Strategy CHINA + One: diversifying supply sources in South-East Asia
The diversification of supply sources in South East Asia has become a key issue for companies seeking to optimise their supply chain. This region, rich in resources and opportunities, is strategic for companies wishing to reduce their dependence on a single market or supplier. In this article, Huong TRAN, specialist ASEAN at sourcing Source of Asia SOA, outlines the benefits of this diversification, focusing on Vietnam as a key alternative to China.
Why should you diversify your supply sources in Southeast Asia?
By diversifying sources, companies can minimise supply chain risks. By relying on several suppliers, companies can better manage :
- market fluctuations,
- quality problems
- delivery times.
What is the China + One sourcing strategy?
The China + One strategy is a concept that has emerged in the context of globalisation and the supply chain. It involves companies diversifying their sources of production by adding another country to China in Asia, which is traditionally the main manufacturing centrer. This strategy aims to reduce the risks associated with over-reliance on China, due to factors such as trade tensions, cost increases and logistical disruptions.
How is the strategy China + One helping companies?
- Minimising risk: by diversifying their sources, companies can reduce their dependence on a single country, protecting them against potential disruptions such as trade tensions or health crises.
- Cost optimisation: diversification can also enable companies to find cheaper alternatives for production, by taking advantage of differences in labour costs and tax benefits in other countries.
- Market access: Southeast Asian countries such as Vietnam offer trade agreements that facilitate access to foreign markets, which can be beneficial for companies looking to extend their reach.
- Greater flexibility: having several production sites enables companies to adapt more quickly to changes in demand or market conditions.
However, it is important to note that this strategy also involves challenges, such as language barriers, cultural differences, and the complexity of managing several production sites.
What are the advantages of sourcing in Vietnam?
Vietnam is economically stable and offers tax advantages that make it a competitive alternative to China for international companies. With a diversified range of exports and trade agreements, the country is positioned as a strategic manufacturing hub in South-East Asia. Vietnam also has competitive labour costs and an attractive geographical location, particularly as it is close to China, making it a preferred choice for companies looking to set up intermediate operations in Asia. In addition, the country is investing heavily in the development of its infrastructure, which improves connectivity and logistics, making it easier to transport goods. Vietnam is an attractive investment location for many industries, including electronics, furniture and machinery, enabling companies to find suppliers tailored to their specific needs.
To find out more about Vietnam’s strengths in sourcing, read our previous article:
What are the challenges of diversifying sources in South-East Asia?
Several challenges can arise when diversifying sources in Southeast Asia:
- Language barriers: communication can be complicated by language differences, which can lead to misunderstandings and errors in supply chain management.
- Cultural differences: cultural variations can affect business relationships and team management, requiring business practices to be adapted.
- Management complexity: setting up and managing several production sites can involve additional costs and more complex logistics, making coordination more difficult.
- Dependence on raw materials: some industries in South-East Asian countries may still be dependent on raw materials from China, which may limit the effectiveness of diversification.
- Adapting to local regulations: companies have to change their purchasing habits to comply with local regulations and standards, which may require additional time and resources to adapt.
To overcome these challenges, it is often advisable to team up with reliable local partners who can help navigate these complexities and maximise the benefits of diversification.
Support from Source of Asia SOA, a member of Globallians and a sourcing expert in Vietnam
Source of Asia SOA supports companies in diversifying their sources of supply in Southeast Asia through several key stages:
- Country analysis and benchmarking: SOA begins with an in-depth analysis of the different countries in the region to identify those best suited to the company’s specific needs. This includes assessing criteria such as industry, budget and long-term priorities.
- Identification and qualification of manufacturers: once the target countries have been selected, SOA helps to identify and qualify manufacturers in various product categories. This creates a shortlist of potential suppliers, facilitating the decision-making process.
- Technical audit visits: SOA organises technical audit visits so that companies can meet potential suppliers on site and assess their ability to meet specific requirements.
- Commercial negotiation: with the support of a local team, SOA assists companies in negotiating commercial terms with selected suppliers, which may include placing initial orders.
- Ongoing support: SOA also offers ongoing support to help companies overcome the potential challenges associated with diversification, such as language and cultural barriers, as well as managing multiple production sites.
SOA provides local expertise and structured support to help companies effectively diversify their sources of supply, reducing risk and optimising costs.
You can also watch TRAN’s advice Huong on video on our Youtube channel:
Do you want to diversify your sources of supply in ASEAN? Would you like to include Vietnam in your sourcing strategy? Contact our Globallians expert of Vietnam, ASEAN and South Korea , Thierry MERMET, for advice and support in carrying out your project:
