Source: AsiaOne
Date: 14th September 2026 

Some companies that diversified production away from China are reconsidering their sourcing strategies as manufacturing capabilities, supplier networks, energy reliability and total costs prove difficult to replicate.

The global push to diversify manufacturing away from China is entering a more complex phase.

After higher U.S. tariffs encouraged companies to expand sourcing and production into alternative manufacturing locations, some businesses are now reconsidering those decisions after encountering higher-than-expected costs and operational challenges.

Recent examples show orders returning to Chinese suppliers after companies experienced production constraints elsewhere. Other manufacturers that explored relocating production have decided to remain in China after assessing the wider costs and complexity involved.

The development does not mean the China+1 strategy is reversing. Manufacturing investment continues across Southeast Asia and other emerging production hubs.

Instead, it highlights a fundamental supply-chain challenge: moving production is much easier than recreating an entire manufacturing ecosystem.

The real cost goes beyond tariffs. Tariff differences have been a main incentive for companies to diversify production.

But the calculation becomes more complicated once companies begin operating in a new location.

Manufacturers must consider the availability of skilled labour, components, machinery, raw materials, supporting suppliers, energy, transportation infrastructure and export capabilities.

In some cases, businesses that relocated production discovered they still needed to import equipment and basic components from China, reducing the expected cost advantage of the move. Others struggled to match the same production efficiency or supply reliability.

This changes the sourcing equation from simply:

Where are tariffs lowest?

to:

Where can the entire supply chain operate most efficiently and reliably?

China+1 is evolving, not disappearing. China continues to offer one of the world’s most established manufacturing ecosystems, supported by extensive supplier networks, infrastructure and production capabilities.

At the same time, countries including Vietnam, India and Indonesia continue attracting manufacturing investment as companies seek greater geographic diversification.

For many businesses, the emerging model may therefore be less about replacing China completely and more about building multiple complementary production locations.

Companies can retain critical manufacturing or supplier relationships in China while developing additional capacity elsewhere to reduce concentration risk and create greater flexibility.

This hybrid approach also allows supply chains to adjust as tariffs, production costs and market conditions change.

What This Means

• Companies evaluating new sourcing locations should look beyond headline tariff rates and compare the total landed cost and operational performance of each supply chain.
• Supplier availability, production quality, energy reliability, transportation costs, lead times, inventory requirements and infrastructure can ultimately have as much influence on competitiveness as customs duties.
• Diversification also requires time. New suppliers may need qualification, testing and integration before they can reliably replace established production relationships.

The latest developments reinforce an important lesson for global supply-chain planning: The lowest-tariff location is not necessarily the lowest-cost supply chain.

China+1 remains an important diversification strategy, but successful implementation requires more than relocating manufacturing from one country to another.

Companies need to understand the complete ecosystem supporting production, from suppliers and infrastructure to transportation and inventory flows, before making long-term sourcing decisions.

Rather than viewing supply-chain diversification as simply China versus another manufacturing location, businesses may increasingly benefit from building flexible networks that combine established sourcing markets with alternative production hubs.

The objective is no longer simply to avoid tariffs. It is to build a supply chain capable of balancing cost, resilience, reliability and flexibility as global trade conditions continue to change.