China-plus-one: expanding global value chains

Abstract

PurposeChina has emerged as an undisputed leader of global business and as a preferred hub for global value chains. However, recent threats of the trade war, the allegation of violation of intellectual property rights and more recently the COVID-19 pandemic seemed to have dampened China’s attractiveness. Multinational corporations may be contemplating diversifying their dependence on China – a strategy known as “China-Plus-One”. What could be possible destinations in Asia for such a diversification strategy?Design/methodology/approachTowards understanding the “China-Plus-One” phenomenon, the authors use a methodology of arriving at an aggregate ranking of the major economies of emerging Asia. This is built on a few standard indices such as World Bank's Logistic Performance Index; World Bank’s Ease of Doing Business Indicator; World Economic Forum’s Global Competitiveness Index; Economic Complexity Index of the Harvard University; Economist Magazine’s Country Rating of Financial Strength; and Corruption Perception Index compiled by the Transparency International. Accordingly, the authors rank seven countries (namely, Thailand, Malaysia, India, Vietnam, Indonesia, the Philippines and Bangladesh) next to China as possible destinations for selecting the “Plus one” country.FindingsIn the aggregate ranking, China ranks first followed by Thailand, Malaysia, Philippines, India, Indonesia, Vietnam and then Bangladesh. This sequence gives some pointers on the possible shifts from China as potential hubs of global value chains. The authors observe the following: first, it is challenging to move away from China in the short run; second, corporations could pursue a “China-plus-One” strategy, whereby they may move marginally from China and relocate part of their supply chain elsewhere; third, in looking for alternative locations, corporations may look for the following countries in emerging Asia, namely, Thailand, Malaysia, India, Vietnam, Indonesia, Philippines and Bangladesh.Originality/valueThe aggregate ranking method applied in this paper is one of the first applications in the context of ranking developing Asian economies based on economic, logistics, supply chain, financial and corruption metrics. It is one of the first conceptual works in the domain of identifying possible diversification options for the “China-Plus-One” strategy that can be extended to include many context-specific rankings.