The China+1 Strategy: How European Manufacturers Are Diversifying Their Supply Chains

For three decades, the logic was unassailable. China offered what no other country could match simultaneously: vast industrial capacity, an extraordinary supplier ecosystem, competitive labor costs, and a domestic market growing fast enough to justify being there regardless of everything else. European manufacturers invested accordingly — setting up factories, cultivating supplier relationships, and building procurement organizations that ran on the assumption that the China model was permanent.

That assumption did not survive the 2020s intact.

A sequence of shocks — the trade war tariffs of 2018–2019, the supply chain disruptions of the COVID pandemic, the lessons of Russia's invasion of Ukraine, and the escalating geopolitical tension over Taiwan — forced a fundamental reassessment. For supply chain strategists in Frankfurt, Paris, and Milan, the question shifted from "how do we optimize our China operations?" to "how much of our business continuity are we staking on a single country's stability?"

The answer, increasingly, is: less. The China+1 strategy — the practice of maintaining China operations while systematically developing at least one additional manufacturing or sourcing location to reduce concentration risk — has moved from the fringes of supply chain thinking to the mainstream of European industrial strategy.

The scale of European exposure to China is more significant than the public debate often captures. For Germany alone — Europe's largest manufacturing economy — China accounts for 10.9% of all imports, roughly €160 billion annually. This dependency is not evenly distributed: it concentrates heavily in electronics, machinery, chemicals, and the raw materials that feed into these sectors.

At the commodity level, the exposure is more acute still. China controls approximately 60% of global semiconductor packaging capacity, 90% of global rare earth element processing, 80% of global solar panel manufacturing, and 70% of lithium-ion battery production capacity.

A report by Merics found that US and EU trade dependencies on China have been increasing across these critical categories, while China's own reliance on Western markets has been declining — an asymmetry that gives Chinese supply disruptions disproportionate leverage over European industrial output.

The European Chamber of Commerce in China survey data provides an illuminating snapshot: only 11% of European companies based in China were actively considering shifting operations out. The figure seems low — until you consider what it means in absolute terms, and that it represents a significant increase from near-zero just five years ago. The more common response is not exit, but diversification — and the distinction matters.

The name can be misleading. "China+1" does not mean replacing China as a manufacturing base; it means adding capacity, sourcing relationships, or production capability in a second geography such that no single-country disruption can halt operations.

For most European manufacturers, this is a nuanced and deliberately calibrated exercise. The goal is not to de-Sinofy their supply chains — an ambition that would be strategically naïve given China's position in global manufacturing — but to ensure that critical product lines, strategic components, or customer-facing lead times have a resilience backstop.

The practical execution typically involves three overlapping actions: identifying which product categories or components represent unacceptable concentration risk; qualifying alternative suppliers or establishing alternative production capacity in a second geography; and managing the ongoing complexity of operating across multiple sourcing bases.

Vietnam: The Electronics and Light Manufacturing Hub. Vietnam has become the first destination of choice for European manufacturers diversifying electronics, consumer goods, and light industrial production. Germany's imports of printed circuit boards from Vietnam surged by 655% between 2015 and 2023. A 2022 survey found that 41% of European companies had already relocated some operations from China to Vietnam.

India: The Long-Term Strategic Bet. As of 2024, approximately 15% of iPhones are produced in India, up from just 5% two years prior, with Apple's stated target of 25% by 2027. India's attractions are structural: a large, English-speaking engineering talent pool, a democratic political system, and a government that has aggressively courted manufacturing investment.

Morocco and North Africa: Europe's Nearshore Manufacturing Belt. Demand for third-party quality inspections in Morocco surged 53% year-on-year in Q2 2025. Decathlon has channeled approximately $100 million in orders to Moroccan manufacturers. With a 14-hour transit time to major European ports, Morocco offers supply chain lead times that no Southeast Asian location can match.

Central and Eastern Europe: The Precision Manufacturing Corridor. Poland, Czechia, Hungary, Romania, and Slovakia offer European manufacturers an alternative based on quality, skill levels, and logistics proximity. In 2024, foreign direct investment in manufacturing across CEE jumped 28%, with Poland and Hungary seeing record inflows.

Turkey has seen European buyer demand for quality audits and supply chain engagement increase 27% year-on-year in 2024, confirming its growing role as a nearshore manufacturing partner particularly for textile, automotive, and consumer goods categories.

The ecosystem problem. China's manufacturing advantages are not primarily about factory wages — they are about the density and depth of the industrial ecosystem surrounding any factory. When a factory moves to Vietnam or India, it moves into an ecosystem that is still developing that density.

The hidden cost trap. Lower labor costs in alternative locations can be offset by higher freight costs, longer lead times, increased quality inspection costs, lower production yields during ramp-up, and management overhead. A Bain & Company analysis found that companies that moved production without rigorous total cost modeling frequently discovered their "cheaper" alternative was actually more expensive.

The 71% problem. Despite significant final assembly moving to India, factories in India and Vietnam remain dependent on sub-assemblies and components imported from China for as much as 71% of their inputs in some product categories. Diversifying final assembly without diversifying the upstream component base can create a false sense of supply chain security.

The most sophisticated supply chain organizations have moved beyond the China+1 framing toward a "China+Many" or multi-shoring approach — building a portfolio of sourcing locations that provides resilience, optionality, and the ability to rebalance quickly as conditions change.

Schneider Electric has explicitly moved away from the China+1 framing, describing its strategy as localized, regionalized supply chains — building supply capacity close to each major demand region rather than sourcing globally from a small number of dominant geographies.

Two-thirds of large European and US organizations now have an active or in-progress reindustrialization strategy. Among EU companies specifically, 28% are planning to nearshore their production by 2025.

Companies that successfully execute China+1 strategies share key practices: they start with the most critical products, not the easiest; they invest in supplier development, not just selection; they redesign products for the new footprint; and they keep China in the picture — maintaining capability while ensuring that disruption there does not shut down business entirely.