Why China +1 is Harder Than it Looks

In the past several years, many supply chain leaders expected global sourcing to become more predictable. Instead, uncertainty has remained a defining feature as organizations move into 2026, shaping how sourcing decisions are made and revisited.  

In response, purchasing executives focused on building more resilient supply chains by reducing dependence on China and expanding sourcing into the U.S., Vietnam, India, Malaysia, and Mexico. This shift required rapid adjustment as teams worked to secure capacity, manage costs, and stabilize operations under new and ever-changing constraints.  

In many cases, these decisions had to be made before the full implications of labor markets, cost structures, and policy environments were visible. 

 As these diversification efforts played out, 2025 became a year of more cautious decision-making. Choices about where and how to diversify outside of China were delayed and, in some cases, strategies were spread across multiple regions with uneven results. Supplier readiness, cultural alignment, and government policy continued to evolve – often faster than sourcing strategies could adapt.   

At MES, we focus on sourcing mechanical components for automotive, lighting, industrial, agricultural, EV, and green energy industries. What follows are the practical lessons that emerge when resilience is treated as a long-term system, not a short-term response. 

The Reality of Supply Chain Diversification Today  

Diversifying a supply chain is often described as a straightforward risk-reduction exercise. In practice, it introduces a different set of constraints:  

• Cost structures shift. 

• Supplier capabilities vary. 

• Local conditions change in ways that are difficult to model from a distance. 

 What works on paper does not always hold up under real operating pressure. We’ve seen well-intentioned diversification strategies struggle once supplier readiness, cultural differences, and government policy began to influence day-to-day execution. 

 As we’ve supported manufacturers sourcing mechanical components across multiple regions, one thing has become clear:  

 No single country offers a complete or permanent solution. 

 Each market presents advantages, limitations, and trade-offs that must be understood in context. Our boots-on-the-ground experience in key sourcing regions shows why diversification decisions in 2026 require more than simply selecting the next alternative to China.

Designing Resilient Supply Chains for 2026 and Beyond

 Diversification alone does not guarantee resilience. The outcomes depend on how sourcing decisions account for cost structures, supplier capability, materials, logistics, and local operating conditions over time. Based on our work sourcing mechanical components across multiple regions, the four lessons that follow reflect what consistently supports reliable execution in 2026.  

4 Lessons Shaping Effective Supply Chain Diversification

 These lessons reflect how diversification performs once strategies meet real operating conditions. The country examples that follow are not judgments – they’re evidence. 

•  Lesson 1: Diversification Fails When It’s Treated as a Replacement Strategy 

 Many diversification efforts stall because they’re framed as a one-for-one replacement, finding the next country to take over what China once provided. That approach assumes a single market can replicate China’s combination of scale, cost efficiency, labor depth, supplier maturity, and infrastructure. In practice, no alternative market offers that same breadth across mechanical components. 

 What we consistently see instead is uneven performance when diversification spreads across multiple regions without clear role definition. Supplier readiness varies widely within every country, cultural and operating differences can impact execution, and capabilities that exist in one product category often do not translate to another. Without intentional role assignment – what each country and supplier is responsible for doing well – diversification shifts risk rather than reducing it. 

 The result is a sourcing strategy that absorbs change instead of being disrupted by it, with clearer expectations around cost, lead time, and execution. 

•  Lesson 2: Short-Term Cost Advantages Rarely Hold  

Many diversification decisions begin with early cost comparisons, especially when nearshoring or entering a new market appears to offer immediate savings. Initial pricing can look compelling, especially when labor rates, currency conditions, or financing environments temporarily favor a region. But cost advantages rooted in short-term conditions rarely persist.  

Over time, underlying economic and policy factors reshape the cost structure. In Mexico, for example, a strengthening peso, rising interest rates, and government-supported labor increases of 6-10% have steadily increased supplier costs.  

In the past 18 months alone, many suppliers have approached customers with price increases in the range of 12-14%. Added uncertainty around tariffs and future trade agreements has further complicated long-term cost planning. What once looked like a stable nearshoring solution now requires much closer scrutiny. 

