China Plus One Strategy

Leveraging ASEAN for Resilient Growth and Strategic Advantage

Amid trade wars and geopolitical uncertainty, the China Plus One Strategy helps businesses strengthen their strategic positioning, enable growth, and improve stability

By Antti Rahikainen, Business Development Director at Vision Finland, based on insights from the China Plus One Strategy webinar

Strategic adaptability is essential in today’s fast-evolving geopolitical landscape. Many companies have adopted the China Plus One strategy, while others are actively considering it. Heavy reliance on China poses risks, so establishing an additional operational base in the ASEAN region is wise. To gain deeper insights, explore the perspectives of a diplomat, economist, and entrepreneur.

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Introduction

In recent years, businesses worldwide have navigated an increasingly volatile and complex global economic environment characterised by geopolitical tensions, trade disruptions, and supply chain vulnerabilities. One prominent strategic response has been adopting the China Plus One strategy. Conceived initially as a risk management strategy, this approach involves diversifying manufacturing or sourcing beyond China by establishing additional production bases in other countries.

“Emerging Asia, encompassing ASEAN, China, and India, is projected to contribute around 60% of global economic growth through the decade.”

Tuuli McCully

The China Plus One strategy is gaining momentum as companies seek to reduce their over-reliance on Chinese markets and supply chains while benefiting from China’s manufacturing capabilities, logistics and vast consumer market. This strategy not only mitigates risks but also enhances operational efficiency and flexibility.

This strategy presents a vital opportunity for Nordic companies to build resilient and diversified supply chains. Similarly, Southeast Asian countries, with their expanding markets and competitive manufacturing capabilities, have proven to be well-positioned to attract businesses implementing the China Plus One model.

This article explores the pragmatic approach that Nordic enterprises should consider reducing their dependency on China and seeking growth in the fastest-growing region over the next decade.

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China Plus One Strategy from an Economist’s Perspective 

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The “China Plus One” strategy, widely recognised in global trade, reshapes business models across Nordic and Southeast Asian economies. Initially driven by China’s rising labour costs, the strategy has gained significant traction as companies seek to diversify supply chains and reduce over-dependence on China. Recent economic disruptions—particularly those stemming from the pandemic, geopolitical tensions, and China’s evolving domestic policies—have further underscored the need for a robust diversification approach. The shift reflects a growing concern about economic resilience amid an increasingly uncertain global landscape. 

China’s economic environment is now marked by slower growth and heightened policy unpredictability (Figure 1). Since 2017, the Economic Policy Uncertainty Index for China has shown elevated levels, reflecting the Chinese government’s intensified intervention in private sector affairs and its implementation of sporadic, opaque policies. This unpredictability has made businesses wary of overreliance on the Chinese market. European firms, mainly, have expressed concerns about the challenging operating environment, as highlighted in a recent survey. 

The US-China trade conflict, now a fixture of the global economic landscape, adds further complexity (Figure 2). Since 2018, high tariffs and export restrictions have reshaped trade flows, prompting multinational corporations to explore alternative markets to mitigate the risks of this protracted economic standoff. For ASEAN nations, this conflict has created a unique opportunity. As China’s trade share with the United States has declined, trade with ASEAN countries has surged, making ASEAN an increasingly attractive alternative for Chinese and global companies seeking cost-effective and strategically beneficial locations.

3 ASEAN and RCEP trade has been continuously increasing for the past two decades.

ASEAN’s appeal lies in its commitment to economic integration and favourable demographics (Figure 3). The region’s trade agreements—such as the Regional Comprehensive Economic Partnership (RCEP) and evolving FTAs with economies like Canada and the European Union—illustrate a pro-globalisation stance that contrasts sharply with rising protectionism elsewhere. 

Half of the world’s population lives in the circle shown in Figure 4. ASEAN’s youthful workforce further bolsters its appeal; with 34% of the population aged 15 to 30, the region offers a dynamic labour market of digital natives, an invaluable asset in the global digital economy. 

Emerging Asia, encompassing ASEAN, China, and India, is projected to contribute around 60% of global economic growth through the decade, with average GDP growth rates outpacing the world average (Figure 5). Economic growth in ASEAN is balanced across diverse sectors, presenting various opportunities for companies searching for a stable yet dynamic environment. For Nordic and Southeast Asian firms, the China Plus One strategy offers a contingency plan and a pathway to sustainable growth within a diversified, resilient global framework. 

“Since 2017, the Economic Policy Uncertainty Index for China has shown elevated levels, reflecting the Chinese government’s intensified intervention in private sector affairs and its implementation of sporadic, oraque policies.”

