China Plus One Strategy in India: Why Global Companies Are Expanding Manufacturing Operations

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The China Plus One strategy has become an important part of global supply-chain planning. Instead of concentrating manufacturing, sourcing and critical suppliers in a single country, multinational companies are increasingly evaluating additional production locations across Asia and other regions.

India has emerged as one of the countries being considered for this diversification. Its attraction goes beyond manufacturing cost: India combines a large domestic market, engineering and technology talent, expanding industrial infrastructure, established capabilities in sectors such as pharmaceuticals and automobiles, and government policies intended to encourage manufacturing investment.

However, China Plus One does not necessarily mean replacing China with India. For many multinational companies, the strategy involves retaining important Chinese operations while adding India or another country as an additional manufacturing, sourcing or market-access location.

This guide examines the China Plus One strategy in India from the perspective of foreign companies considering manufacturing, supply-chain diversification and long-term business expansion.

What Is the China Plus One Strategy?

China Plus One Explained

China Plus One, also written as China+1, is a business strategy under which a company diversifies part of its manufacturing, sourcing or supply chain beyond China by developing an additional operating location.

China Plus One Does Not Necessarily Mean Leaving China

China has highly developed supplier ecosystems, infrastructure and manufacturing capabilities. Replicating an entire Chinese supply chain in another jurisdiction may be commercially difficult. The objective is therefore often diversification rather than complete relocation.

From China+1 to Multi-Country Supply Chains

Some businesses are moving beyond a single alternative location and developing multi-country production networks. Different countries may be selected for manufacturing, components, technology, sourcing and access to regional customers.

Why Has the China Plus One Strategy Become Important?

Reducing Geographic Concentration Risk

Excessive dependence on one production location can expose a business to operational disruptions, policy changes, logistics interruptions and other country-specific risks.

Building Supply-Chain Resilience

A diversified production network can give multinational companies additional sourcing and manufacturing options when disruptions occur in one location.

Geopolitical and Trade Considerations

Changing trade relationships, tariffs, technology restrictions and geopolitical developments have encouraged companies to examine the geographic concentration of their international supply chains.

Why Is India Part of the China Plus One Strategy?

India Combines Manufacturing With a Large Domestic Market

Unlike locations selected predominantly as export-manufacturing bases, India also represents a significant end market. A foreign manufacturer may therefore evaluate India both as a production location and as a market for future sales.

Companies evaluating India at the strategic stage can review our India Market Entry Consulting services for assistance with feasibility, entry structure, FDI, taxation and implementation.

Large Workforce and Engineering Capabilities

India offers a substantial workforce across manufacturing, engineering, technology, finance and professional services. The relevance of this talent base depends upon the industry and the complexity of the proposed operation.

Growing Manufacturing Ecosystem

Manufacturing ecosystems have developed across electronics, automobiles and auto components, pharmaceuticals, chemicals, engineering products, renewable energy equipment, textiles, food processing and other sectors.

India’s Manufacturing Opportunity Under China+1

Manufacturing FDI Has Increased

Government data and recent industry analysis indicate continuing foreign investment in Indian manufacturing. Companies should review current FDI statistics through the Department for Promotion of Industry and Internal Trade (DPIIT) when evaluating investment trends.

Electronics Manufacturing Has Expanded

Electronics and mobile-device manufacturing illustrate how global supply chains can gradually develop additional production capacity in India. However, the level of domestic value addition and dependence on imported components can differ considerably by product.

India Is More Than a Low-Cost Manufacturing Location

For many foreign investors, the investment case can combine production, domestic-market access, engineering capabilities, supplier development and long-term scale rather than relying solely on labour-cost differences.

Which Sectors Offer China Plus One Opportunities in India?

Electronics and Electrical Equipment

Electronics manufacturing has become an important area of India’s manufacturing expansion, including mobile devices, components, electronic manufacturing services and related supply chains.

Pharmaceuticals and Medical Devices

India has established pharmaceutical manufacturing capabilities and a significant generics industry. Pharmaceuticals, APIs, medical devices and related healthcare manufacturing can therefore be relevant to global diversification strategies.

Automobiles, EVs and Auto Components

India has an established automobile and auto-component ecosystem and is developing additional capabilities around electric vehicles, batteries and related technologies.

Other Manufacturing Sectors to Consider

Specialty Chemicals

India’s chemicals industry can provide opportunities for companies seeking alternative production and sourcing locations, although environmental approvals, raw-material availability and infrastructure require project-specific assessment.

Renewable Energy Equipment

Solar, battery, power-equipment and other clean-energy supply chains are developing as India expands renewable-energy capacity and domestic manufacturing.