 Mexico was widely expected to be a near-universal answer for nearshoring. In practice, macroeconomic pressure has reshaped that assumption. Currency strength, labor cost escalation, and financing conditions have combined in ways that make long-term cost predictability far more difficult than many sourcing plans initially anticipated.  

The result is more realistic cost expectations, fewer pricing surprises, and sourcing decisions that remain viable beyond the first contract cycle. 

• Lesson 3: Supplier Readiness Determines Outcomes More Than Geography

 Diversification efforts often assume that expanding into a new country automatically expands manufacturing capability. In practice, geography is a weak proxy for readiness. Capacity, technical expertise, quality systems, tooling depth, and execution discipline vary widely within every market. It’s those differences that determine whether suppliers can perform consistently at scale.  

We’ve found that expanding into a new country without matching capabilities to product requirements often leads to disappointment – not because suppliers are unwilling, but because the ecosystem isn’t built to support the work at scale.  

This becomes especially clear in regions where manufacturing strength is concentrated in specific categories. In Vietnam, for example, significant investment has gone into electrical and electronics assemblies, but mechanical components such as castings, forgings, plastics, and rubber parts remain constrained by limited capacity, raw material dependence, and shortages of skilled manufacturing labor.   

Poland presents a different challenge. While it remains a viable assembly location, rising energy costs, labor regulations, and regional instability have made component-level manufacturing increasingly difficult to support competitively.  

The result is fewer quality issues, smoother launches, and sourcing decisions grounded in what suppliers can reliably execute, not just where they’re located. 

• Lesson 4: Raw Materials and Infrastructure Set the Limits of Execution 

 Sourcing strategies often focus on supplier capability without fully accounting for the systems that support production. Access to raw materials, energy, transportation, and logistics infrastructure plays a critical role in whether suppliers can meet cost, quality, and delivery expectations, especially for mechanical components.  

In India, growing domestic demand has placed pressure on the availability of key materials such as aluminum alloys, steel, and copper. Some suppliers have struggled to secure consistent supply despite having the technical capability to produce.   

At the same time, India’s depth of engineering talent, growing access to capital, and continued infrastructure investment make it one of the most durable long-term sourcing environments, but only when material access and execution are actively managed.  

Addressing these constraints has required deeper coordination, including localized trading and warehousing initiatives such as Bombay Metrics Metals Pvt Ltd, established to help support supplier material access and delivery commitments.  

In Malaysia, strong port infrastructure and a stable business environment support predictable operations, but limited capacity for energy-intensive processes like casting and forging (along with reliance on imported raw materials) can constrain cost and scalability.  

The result is more predictable lead times and sourcing strategies grounded in what the broader production system can support, not just what individual suppliers promise. 

Designing Diversification That Performs Over Time

 Diversification is often treated as a discrete initiative: move sourcing, reduce exposure, and move on. In practice, supply chains operate in environments that continue to evolve. Labor markets shift, policies change, and supplier capabilities mature at different rates. 

 Organizations that perform most consistently treat diversification as an operating model rather than a one-time move. They revisit assumptions, rebalance sourcing as conditions change, and design their supply chains to absorb volatility instead of reacting to it. Over time, this approach strengthens delivery performance and cost stability, even as external conditions continue to change. 

 For manufacturers sourcing mechanical components, the question is no longer where to source next, but how to design a sourcing strategy that holds up under real operating conditions. That design discipline is what ultimately separates resilient supply chains from fragile ones. 

 In our experience, the difference is not intent – it’s whether diversification is approached with clear-eyed realism about what each region can and cannot support. 

 If your sourcing strategy is under pressure or simply due for a reset, it’s worth validating assumptions before performance is impacted. At MES, we evaluate products and sourcing requirements across two to four countries to identify the right balance of cost, capability, and execution.  

 The goal is a supply chain that performs in real operating conditions, supporting consistent, on-time delivery at scale, often targeting performance levels of 99% or better. 

 If you want a clear, grounded view of what will work for your products, we’re ready to have that conversation.