potential manufacturing locations, the aforementioned nations rank high in attracting FDI inflows, according to Lazard Geopolitical Advisory’s report. This is corroborated by FDI Markets data published in Lazard’s report. For example, during the 2019-2023 period, “Mexico has seen announced FDI in electronic components increase by 640% and automotives by 200%, while India has grown announced FDI in semiconductors by 180%, and in Vietnam announced FDI into the metals sector has risen by 282% and renewable energy by 113%.” Although these nations are “Starting at a much lower base than China”, observes Lazard’s report, the growth in sectoral investments indicate that corporations are taking an interest in these economies.

Additionally, all six of the countries referenced above are striving to boost their manufacturing sectors for export. While India is often mentioned as the leading contender to take over China’s manufacturing supremacy, its vision of becoming a manufacturing export hub contrasts with the reality that nearly 40% of its exports come from services such as information technology (IT) and tourism, with another 15% coming from agriculture. and precious metals, as outlined by the Center for International Development (CID) at Harvard University.

To address this and position India as a global design and manufacturing export hub, the Government of India’s Make in India initiative is targeting 25 sectors to attract foreign investment, stimulate industrial growth, facilitate ease of doing business, create jobs, enhance skills, and promote the export of manufacturing-based products.

Vietnam, aiming to become a high-income country by 2045, has seen exceptional growth in its manufacturing sector over the past decade. World Bank data shows that the manufacturing sector accounted for more than “20% of the country’s GDP, while exports of goods and services as a percentage of GDP were a staggering 93% in 2023.”

The Lazard report highlights that electronics make up 40% of Vietnam’s total exports, often comprising complex, value-added products. However, 60% of Vietnam’s exports come from less complicated sectors such as textiles and agriculture, with a notable increase in these lower-value added goods over the last decade. This trend suggests that Vietnam might be gradually shifting towards producing low-complexity goods rather than focusing on advanced manufacturing.

In response to the value-add challenge, Hanoi has taken steps to make it easier for investors to bring capital into Vietnam, states Lazard’s report. In this regard, the last five years have seen the introduction of several new laws and resolutions designed to streamline the foreign investment and ownership process.

“Mexico has ridden a nearshoring boom—with steady growth, a diverse basket of exports, and expanded manufacturing in industries like automotives and electronics”, points out Lazard’s report.

The Lazard report adds that Mexico’s close political, economic, and cultural ties with the US have deepened trade ties between the two nations, and “Strongly anchor its attractiveness as a manufacturing destination.”

To add to that, the heightened trade tensions between Washington and Beijing in recent years mean that Mexico is likely to emerge as a key nearshoring hub. Mexico stands to benefit from its close proximity to the US market and the tariff-free access it enjoys with the United States for many goods and services, thanks to the United States-Mexico-Canada Agreement (USMCA), which came into effect on July 1, 2020.

Also, while China became the second-largest source of FDI into Mexico, after the United States, in 2023, according to Mexico’s Secretariat of Economy, exports to Mexico are facing higher tariffs. Recently, Mexico levied 5%-50% in additional import costs on a total of 544 products entering the country. These higher tariffs only apply to countries without free-trade agreements with Mexico, including China.

Analysts believe that under pressure from the US, Mexico imposed these higher tariffs to limit its trade relationship with China, particularly because Mexico is seen as a springboard for Chinese products to enter the US market.

“The Biden administration has become increasingly concerned about China using Mexico as a base for exports and— regardless of who occupies the White House in 2025— Washington will likely deploy tools within the USMCA to scrutinize or restrict Mexican imports made by Chinese companies”, the Lazard report further added.

Just as Mexico gained from the protracted US-China trade war, Poland has capitalised on the realignment of supply chains due to the ongoing US-China trade tensions.

Poland, recognized by Bloomberg Economics and Bloomberg Businessweek as one of the key five “economic connectors”, has long served as a pivotal trade bridge between Europe and Asia. However, the Russia-Ukraine conflict has elevated Poland’s geographical and manufacturing significance, turning it into a sought-after nearshoring destination for companies looking to export their products to both Eastern and Western markets.

In an article published in The Guardian last year, Anna Gromada, co-founder of the Warsaw-based Kalecki Foundation, commented on Poland’s dramatic transformation and its resulting shift in Europe’s pecking order.