Tuuli McCully

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Diplomat in Action: Why Nordic Public and Private Sectors Must Embrace Southeast Asia’s Potential

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Both the public and private sectors in the Nordics must proactively embrace the China Plus One Strategy to capitalise on the opportunities it offers. This approach requires a thorough understanding of the region’s economic potential and geopolitical complexities. In my 33 years in the Foreign Service, I have worked on trade, economic, and financial issues across Germany, Japan, Sweden, the USA, and Singapore. Drawing on this experience, I will outline ten key points. 

The Nordic public and private sectors should urgently embrace the China Plus One Strategy, placing greater emphasis on Southeast Asia’s dynamic economy. This approach leverages the region’s competitive advantages – such as lower labour costs, a skilled digital workforce, and significant foreign investment incentives. Singapore stands out as a business hub for Finnish enterprises and seizes, for example, green transition opportunities. 

“The Nordic public and private sectors should urgently embrace the China Plus One Strategy, placing greater emphasis on Southeast Asia’s dynamic economy.”

Juha Markkanen

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The Balancing Act: Entrepreneur’s Perspective on ASEAN Opportunities 

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Mikko Salmilahti, a Finnish entrepreneur with 11 years of experience in Shanghai, brings valuable insights into navigating business strategies in China and beyond. As an active member and former Chairman of Finncham Shanghai, Salmilahti has a firm grasp of the region’s business landscape. Today, he aims to share perspectives from a company-level viewpoint, emphasising macro-level trends and the unique challenges smaller businesses face. 

Salmilahti acknowledges the importance of expanding to alternative markets, underscoring the relevance of the China Plus One Strategy. Singapore is an attractive option due to its safety, governance, and decision-making transparency, though it remains cautious about the high operational costs. In contrast, markets like Vietnam present a cost-effective entry but require time to scale effectively. 

“Finnish companies are not the first movers, unfortunately. We often watch and see what is happening.”

Mikko Salmilahti

Salmilahti notes that the timing of this strategic shift is critical, with China currently under the spotlight in Finland. President Alexander Stubbs’s state visit to China, including a significant stop in Shanghai, underlines the importance of updating approaches to this substantial market. With a delegation of 30 large Finnish companies accompanying the president, the emphasis is on understanding China’s evolving economic dynamics while weighing potential moves into ASEAN. 

Salmilahti’s strategic questions are straightforward: What should businesses do with China, and how should they engage with the opportunities and complexities of ASEAN countries? His reflections highlight the importance of balancing established ties with China while exploring new Southeast Asian horizons. 

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Panel Discussion: Navigating the China Plus One Strategy – Insights and Outlook 

The Role of State Visits in Trade Strategy 

Juha Markkanen opened the dialogue by emphasising the importance of maintaining strategic diplomacy and state visits to China and Southeast Asia. “China is not going anywhere,” he remarked, highlighting that while economic shifts are taking place, China’s role remains pivotal. Markkanen underscored how such engagements strengthen footholds in vital financial hubs like Singapore, known for its status as a “small red dot” with outsized global influence. 

Markkanen pointed out that while Finland has historically prioritised partnerships with larger markets like the US and China, the current environment demands a re-evaluation of ASEAN’s potential. 

Why Finland Needs a Fresh Outlook 

Pasi Haatainen asked the panel a pressing question: Why are Finnish companies slower to penetrate Southeast Asia than their Nordic peers? The consensus among the speakers was clear: a lack of comprehensive awareness and strategic focus. 

Markkanen shared that Finnish business strategies have focused on single priorities sequentially – first China, then the US – without a comprehensive view of emerging regions like ASEAN. He argued that the lack of proper perspective has left Finnish enterprises behind more proactive Swedish and Norwegian competitors. “The King of Sweden, with the influential Wallenberg family, leads a 106-strong business delegation to Singapore,” emphasising Finland’s neighbour’s high contribution to trade promotion. 

“Siemens has expanded its manufacturing operations to India and Vietnam. Adidas has established important hubs in Vietnam and Indonesia. H&M’s clothing line has also expanded operations in Vietnam, indicating the country’s growing significance.”

Tuuli McCully

The Significance of Regional Growth 

“This is a region which is expanding and growing.”, Markkanen stated, referencing the increase in investments, forecasted growth, the area’s young demographic and the increasing middle class. With 50% of the world’s population in the broader Asia-Pacific, the potential market is vast. All panellists agreed that the growth path is solid. ASEAN is outperforming developing and emerging nations in GDP growth and is expected to beat even China and become the fastest-growing region globally. 

Market Education and Perception Challenges 

Tuuli McCully noted that ASEAN remains an “exotic” destination for many Finnish firms. Unlike the US, which offers familiar regulatory and economic structures, ASEAN presents a more complex and diverse landscape. “More education about the region needs to be provided,” McCully stressed, emphasising the need for Finnish firms to understand the nuances of Southeast Asian markets better. 

