Leaving China? A Decision Framework on Cost and Viability

For many years, China has dominated the world’s manufacturing. Because of its established infrastructure, skilled workforce, robust supplier network, and convenient access to raw materials, it was the go-to place for wire harnesses, control boards, and electronic assemblies. However, things are changing now.

The rising Chinese production costs (labour, materials operations) over the last few years has forced many OEMs throughout the world to consider other alternative manufacturing regions that many refer to as the “China Plus One” strategy.

For US-based OEMs, the Trump tariffs are forcing them to reevaluate their sourcing and manufacturing strategies more urgently. As such, many are asking the important question: What Are the Best Alternatives to Manufacturing in China?

What OEMs Must Consider Before Shifting Manufacturing Locations

Although China remains as the major player, OEMs headquartered in Canada, US or Europe, now have competitive alternatives in countries like Mexico, Vietnam, and India. However, relocating requires careful preparation and consideration of both direct and indirect factors whereby finding a lower or even just a comparable unit cost is just one of those key factors.

Crucial elements to take into account when analyzing options for relocation:

1. Lead Time Dependability: At your new manufacturing site, are you able to offer lead times that are predictable and minimally disruptive?
2. Volume Flexibility: Will the supplier allow low-to-mid-volume production at competitive rates while maintaining high service levels?
3. Geopolitical Stability: Is the nation politically stable or are there conflicts that might impede operations or trade?
4. Regulatory Environment: How likely are unexpected trade restrictions, tariffs, or policy changes to influence your company?
5. Protection of Intellectual Property: Does the nation have robust legal protections for IP, and are they regularly upheld?
6. Supply Chain and Logistics: Are there reliable ports and customs clearance processes and inland logistics infrastructure?
7. Material availability: Are key components and raw materials locally available and is there a sufficient number of suppliers in the region?
8. Global Alliances and Trade Treaties: Does the target manufacturing country have favorable trade agreements with your destination countries (ie. USMCA, ASEAN, EU etc)?

Indirect and Direct Costs Over the Unit Price

To find the true cost of moving, consider these often-overlooked cost drivers:

1. Requalification and Tooling: New tooling, test fixtures, and certifications might be needed when moving production.
2. Tariffs and Logistics: The cost of shipping, duty, and insurance varies by region. In some cases, slightly higher manufacturing costs might be offset by tariff savings.
3. Assurance of Quality: Increased oversight cost of more frequent visits and audits that are necessary in onboarding new suppliers and ensuring they meet OEM standards.
4. Supplier Management: Cost and time investment required to build new connections and relationships.
5. Effect on Working Capital: Longer lead times in the new region can increase the cost of maintaining inventory on hand. Some capital investment will be required to duplicate tooling and test fixtures to work in parallel during the transition period.
6. Transition Expenses: Account for costs related to employee training, dual production runs, ramp-up delays, and compliance requalification.
7. Time investment: Factor in the time and expense of assigning a dedicated resource (whether in-house or outsourced) to manage the transition and re-evaluation process.

To help OEMs understand and model the financial impacts of changing your supply chain, consider using the following tools for practical real world application:

• Determining Duty Rates | U.S. Customs and Border Protection
• Official CBP Statement On Tariffs | U.S. Customs and Border Protection
• Presidential Tariff Actions | United States Trade Representative
• Customs & duty calculator for your business | Canada Tariff Finder
• Harmonized Tariff Schedule

When Is It Feasible to Relocate?

Assess your operational and product needs before acting:

1. The product’s complexity
   It is more costly and difficult to transition high-tech assemblies with intricate PCBAs and firmware.
2. Purchasing Elements

   Is it feasible to find reliable local suppliers in your target area for necessary components?
3. Production Volume

   Does the new supplier handle the volume you expected well?
4. Transition Expenses

   Do you have budget and human resources dedicated to managing the process?

Decision Framework: Remain, Dual Source or Relocate?

You don’t have to fully relocate every aspect of your business away from China. This simple decision model framework can serve as a springboard for a more thorough relocation discussions with your team.

Remain
If your product is low-risk, extremely cost-sensitive, and completely integrated into Chinese supply chains.

Dual Source
Diversify your supply by sourcing a portion of your volume from another region to enhance flexibility and mitigate risk.

Relocate
If tariffs, IP risks, or service issues outweigh the financial advantages, particularly if the total landed cost is lower elsewhere.

Key Takeaways

When determining whether to leave China, there is no one-size-fits-all answer. The decision should be based on data, not headlines.

OEM purchasers and product managers must consider lead time, supply chain risk, overall cost, and long-term operational flexibility in addition to unit price. A strategic sourcing assessment can uncover hidden costs and new opportunities.

Ready to explore alternatives to China?

Partner with Avnan to build a tailored transition strategy backed by global manufacturing expertise and flexible solutions that align with your business goals.