China + 1 to EU+1

China + 1 to EU+1

Subject : Economy

Context:

China + 1

• China-plus-one is a strategy in which companies avoid investing only in China and diversify their businesses to alternative destinations.
• China was an attractive investment location due to the low cost of labour and production and an increasing domestic consumer market.
• Companies started to think of alternative locations to invest because of the supply chain disruptions during the past year caused by the pandemic and China’s zero-Covid policy. This was fueled by associated container shortage thus causing uncertainty and disrupted the supply of materials.
• The China-plus-one model gave the EU, Mexico, Taiwan, and Vietnam a boost because companies began investing in these alternate locations. India was also at an advantage since MNCs started investing in emerging countries and India was a viable option because of its low production cost and favorable business environment.

EU+1

• There are fears that companies might start to disinvest across Europe because of poor gas supply. This may cause blackouts and shortages all through winter. Factory shutdowns may also be a consequence. Europe will also propose a mandatory target for reducing electricity consumption. This will eventually lead to lower production and supply chain disruptions thus causing losses for companies with manufacturing units across Europe.

Impact on India

This makes India an attractive destination for investment. The huge investment by the government in infrastructure will prove to be a boon as it will accelerate foreign investment. India can provide a base for the manufacturing and production units of large companies if it takes steps to promote such investment.