In light of a dynamic global economic environment, businesses are facing a complex terrain shaped by tremendous changes: From the impact of political (trade) tensions over the digital transformation and advanced technologies to a far-reaching global health crisis – the strategic relocation of production has become a pivotal consideration for enterprises seeking resilience and a competitive advantage.

Given the variety of influences that companies are con­fronted with, it is necessary to look beyond traditional cost considerations and to factor in other aspects such as political stability, logistics, tax implications, subsidies, and the evolving landscape of environmental and regulatory obligations. This paper serves as a guide, offering insights into the strategies behind the relocation of production and providing businesses with best practices using the example of developing and establishing a “China plus One” Strategy with a large Electronics company in the APAC region. The project was conducted by Miebach and with our real estate partner, JLL.

1. Define the relocation target and set guardrails

The first phase sets the context and marks the guardrails for the project. It is important to clearly identify the reasons and align on the targets of the relocation with relevant stakeholders. Key questions that needed to be answered in this project were the following.

• Reason for the relocation; What will be important for their future network?
• Which parts / assortments should be relocated?
• Who should be included in the decision-­making process?
• Which region(s) should be considered?
• When does the new factory needs
  to be operational?

In this project, the decision was mainly driven by geographical diversification and resilience. Lockdowns during Covid highly impacted the client’s two manufacturing sites in China and caused regular shutdowns and delivery interruptions to its key customers. To avoid similar situations in the future, the whole APAC business (outside of China) was planned to be integrated into a new factory. To maintain proximity to customers and leverage lower labor costs, the factory should remain in APAC. The targeted go-live of the new facility was set for two years after the start of the project.

2. Find a joint agreement on decision criteria and short-listing

After the selection of the desired region and a first determination of possible countries for the relocation, there is usually a long list of potential options. For this project 11 countries were considered as potential locations (Vietnam, Thailand, India, Malaysia, Philippines, Cambodia, Laos, Taiwan, South Korea, and Japan). To shorten that list and identify the most suitable countries, it helps to clearly define a set of decision criteria and to align on the individual importance of each criterion with all relevant stakeholders.

Clustering the criteria in main- and sub-­criteria is considered best practice, as this structure offers a differentiated view and provides clearer insights on certain strengths and weaknesses of the assessed countries. In this project, 5 main- and 12 sub-criteria were defined and populated with over 60 individual parameters. Additionally, each criterion was given an individual weighting to reflect its importance in the decision-making process.

Using this approach, we transformed the criteria, parameters, and individual weightings into a scoring model which enabled us to rank each country with a score from 1 (weak) to 10 (strong) and pointed us towards certain risks that the countries face (e.g., high geo­political uncertainty in Taiwan).

At the end of the second phase, we dismissed Taiwan, Laos, Cambodia, South Korea,and Japan from our long-list and identified Malaysia, Thailand, and Vietnam as countries with the highest rankings.

Weight of Decision Criteria

3. Give a final recommendation with qualitative & quantitative analyses

A reduced number of countries, 6 in this project, allowed a more detailed examination of each country, to pinpoint areas for the future production. We approached this by analyzing relevant industry clusters for automotive and electronics production in collaboration with our real estate partner, JLL, who proposed available plots and provided location-specific insights.

Following that, several analyses were conducted for these proposed sites, including:

• Local infrastructure and distances to major sea- and airports
• Proximity to customers and competitors
• Exposure to environmental risks (e.g., floods, cyclones, earthquakes, volcanoes, etc.)
• Workforce population and unemployment rate
• Share of components and raw materials that could be sourced locally
• Grants and incentives
• Setup time until site is fully operational
• Implications on import and export duties
• Availability of renewable energy

A purely qualitative analysis is often not sufficient, which is why the results have been supplemented with quantitative OPEX, including site specific customs, transportation, labor, and facility costs for each region to ensure a comprehensive understanding:

According to the results in this example, India and Indonesia have been dismissed due to their comparably low saving potential and rank. Philippines indicated high savings but have been excluded due to high environmental risks, long lead-times to customers, and a low localization potential for raw materials.

4. Make a final decision, sign the contract, and realize the benefits

Last steps and on-site visit

Having identified Thailand, Malaysia, and Vietnam as the preferred countries, the last step was an on-site visit to the most promising region(s) in each country. Within a 2-week tour, we visited multiple available plots and met local authorities, recruitment agencies, legal advisors, logistic experts, and other reference companies to gain an impression of the country and confirm the results of the previous analyses.

Offering the preferred balance between cost savings and fit of requirements, Thailand was finally chosen as the desired country and a contract for a built-to-suit factory in the Bangkok area has been signed. In parallel, a specialized team within JLL started the negotiations with the Thai Board of Investment to secure an optimized package of tax incentives. Once operational, the future site will assure the  client the following benefits:

Increased resiliency	Est. annual OPEX savings of 20 Mio. $	Readiness for business growth	40 Mio. $ incentives on duties and corporate income tax

Methodology & Partnership

Given the broad range of implications that a change in the production footprint has on the company’s operations, it is essential to have a well-defined methodology that facilitates a thorough and comprehensive site selection. In this regard, early involvement of the right internal and external stakeholders is crucial to incorporate valuable inputs into the qualitative and quantitative analyses that mark critical success factors in the project.

We, as Miebach see great synergies in the partnership with our real estate partner JLL when it comes to the complex task of shaping an optimal production footprint. By leveraging Miebach’s extensive expertise in production and logistics networks, combined with JLL’s in-depth real estate and market knowledge, we provide comprehensive support for our client – from strategic location determination to contract signature. In addition to this we are primed to extend our expertise beyond this scope with factory layout concepts, ramp-up planning, and/or realization support until the factory’s go-live.

If you want to know how to unleash your supply chain potential with innovative, sustainable, end-to-end solutions to stay ahead of the competition, please contact us.