Textiles, Engineering and Industrial Products

India also has established capabilities across textiles, garments, engineering goods, machinery, industrial components and other manufacturing categories.

China vs India for Manufacturing Diversification

China Retains Deep Supplier Ecosystems

China continues to possess highly developed manufacturing clusters and supplier networks. A China Plus One strategy should therefore begin with a detailed understanding of which functions can realistically be diversified.

India Offers Market Access and Long-Term Scale

India’s large domestic market can materially alter the investment case. A manufacturing facility may potentially serve both Indian customers and export markets, depending upon the product and commercial strategy.

India and China Can Perform Complementary Roles

Companies may retain important Chinese production or suppliers while developing incremental manufacturing capacity in India. This can reduce concentration without requiring immediate duplication of the complete supply chain.

India vs Vietnam Under a China Plus One Strategy

Vietnam’s Export Manufacturing Advantages

Vietnam has strong export-oriented manufacturing clusters, extensive trade connectivity and geographic proximity to Chinese supply chains.

India’s Domestic-Market Advantage

India offers considerably greater domestic-market scale and a broader combination of manufacturing, technology, engineering and professional-services capabilities.

The Choice Depends on the Business Model

The appropriate destination depends upon products, suppliers, customers, trade agreements, workforce requirements, logistics and long-term growth objectives.

For a detailed comparison, see our India vs Vietnam for Foreign Companies guide.

Government Policies Supporting Manufacturing in India

Make in India

India has pursued policies intended to increase domestic manufacturing, attract investment and strengthen participation in global value chains. Foreign investors should verify current policies through official government sources rather than relying solely on headline announcements.

Production Linked Incentive Schemes

Production Linked Incentive schemes have been introduced for specified sectors. Eligibility, investment thresholds, incremental production requirements and incentive mechanisms vary by scheme.

Industrial Corridors and Manufacturing Clusters

Industrial corridors, manufacturing clusters, logistics infrastructure and state industrial parks can influence factory-location decisions. Location analysis should therefore form part of the investment feasibility process.

State Incentives for Foreign Manufacturers in India

Capital and Investment Incentives

Depending upon the state, industry and investment size, qualifying projects may potentially access incentives linked to capital investment or other specified expenditure.

Employment and Operational Incentives

State policies may contain incentives linked to employment, electricity, stamp duty, land or other operating parameters. Availability and eligibility vary considerably.

Compare States Before Selecting a Factory Location

A company should compare suppliers, labour, logistics, ports, customers, infrastructure and incentives together rather than selecting a state purely because of an advertised incentive package.

How Can a Foreign Company Set Up Manufacturing in India?

Start With a Manufacturing Feasibility Assessment

Before incorporation or acquiring industrial land, investors should evaluate customers, suppliers, raw materials, logistics, utilities, labour, incentives, taxation and applicable regulatory approvals.

Our detailed Manufacturing Setup in India guide covers the principal considerations for overseas manufacturers.

Select the Appropriate Indian Entity

Foreign investors need to determine whether the proposed operation should be undertaken through a wholly owned subsidiary, joint venture or another permitted structure based on ownership, activities, FDI rules and commercial objectives.

Plan Incorporation and Operational Registrations Together

Company incorporation is only one part of implementation. Manufacturing businesses may also require tax registrations, GST, banking, industrial approvals, labour registrations and sector-specific licences.

Wholly Owned Subsidiary for China+1 Manufacturing

When 100% Foreign Ownership Is Permitted

Where applicable FDI rules permit 100% foreign ownership, an overseas group may consider establishing an Indian private limited company as its wholly owned subsidiary.

See our guide on setting up a Wholly Owned Subsidiary in India.

Why Foreign Manufacturers Use an Indian Subsidiary

An Indian subsidiary can provide a separate legal operating entity for local contracts, employees, manufacturing, banking, taxation and commercial activities, subject to applicable laws and approvals.

FDI and FEMA Compliance Must Be Planned

Foreign investment into an Indian company must comply with applicable FDI and FEMA requirements, including sectoral conditions, pricing rules and prescribed reporting where relevant.

Current foreign-exchange regulations and directions should be checked through the Reserve Bank of India.

When Should a Foreign Manufacturer Consider a Joint Venture?

Access to Existing Manufacturing Capabilities

A joint venture may be considered where an Indian partner already possesses manufacturing facilities, technology, licences, distribution networks or sector knowledge.

Local Market and Supplier Relationships

A capable Indian partner may provide relationships with customers, suppliers and other stakeholders that would otherwise take time for a new foreign entrant to develop independently.

Joint Ventures Require Careful Governance

Shareholding, management control, reserved matters, funding obligations, technology ownership, non-compete provisions and exit rights should be carefully documented.

See our guide to Joint Venture Registration in India.