“Poland has experienced uninterrupted growth over three decades, the longest in European history. Its GDP has increased tenfold nominally, sixfold when corrected for the cost of living”, Gromada wrote in The Guardian. She credits this impressive ascent to the country’s automotive industry.

The auto sector, one of the strongest pillars of the Polish economy, has emerged as the primary supplier of cars, car parts and components in Central and Eastern Europe. With the European Union’s rising demand for electric vehicles (EVs), there is a corresponding increase in the need for lithium-ion batteries, which are essential for powering these EVs.

This trend augurs well for Poland’s economic advancement, as it is currently the leading manufacturer of lithium-ion batteries in Europe and ranks as the world’s second largest lithium-ion battery producer, following China. In addition, Poland is emerging as a thriving centre for technology and electronics manufacturing.

Moreover, as an advanced economy, Poland is “The largest single market among the ‘new’ European Union (EU) states and 5th among all EU member states”, as per the U.S. Department of Commerce’s International Trade Administration January 2024 market overview. This development has bolstered Poland’s economic stability and growth, fuelled by robust exports and strong domestic consumption.

Indonesia, Southeast Asia’s largest economy, has witnessed significant growth in its manufacturing sector in recent years, spurred by favourable government policies and investments in infrastructure.

In 2023, Statista data indicates that the manufacturing sector contributed nearly 18.67% of Indonesia's GDP, making it the largest contributor to the nation's economy and dominating the country’s export landscape.

With manufacturing as its cornerstone, the Indonesian government aims to propel the country to become the world’s sixth largest economy by 2027. In particular, “Indonesia’s advantage lies in commodities”, noted The Economist in an article last year, highlighting nickel as the primary commodity in high global demand due to the transition towards clean energy.

Nickel, described in a November 2023 article in the Financial Times as “The coveted critical mineral underpinning new technologies such as electric vehicles and batteries,” is found in abundance in Indonesia. In fact, Indonesia is not only the biggest producer of nickel globally but also the country with the largest reserves.

Leveraging its vast nickel reserves, a vital component in the lithium-ion batteries that power most EVs, Indonesia is striving to become a major player in the global EV supply chain. To facilitate this, the country is actively courting international EV makers and battery producers to develop its manufacturing capabilities, enabling it to export the manufactured EVs and batteries to the rest of the world.

With Chinese electric vehicle makers BYD and Neta Auto poised to invest and produce EVs in Indonesia, and US auto manufacturer Ford Motor Company acquiring a direct stake in a battery-nickel plant in the world’s fourth most populous country, opportunities for investment and partnerships in developing the EV ecosystem are expected to receive a significant boost.

“Thailand’s productive labor force, FDI flows from major economies, and its diverse basket of exports have made it a growing manufacturing destination”, states the Lazard report.

Thailand has also emerged as an attractive destination for multinational corporations to establish or expand their regional presence, with hundreds of US companies successfully investing in the country.

Given that Thailand and the US have expanded diplomatic, security, commercial, and cultural relations, US energy major Exxon Mobil Corp., American banks Citigroup and Bank of America, tech companies Alphabet (Google), Microsoft, Amazon, and many more US firms have set up operations in Thailand, the second largest economy in Southeast Asia. In fact, as per the U.S. Department of State’s 2024 Investment Climate Statements about Thailand, “Many U.S. businesses also enjoy investment benefits through the U.S.-Thai Treaty of Amity and Economic Relations, signed in 1833 and updated in 1966. The Treaty allows U.S. citizens and U.S. majority-owned businesses incorporated in the United States or Thailand to maintain a majority shareholding or to wholly own a company or branch office located in Thailand and engage in business on the same basis as Thai companies.”

In conclusion, as India, Indonesia, Thailand, Vietnam, Mexico, and Poland leverage manufacturing and technological progress for exports, trade agreements, FDI inflows, and strategic partnerships with the US to eat into China’s share of manufacturing, multinational corporations, their CEOs, CFOs, and treasurers should take heed. While China, the world’s factory, will remain the dominant global manufacturing giant, the six countries cited above present enticing manufacturing alternatives and investment destinations.

Engaging with various geographies will not only help them manage and mitigate future geopolitical risks but also allow transnational companies to seize growth opportunities in an increasingly uncertain business environment.