It is common knowledge that the past two years have caused enormous disruptions in international trade, supply chains, and foreign relations between the most important industrial hubs on the face of the globe. It would be an understatement to suggest that things will never get back to the way they were before the COVID outbreak.
However, even before the first COVID-19 instances made news, a rapid succession of significant events was going to alter the long-standing systems of global trade. Consider the following:
- Wages for factory workers in China nearly tripled in the country’s manufacturing sector between 2010 and 2020.
- The United States began its trade war with China in 2018, which is characterised by the imposition of billions of dollars’ worth of tariffs against Chinese imports across a number of different categories of materials and products.
- In 2014, China initiated its Strike Hard Campaign Against Violent Terrorism, which placed particular emphasis on surveillance and movement restrictions of its Muslim Uyghur community. This campaign was named after China’s campaign slogan, “Strike Hard against violent terrorism.” In 2017, China implemented a new phase of this programme, which consisted of an all-out imprisonment of Uyghurs living in Xinjiang. This phase involved the construction of labour camps as well as an extensive campaign of forced sterilisations. These measures, which were denounced as genocide by many members of the international community, led to the imposition of reciprocal sanctions in 2021 between China and the United States of America, the United Kingdom of Great Britain and Canada, and the European Union
- Putting the global pandemic to one side, the aforementioned events had already begun to encourage fashion businesses to turn elsewhere for the manufacturing of their clothing, footwear, and accessories, as well as the sourcing of raw materials, far before the COVID-19 epidemic occurred.
How can one add China to the total?
A logical response to the changes in perception of China’s trade friendliness was the emergence of the China Plus One sourcing strategy.
China Plus One is a term that essentially refers to the practise of brands diversifying their sourcing strategy by broadening their production and supplier networks to include partners from at least one additional country that is not China. Because of this, they are able to rebalance an overly weighted supply chain while exercising caution in the process.
Through the use of China Plus One, fashion firms are able to prevent widespread interruptions to their supply chains, which may have a detrimental impact on their customers as well as their bottom lines. In this scenario, it is thought that China is their only or principal vendor location; but, rather than completely withdrawing all of their sourcing and production from China, they are instead making slow progress toward a more balanced, worldwide supply chain policy. This not only makes the transition simpler for companies, but it also helps prevent an amplification of the political and trade upheaval that could take place in the event that fashion firms located in Europe or the United States completely withdraw from the region.
An Obvious Move Toward the Diversification of Supply Chains
modifying our sourcing tactics to include China in addition to China First One makes sense for a number of different businesses, including the fashion industry. And it is not hard to understand why.
The managing director of the global business advisory firm Alixpartners, David Benichout, provided the following explanation: “There are some categories where it becomes very interesting to source in Europe because the difference in prices is a very low percentage and it is so much more convenient, you do not have to travel for a long time, you do not have to pay custom taxes, and you can be much more reactive.”
Other market watch experts, such as the Chinese fintech author and scholar Dr. Sara Hsu, are of the opinion that Southeast Asia will be the primary beneficiary for certain industries. According to Dr. Hsu, one of the most important factors that will determine how sustainable the trend of “China Plus One” will be is how quickly infrastructure can be built to accommodate more firms moving into other nations. Nevertheless, businesses that decide to expand their operations into Southeast Asian nations will still be able to benefit from the wide range of suppliers that are not difficult to reach.
Even while China is continuing to invest in its own manufacturing locations so that it can maintain its competitive edge, the shift for brands has already begun. Moncler and Saint Laurent are just two of the fashion houses that have recently opened new factories in countries other than China. These fashion houses either choose to nearshore their production to Europe, Mexico, or Central America; reshore to India; or nearshore to one of the so-called “Tiger Club” regions, which includes Vietnam, Malaysia, and Thailand. In point of fact, almost half of all companies that have redirected their supply chain investments have decided that they would rather diversify their holdings in either Europe or Southeast Asia in particular.
China Plus One Provides Fashion Brands with the Following 5 Advantages
It cannot be emphasised enough that the growing trends of fashion producer and supplier diversification, reshoring, and nearshoring that characterise China Plus One are the natural results of both the global pandemic fallout as well as the last several years of upended international tariff policies, shifts to the costs of Chinese labour, and persistent human rights concerns. This point cannot be overstated. China Plus One is a combination of China and a number of other countries, including India, Vietnam, and Cambodia. In recent years, both established and growing businesses have been hesitant to stitch together new factory networks that are wholly headquartered in China. This is despite the fact that China possesses an excellent supply chain infrastructure as well as tried and tested skills.
