China plus one strategy development and implementation

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Background: A multinational automotive parts producer engaged Tractus on an China plus one industrial site selection project for a greenfield manufacturing center in Asia to complement its existing manufacturing facility in China. At the time the client’s only manufacturing site presence in Asia was a plant in China it had been operating for 10 years. The site was originally selected due to the firm’s heavy emphasis on China and proximity to component suppliers.

Project: Tractus began by helping the client identify and evaluate the impact of a slowing Chinese economy and increasing Chinese labor costs on the future cash flows of its investment. Tractus worked with the client’s management team to build consensus and approval for a diversification strategy of its Asian manufacturing footprint to better serve the growing global demand for vehicles while reducing overall operating costs per unit of production.

Once the strategy had been approved, Tractus conducted a detailed review of the client’s China manufacturing and Asia supply chain operations to help determine the critical location factors and, separately, important location factors driving the selection of the optimal manufacturing location. Tractus conducted an Asia-wide screen of the universe of potential manufacturing site locations using a series of succeeding critical location factors screens and weighting a short list of locations on a risk probability weighted basis to ultimately identify the Dong Van 2 Industrial Zone in Vietnam as the ideal location for the client’s production requirements.

Tractus was subsequently engaged to lead negotiations with the zone’s developers, helping the client develop a negotiations strategy supported by initial industrial site selection work and market comparable method real estate valuations of the target and alternative sites.

Solution: The project resulted in the successful implementation of the client’s China +1 strategy, diversifying manufacturing operations into Vietnam for the first time. Tractus successfully negotiated the land transaction price on the client investment saving the company US$120,000 and secured the client’s investment certificate approval.

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