Nearshoring vs offshoring vs China plus one

Three models, three different questions

Nearshoring means moving production closer to the market, for a European buyer usually within Europe or the wider region. Offshoring means producing far from the market, often in Asia, for a lower conversion cost. China plus one means keeping production in China while adding capacity in another country so that no single country carries the whole requirement.

The three are often compared as if they were three quotes for the same part. They are not. Nearshoring asks how much lead time and responsiveness are worth. Offshoring asks whether the conversion cost saving survives freight, duty and inventory. China plus one asks how to reduce concentration risk without giving up an established supply base.

Getting the question right matters more than the spreadsheet. A buyer who compares nearshoring and offshoring on piece price alone will usually choose offshoring and then spend the next two years managing the consequences. A buyer who compares them on total cost, with lead time and risk visible, gets a decision that holds.

What China plus one actually means

China plus one is not a synonym for leaving China. It is a portfolio approach: retain the Chinese supply base for the volume, capability and cost it provides, and add a second country for part of the requirement. The second country may be India, Vietnam, Thailand, Mexico, Turkey or a European location, depending on the part and the market.

The logic is concentration risk. If one country carries all of a part, a policy change, an export restriction, a port disruption or a energy shortage can affect the whole requirement at once. Adding a second country reduces that exposure, provided the second source is qualified and can scale.

The failure mode is treating the second country as a quote rather than a programme. A second site needs tooling, process approval, a first article and a production history. Without those, the buyer has a map with two pins on it and no additional capacity.

The criteria that decide it

A useful comparison covers six areas: landed cost, lead time, minimum order quantity, technical capability, duty and trade exposure, and continuity risk. Each one should be scored for the specific part, not for the country in general.

Capability is the criterion most often skipped. A region may be strong in stamping and weak in a special plating process, or strong in machining and weak in a particular alloy. The question is not whether a country can make the part. It is whether the specific supplier can make this part, to this drawing, with the required documentation.

Where the cost differences really sit

The piece price gap between a European supplier and an Asian supplier can look large on a quote. The gap narrows when freight, duty, insurance, clearance, inventory and quality are added, and it narrows further when the cost of a longer lead time is included.

Inventory is the line that receives the least attention. A route with a ten week transit and a four week production lead time needs more safety stock than a route with a two week transit. That stock ties up cash, occupies space and carries obsolescence risk if the design changes.

Nearshoring also changes the cost of flexibility. A closer supplier can often support a smaller batch, a design change or an urgent increase with less disruption. That flexibility has a value, but it is hard to put in a quote, which is why it tends to be ignored in favour of the visible piece price.

Risk is not one number

Disruption risk and commercial risk are different. Disruption risk covers events that stop supply: fire, flood, strike, port closure, energy shortage, machine failure. Commercial risk covers events that change the terms: currency, duty, price escalation, export policy, insolvency.

Offshoring usually increases disruption risk through distance and concentration, while reducing some commercial risk through lower conversion cost. Nearshoring reduces distance risk but can increase exposure to a single regional energy market or a single customs union. China plus one reduces concentration but adds the management burden of two supply chains.

The right way to show this is a short risk register beside the cost model, not inside it. List the top five events, the parts they would affect, the recovery time and the mitigation. That keeps the cost model honest without pretending that risk can be reduced to a single percentage.

A practical decision sequence

Start with the part, not the country. Confirm the drawing, the volume, the quality level and the delivery requirement. Then check which regions have a credible supplier for that specific process and material.

Next, build the landed cost for each option on the same volume and the same terms. Add the lead time and the inventory it implies. Then score capability, duty exposure and continuity risk. Only after that should the team discuss strategy, because strategy without the numbers tends to become a preference.

1. 01

   Define the part

   Drawing, material, finish, volume, tolerance and inspection level.

2. 02

   Screen regions

   Check that a credible supplier exists for the process, not just the country.

3. 03

   Build landed cost

   Use the same Incoterm and volume for every option, then add inventory.

4. 04

   Score risk

   List disruption and commercial events with recovery time and mitigation.

5. 05

   Decide and document

   Record why the chosen model wins and what would trigger a review.

Common mistakes

The first mistake is comparing a mature Chinese quote with a European quote from a supplier who has never made the part. The mature quote carries years of learning and tooling amortisation. The new quote carries a cautious margin and an unproven process. That is not a like for like comparison.

The second is ignoring the cost of the transition. Moving a part means new tooling, new approvals, a first article, a pilot batch and a period of dual supply. Those costs belong in the decision, especially when the annual saving is small.

The third is assuming that a second country automatically reduces risk. If both sites depend on the same raw material, the same equipment supplier or the same shipping lane, the concentration may be lower than it appears on a map.

When to revisit the model

Freight rates, duty, currency and energy costs move faster than most sourcing decisions are reviewed. Put a review date on the model and state which inputs would trigger an earlier look. A material change, a new trade measure or a supplier capacity issue should all reopen the comparison.

The model is a record of a decision, not a permanent answer. The value is in being able to show why the choice was made, what it assumed and what has changed since. That record is what lets a new team pick up the programme without starting from a blank page.