Is Europe-plus-One the new China-plus-One?

Is Europe-plus-One the new China-plus-One?

With the closing of Nord Stream 1 in Russia, Europe’s gas crisis has worsened and is slowly starting to take a permanent shape since Russia shut down the supply without intimating a date of reopening. Consequently, there are fears looming large over the European economy and other countries.

China-plus-one is a strategy in which companies avoid investing only in China and diversify their businesses to alternative destinations. China was an attractive investment location due to the low cost of labour and production and an increasing domestic consumer market. Companies started to think of alternative locations to invest because of the supply chain disruptions during the past year caused by the pandemic and China’s zero-Covid policy. This was fueled by associated container shortage thus causing uncertainty and disrupted the supply of materials. Additionally, China brought out a data privacy law that specified how they collect and store data. This caused foreign technology companies to downsize their presence in China’s mainland.

The China-plus-one model gave the EU, Mexico, Taiwan, and Vietnam a boost because companies began investing in these alternate locations. India was also at an advantage since MNCs started investing in emerging countries and India was a viable option because of its low production cost and favorable business environment.

There are fears that companies might start to disinvest across Europe because of poor gas supply. This may cause blackouts and shortages all through winter. Factory shutdowns may also be a consequence. Europe will also propose a mandatory target for reducing electricity consumption. This will eventually lead to lower production and supply chain disruptions thus causing losses for companies with manufacturing units across Europe.

This makes India an attractive destination for investment. The huge investment by the government in infrastructure will prove to be a boon as it will accelerate foreign investment. India can provide a base for the manufacturing and production units of large companies if it takes steps to promote such investment.

Many big chemical players have confirmed that they have already started experiencing a hit. Plants are running at low capacity in Europe.

All in all, Europe began to record a record-high inflation at the beginning of the Russia-Ukraine war. The permanent shutting off of Nord Stream 1, along with the incoming of winter, has exacerbated the problem. Thus high gas prices and inflation all across Europe might scare off investors. Although it is one perspective but things might work out in India’s favor if investors are sufficiently attracted towards investing here.



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Views expressed above are the author’s own.



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