China Plus One – Derisking manufacturing with Zetwerk

That manufacturing companies are almost frantically finding alternatives to China is not news anymore. What was once a reliable haven for manufacturers is now showing cracks in its fortress, some of which have become irreparably wide.

Like the 25% tariffs imposed by the US government on certain components which make it impossible for the manufacturers to survive without an alternative.

The labor costs are not as cheap as they used to be either. According to the Labour Cost Index of China, the costs increased by almost 38% between 2010 and 2021, and continue to rise. (Source: globaldata.com)

Moreover, the COVID-19 pandemic exposed further risks and uncertainties about relying on China. Companies were stocked out of raw materials overnight and businesses went for a toss. Many had to cease operations.

Finally, with the geopolitical tensions between China and the US at their peak, you know things will not get rosier for China anytime soon.

All of this led companies to adopt what is widely referred to as the “China Plus One” approach. It involves companies expanding their operations beyond China to include other countries. These include India, Vietnam, Taiwan, South Korea, Indonesia, Mexico, and a few others. There are advantages and disadvantages of each, and at this point, there may not be any one country that can completely replace China.

That’s where Zetwerk capabilities across these countries to bring North American OEMs the best of all worlds come in. Let’s understand how.

Challenges of Moving Outside China

While companies have already started exploring other countries, one thing is clear to all. No single country, at this stage, can offer everything that China does.

China’s dominance compounded over the decades of serving manufacturers across the world. Their capabilities in terms of the variety of components, maturity of their processes, and experience of serving international clients position them far ahead of any other alternatives companies today seek. Without the recent issues and uncertainties, there would be no reason for manufacturers to look elsewhere.

But since things have changed, companies must find their alternatives and do so quickly. These come with their own risks and uncertainties.

Take Vietnam for instance. The country has been attracting significant attention as an alternative manufacturing and sourcing destination for companies seeking to diversify their supply chains. Vietnam offers several advantages, including a skilled labor force, competitive labor costs, and favorable business conditions. Additionally, its strategic location in Southeast Asia provides convenient access to regional markets. The Vietnamese government has also implemented policies to promote foreign investment and support the growth of the manufacturing sector.

It matches the low-cost nature and the work ethic of their Chinese counterparts. However, the country doesn’t yet have the kind of resources to significantly take the burden off China. The capacities in most of the plants are not adequate to serve the needs of many large American manufacturers. And their capabilities to manufacture a wide range of components are still a work in progress.

Mexico is attractive for a number of reasons. Many manufacturers suffered heavily during COVID-19 partly due to the distance and long lead times for components to get delivered from China. Mexico almost eliminates that risk. Also, being in the vicinity of the US, it’s easier for executives to supervise and control the operations out of there.

However, Mexico doesn’t offer similar cost advantages as the Asian countries. There are also challenges of capabilities and reliability. Mexican manufacturers are still relatively inexperienced in handling large, critical orders, and very few can be relied upon to deliver high quality components on time.

Then there’s India. In terms of resources, India is the only country that could potentially replace China. The large labor force, a growing domestic market, an English-literate population, and capabilities spanning a variety of industries give it a solid base and serious might to compete with any other alternative.

However, in terms of infrastructure and capability, it is significantly inferior to China today. It’s also more scattered and unorganized, unlike China. In China, for instance, you could get an entire product manufactured in a single city. Suppliers with capabilities to produce different components of the product can be easily found in the vicinity of each other, and could even be assembled there. Such convenience is limited to only a few sectors in India, and businesses have to figure out suppliers for each component separately.

But the government’s resolve to ramp up the investment into manufacturing is unmistakable.

Recently, they declared their ambition to take the manufacturing sector’s contribution to GDP to 25% from the current 17% by 2025. That alone means adding over $300 Bn in annual productivity.

Source: business-standard.com

With its resources and capacity to serve large orders with ease, if India does ramp up its infrastructure and capability, it could truly emerge as the new China in the coming years. But that would take some doing.