Strategic Diversification Beyond China 

McCully highlighted examples of multinationals like Siemens, Adidas, and H&M, which have expanded operations to ASEAN countries such as Vietnam, Indonesia, and Bangladesh. Diversification strategies drove these moves in response to US-China trade tensions and the desire for supply chain resilience. She hopes Finnish companies will show leadership, “I’m still waiting for that Finnish star who shows how things are done.” 

Lessons from Nordic Neighbours 

Mikko Salmilahti pointed out that Swedish and Danish firms have made notable strides in ASEAN, showing more agility in capturing market opportunities. “Finnish companies are not the first movers, unfortunately. We often watch and see what is happening,” he admitted. However, examples like Lindström’s expansion into Vietnam and Marimekko’s ventures in Thailand show that Finnish companies are beginning to catch up. 

Proximity and Supply Chain Interdependence 

Salmilahti also emphasised the strategic interdependence between China and ASEAN countries. Proximity to China allows companies operating in Vietnam or Indonesia to benefit from well-established regional supply chains. “It’s not a zero-sum game,” he stated, underscoring that growth in ASEAN often complements rather than competes with Chinese economic activity. 

“Neste made 1.6 billion euros in investments in Singapore to produce sustainable aviation fuel here in Singapore. Wärtsilä sees many opportunities in the greenfield investments and the green future.”

Juha Markkanen

Hedging Against Geopolitical Risks 

The panellists discussed how Finnish companies could mitigate investment risks in a rapidly shifting geopolitical landscape. McCully advised firms to adopt supply chain agility and foster local partnerships to navigate regulatory and logistical challenges better. “Resilience is key,” she noted. The pandemic underscored the importance of multi-source strategies and adaptive supply chains. “I hope we don’t end up where countries and companies must pick sides”, she wished. 

Regulatory and Talent Barriers 

Markkanen acknowledged the hurdles in expanding operations in Southeast Asia, from regulatory complexities to talent shortages. However, he pointed out that countries like Vietnam have improved their workforce capabilities, making them attractive manufacturing alternatives. “Regulatory complexity is another challenge that firms must pay attention to”, added McCully. 

China’s Continued Dominance 

Despite diversification efforts, Salmilahti and McCully agreed that China will remain a manufacturing powerhouse thanks to its unmatched infrastructure and logistics. “Companies always say that the power of China is the manufacturing capabilities added with a super level of logistics and supply chain infrastructure,” Salmilahti affirmed. However, this leaves room for ASEAN countries to capture lower-value manufacturing sectors as China shifts toward higher-value production. 

“Lindström is opening a new service business in Vietnam. Marimekko is opening several, like Thailand, and is probably doing well in Singapore.”

Mikko Salmilahti

Opportunities in Technology, Energy and Smart Cities 

“Technology companies will benefit significantly from a strategy like this”, stated McCully, because the technology sector is at the core of the US-China trade conflict. Markkanen added that the region’s booming demand for energy, smart city projects, and green transition presents new opportunities. “Neste made 1.6 billion euros in investments in Singapore to produce sustainable aviation fuel here in Singapore. Wärtsilä sees many opportunities in the greenfield investments and the green future,” he said. 

Leveraging Diplomatic and Business Networks 

Markkanen urged Finnish firms to utilise resources: “Please use our services because we are here in these foreign markets for you, because the world is very turbulent, we can give you essential advice.” referring to support from the Team Finland network, including Business Finland and Finnchams. “I will do my very best to raise the flag and make it clear to stakeholders in Helsinki, the Prime Minister, the Confederation of Finnish Industries, and all the enterprises that this region is expanding and growing.” 

Conclusion: Embracing ASEAN’s Promise for Strategic Growth 

The China Plus One strategy is more than a diversification play; it’s a call to action for businesses to build resilience and unlock new growth frontiers. For Nordic enterprises, especially those in Finland, the message is clear: adapting to this dynamic geopolitical era requires a shift toward ASEAN’s emerging potential. This region, buoyed by its youthful workforce, economic integration, and competitive manufacturing landscape, is primed for investment and partnership. 

However, action must follow insight. Finnish companies should move decisively, learning from peers who have successfully established their footholds. Leveraging Team Finland networks, including Embassies, Business Finland, and Finncham, and using expat and local partners for market research and regulations are vital steps. The strategy is not abandoning China’s strengths but a strategic augmentation. ASEAN offers a rare blend of growth, stability, and opportunity – essential in shaping a resilient and future-ready business model.

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Organisers