Brands stand to benefit in a number of ways from diversified sourcing and production, despite the fact that there are challenges inherent in locating and vetting new apparel, footwear, and fashion accessories factories outside of China (something that can be made simpler by partnering with factory networks such as those pre-vetted and managed by B2B fashion sourcing partners like MakersValley). China Plus One has pushed them to develop something that has been required for a considerable amount of time – a model of supply chain that is more contemporary, diversified, and transnational, and that possesses at least four significant benefits:
1. Maintaining Cost Competitiveness in Sourcing
By broadening their factory network, brands can have greater vendor power, and this is especially true for companies that had previously only dealt with a single or very limited list of manufacturing partners. If one of the brand’s factories begins to inflate its prices, the company may have the flexibility to move some or all of its production to a different partner, one whose level of craftsmanship and communication style they have already evaluated and come to trust.
In essence, a brand’s ability to maintain its sourcing costs at competitive levels is directly proportional to the degree to which the brand’s manufacturing and raw material supplier network is diverse.
2. Crisis Management
In particular, COVID-19 tore long-ignored holes in the cohesiveness and dependability of the supply chain, and it widening those holes. Diversifying the supply chain may not be able to completely avert a comparable fallout from another quick global crisis occurrence; nevertheless, it would lessen the impact of smaller, slower, and/or more isolated health, geo-political, or environmental disasters.
In addition to large-scale disasters that have the potential to interrupt whole supply chains, such as COVID-19 or Russia’s recent invasion of Ukraine, individual firms or suppliers of materials may run into their own operational problems. Because of these problems, the factory may no longer be able to satisfy the deadlines, quality standards, or other contractual obligations to which it had previously adhered. Alternatively, its capacity may decrease, or it may no longer be able to produce the goods at all. In situations like these, a supply chain that is more dispersed and diverse may be able to assist the brand recover without the consumers recognising a decline in the product quality or the delivery time.
3. Availability of the Raw Materials
The product, the fabric, or the craftsmanship expertise of several worldwide manufacturing centres are distinct from one another. Working with a broad factory network enables fashion companies to match product features to the best specialists for top quality production at the most reasonable prices to the brand across all inventories. This allows for top-notch production of the brand’s products.
There is a general tendency for every manufacturer to have their very own reliable network of fabric suppliers and trim suppliers. These might make it easier for fashion businesses to find high-quality materials in their respective countries, such as the finest cotton in India or the finest leather in Italy. This can help the company save time and money when it comes to acquiring unique, organic, or custom fabrics and trimmings, and it can also assist them in securing the raw materials that are the most appropriate for each product.
4. Transparency Within the Supply Chain
Brands are now able to maintain high levels of openness thanks to the chance to collaborate with new fashion makers. This is due to the fact that it is simpler to implement transparency strategies and procedures at the beginning of a new supplier-brand relationship, as opposed to attempting to force changes through after the partnership has been operating effectively for a number of years.
This is significant because clients in the fashion industry have been seeking greater levels of openness in the industry for the past few years, and this trend is expected to continue. According to The Honest Product Guide published by the Consumer Goods Forum, the vast majority of customers around the world believe that brands do not provide sufficient information about how their products impact a variety of social, environmental, safety, and health issues. Furthermore, ninety percent of corporate members who were surveyed believe that their customers have a greater interest in transparency related issues now than they did five years ago.
There is a fresh opportunity in front of brands who are looking to engage with new producers, and that chance is to create strategic transparency policies on the sourcing of materials and product workmanship from the very beginning. The next step is to employ methods and technology, such as the recently released fashion tool Orma, to communicate these to clients in order to differentiate yourself from the competition in the market.
An Era in Which Fashion Brands Have Greater Control Over Their Products and Options
As a result of being in a reactive position, fashion firms entered the period of China Plus One, which was not without its challenges. On the other hand, what they stand to gain now is a supply chain that is more flexible, robust, and opportunity-focused.
While it remains to be seen which manufacturing hubs outside of China will best rise to the challenge of China Plus One, brands now have the ability to create a supply chain structure that not only answers the pragmatic needs of today, but that also establishes proactive measures to meet internal and external expectations for the fashion products of the future. While it remains to be seen which manufacturing hubs outside of China will best rise to the challenge of China Plus One, It is to be hoped that they will make full use of the opportunity.