Similarly, all countries have their pros and cons. At Zetwerk, we have our suppliers spanning across India, China, Vietnam, Taiwan, Mexico, and South Korea, and warehousing capabilities in the US and Europe. Having worked closely across geographies, we have realized that challenges in manufacturing usually fall in one of the following brackets:

1. Distance and logistics: Sourcing from China or any other Asian can result in longer shipping times and increased transportation costs.
2. Language and cultural differences: Working with manufacturers in different countries may involve language barriers and cultural nuances that can impact effective communication and collaboration.
3. Infrastructure and technology: There are variations in terms of infrastructure and technology readiness across different regions. This can affect the quality, efficiency, and reliability of manufacturing processes.
4. Supply chain complexity: Establishing and managing a supply chain in each country requires careful planning and coordination to ensure the timely availability of components and materials. This includes navigating customs procedures, cross-border regulations, and potential disruptions.
5. Labor costs and skills: All countries have different labor costs. Additionally, finding skilled labor with the necessary expertise and experience can be a challenge in certain industries and regions. If costs and skills don’t align, it becomes a problem for manufacturers.
6. Intellectual property protection: Ensuring the protection of intellectual property rights and preventing unauthorized use or replication of proprietary technologies and designs can be a concern when sourcing critical components.

Today, it would be hard for a North American manufacturer to implement their China Plus One strategy without experiencing setbacks. But Zetwerk’s vast supplier network, team of experts, and experience of serving across industries in the US helps manufacturers eliminate this risk. This is how we do it.

Derisking with Zetwerk

Zetwerk offers a unique solution to virtually all the challenges and risks that come with global sourcing. The following points briefly explain why global OEMs are preferring a partnership with Zetwerk today.

1. Vast supplier network: Zetwerk boasts of an exhaustive supplier network spanning the entirety of India, and covering virtually every industry. Today, we can confidently claim to serve companies in any industry and any country looking to source parts and components globally. Along with the supplier network in India, we are also well supplemented with our presence across Vietnam, Mexico, and China, thus eliminating any risks that may arise due to region-specific issues.
   
2. Reduced risk with supply chain assurance: The vast supplier network across multiple countries allows Zetwerk to offer supply chain assurance to companies it works with, thus eliminating the uncertainty that often looms with global sourcing. For any reason, if a particular supplier is unable to deliver on time, we always have able substitutes ready. Once Zetwerk is contracted for supply, the complete responsibility of delivering them in the agreed timeline rests with us.
   
3. Expert team to assist with right sourcing: It can often be daunting to select the right components and parts, and then choose the right supplier specifically for it. This is where our expert team comes into the picture. With an in-depth understanding of manufacturing processes and experience spanning over decades, we take the load of selection of parts and suppliers off our customers. This helps save significant time and resources for them, making the entire process smooth and cost-effective.
   
4. Partnership model: Our model is simple. Once customers choose to work with us, we take the entire load of supply chain management off their shoulders. We become their partners where we are the single point of contact between their manufacturing needs and supplies. No more dealing with multiple suppliers, no more extended meetings and cost-benefit analyses, no more scouting of new suppliers in different countries – Zetwerk takes care of all of that. Our customers focus on creating and selling the product.
   
5. Reduced costs: Firstly, the vast network of Zetwerk allows us to choose the most optimal supplier for any parts. Having a variety of options ensures that we always go with the cheapest option that ensures the quality required.
   
   Apart from the direct reduction in costs through optimal sourcing, Zetwerk’s supply chain expertise ensures that our customers don’t spend unnecessary time on supply chain planning and management. This earns them hundreds of man-hours of productive time, which results in an even bigger cost reduction than the direct sourcing of materials.
   
6. Reduced costs: A major drawback of global sourcing is long lead times that add to uncertainty and costs for manufacturers. With warehouses across key locations in the US and Mexico, Zetwerk can stock important parts and deliver them in under a week to any part of America. Moreover, we can set up a warehouse close to prominent clients for even better efficiency.
   
7. Deep knowledge of local manufacturing: Indian suppliers can be tricky to navigate without the right geographical and cultural context. Many of them have the right capabilities but not the business nous to work with an international client. Even though the manufacturing landscape is big, for international companies dealing with the suppliers directly, the effective market becomes smaller. Zetwerk, being an Indian company and with professionals having decades of experience in this manufacturing ecosystem, knows exactly how to tap into the nook and corner of this landscape and unlock opportunities no one else can.
   

Many of our North American customers initially came to us in distress, having suffered heavily due to the supply chain disruptions in China at the onset of the pandemic. However, they have continued to stay not just due to the cost benefits. While costs and time savings can be calculated, it’s the added value in terms of quality, expertise, and reliability of delivery that really helps Zetwerk shine.

Moreover, we have teams established across all the countries we have suppliers in as well as the US. A big feedback we received from our clients has been that because of us, they’ve been able to navigate the cultural challenges easily. A few of our clients initially tried exploring India and Vietnam on their own, but their limited exposure to these countries meant they could never find the right resources. With Zetwerk, that wasn’t a problem anymore.

FAQs