Foreign Company Registration and FDI Planning

Check FDI Eligibility Before Incorporation

Foreign investors should determine the applicable sector, foreign-ownership limits, entry route and sector-specific conditions before finalising the proposed shareholding structure.

Prepare Foreign Shareholder Documents

Foreign corporate documents and individual shareholder or director documents may require notarisation, apostille or consular legalisation depending upon the originating jurisdiction and applicable requirements.

Coordinate Incorporation With Post-Setup Compliance

Bank-account opening, capital infusion, FEMA reporting, GST, accounting, payroll, transfer pricing and other compliance requirements should be incorporated into the implementation timetable.

Our Foreign Company Registration in India guide explains the incorporation framework for overseas investors.

Key Challenges of China Plus One Manufacturing in India

Supplier Ecosystems Can Vary by Industry

India has deep supply chains in several industries, but certain manufacturers may still depend on imported components, machinery or specialised inputs. A detailed bill-of-materials and supplier-mapping exercise is therefore important.

Regulatory Requirements Can Vary Across States

India’s federal structure means manufacturing projects may involve central, state and local requirements. Approvals can vary according to industry, location and project scale.

Execution Matters More Than Headline Opportunity

Recent research on China+1 notes that India’s opportunity is significant but also identifies continuing challenges around operational frictions, supplier depth and execution. Foreign companies should therefore undertake project-level due diligence rather than assuming that macroeconomic potential automatically translates into project viability.

China Plus One Implementation Roadmap for India

Step 1: Define What Is Being Diversified

Determine whether the objective is manufacturing capacity, sourcing, component production, assembly, exports, market access or a combination of these.

Step 2: Conduct India Feasibility and Location Analysis

Compare customer proximity, suppliers, logistics, workforce, industrial infrastructure, utilities, state incentives and regulatory requirements.

Step 3: Select the Legal and FDI Structure

Evaluate whether a wholly owned subsidiary, joint venture or another permitted structure best supports the proposed activities.

Step 4: Build the Supplier and Compliance Roadmap

Map imported and domestic inputs, customs requirements, approvals, taxation, GST, transfer pricing and operational registrations.

Step 5: Plan for Scale Rather Than Initial Setup Alone

The selected location and entity structure should accommodate future capacity, employees, suppliers, exports and Indian-market growth.

Frequently Asked Questions About China Plus One in India

What Does China Plus One Mean?

China Plus One is a supply-chain diversification strategy under which a company retains some operations or sourcing in China while establishing additional manufacturing, sourcing or operational capacity in another country.

Why Is India Considered for China Plus One?

India offers a combination of domestic-market scale, manufacturing capability, engineering and technology talent, industrial infrastructure and government policies supporting investment. Its suitability nevertheless depends upon the specific industry and project.

Which Indian Sectors Can Benefit From China+1?

Potential sectors include electronics, pharmaceuticals, medical devices, automobiles and auto components, chemicals, renewable-energy equipment, engineering products and textiles, among others.

Can a Foreign Manufacturer Own 100% of an Indian Company?

Up to 100% foreign investment is permitted in many sectors, subject to applicable FDI policy, sectoral conditions and entry-route requirements. The proposed activity should be reviewed before determining the ownership structure.

Is India Better Than Vietnam for China Plus One?

Neither country is universally better. Vietnam may offer advantages for certain export-oriented and East Asian supply chains, while India can offer greater domestic-market scale and broader technology and professional capabilities. The decision should be project-specific.

Does China Plus One Mean Moving the Entire Factory Out of China?

No. Many China+1 strategies involve adding incremental capacity, alternative suppliers or a second manufacturing location while retaining significant operations in China.

Planning a China Plus One Manufacturing Strategy in India

Begin With Commercial and Regulatory Feasibility

A foreign manufacturer should first determine whether India supports its product economics, customer strategy, supply chain and long-term objectives before proceeding with incorporation or capital investment.

Integrate Market Entry With Manufacturing Planning

Entity structure, FDI, location, taxation, incentives, suppliers, labour, customs and operational approvals should be evaluated as one integrated project.

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Reviewed By:
Anil Agrawal, Chartered Accountant
Founder, EzyBiz India Consulting LLP
20+ Years of Experience in Tax, Regulatory and Business Advisory

Last Updated: September 2026

Disclaimer: This article is intended for general informational purposes. Foreign investment, manufacturing incentives, taxation, FDI rules, FEMA requirements, licences and regulatory conditions may vary according to the investor, sector, location, proposed activities and applicable law. Government policies and incentive schemes may also change. Foreign companies should verify current requirements with the relevant authorities and obtain professional advice based on their specific investment proposal before making commercial or investment decisions.