The next phase may not be about replacing China. It may be about building the next layer of the global supply chain.

For the past several years, “China+1” has been one of the biggest phrases in global manufacturing.

The idea was simple: companies that depended heavily on China would establish at least one additional manufacturing or sourcing base elsewhere to reduce exposure to tariffs, geopolitical tensions, logistics disruptions and concentration risk.

India was one of the countries expected to benefit.

And it has.

But by 2026, the story has become considerably more complicated.

China has not disappeared from global supply chains. In fact, UNIDO estimates that China accounted for 32% of global manufacturing value added in 2024, far ahead of every other manufacturing economy. China’s manufacturing output also grew 6.8% in 2025. India, meanwhile, recorded manufacturing growth of 4.7% in 2025. 

So the question for Indian manufacturers is no longer:

“Can India replace China?”

The more useful question is:

“Which parts of the global manufacturing value chain can India realistically capture?”

That is where the next opportunity lies.

---

1. China+1 Is Not Actually “China Minus One”

This is the first misconception Indian manufacturers need to understand.

A company adopting China+1 does not necessarily shut its Chinese factory and move everything to India.

Instead, it may operate:

China + India

or

China + Vietnam + India

or

China + Mexico + India

or

China + multiple regional suppliers.

The objective is risk diversification, not necessarily complete relocation.

Recent reporting illustrates the limitation of a simple China-exit strategy: some companies that moved production away from China have reconsidered because China’s manufacturing ecosystem—supplier density, skilled labour, engineering support, infrastructure and logistics—is difficult to replicate. 

This is an important lesson for India.

India does not need to replace China’s entire factory.

It needs to become an important second node in the global factory.

---

2. China Is Still Extremely Difficult to Replace

The scale explains why.

According to UNIDO’s 2025 Industrial Statistics Yearbook, China’s share of global manufacturing production increased from 2.8% in 1990 to 32% in 2024.

India’s share increased by about 2.1 percentage points over the same period. 

That does not mean India is failing.

Quite the opposite.

It means the size of the opportunity is enormous—but so is the competitive gap.

China has built dense ecosystems around:

• steel
• aluminium
• plastics
• electronics
• batteries
• tooling
• motors
• castings
• chemicals
• machinery
• components
• packaging
• logistics
• industrial automation

A European or American OEM can often find hundreds of suppliers within a relatively small geographic radius.

India is still building that density.

---

3. But Something Important Has Changed in India

India is no longer approaching the opportunity with only low-cost labour.

The manufacturing ecosystem has begun moving toward scale + technology + exports + localisation.

The government’s PLI programmes across 14 sectors had attracted more than ₹2.40 lakh crore of investment by March 2026, with cumulative production/sales exceeding ₹22 lakh crore and exports exceeding ₹15.2 lakh crore. 

The sectors include:

• electronics
• automobiles
• pharmaceuticals
• medical devices
• telecom
• batteries
• solar PV
• specialty steel
• textiles
• white goods
• drones

This matters because supply chains don’t move into countries simply because labour is inexpensive.

They move where there is an ecosystem.

India is now building pieces of that ecosystem.

---

4. The Smartphone Story Shows What Is Possible

Electronics provides perhaps the clearest Indian example.

In FY2014–15:

Electronics production: ~₹1.9 lakh crore

By FY2025–26:

Electronics production: ~₹13.11 lakh crore

Electronics exports increased from roughly ₹38,000 crore to ₹4.24 lakh crore over the same period.

Mobile-phone production rose from around ₹18,000 crore to approximately ₹6.27 lakh crore, while mobile-phone exports increased from about ₹1,500 crore to ₹2.59 lakh crore. 

India is now the world’s second-largest mobile-phone manufacturing country by volume, according to the Indian government. 

This is significant because India did not build this capability by manufacturing one smartphone in isolation.

It began creating:

assembly → modules → sub-assemblies → components → materials → tooling → equipment

That is exactly how a manufacturing ecosystem deepens.

---

5. The Next China+1 Opportunity Is Higher Upstream

This is where the story becomes much more interesting for Indian manufacturers.

India has become very good at certain forms of final assembly.

But assembly alone does not capture the full economic value.

Consider an electronics product:

Finished device

↓

Module

↓

PCBA

↓

IC / semiconductor

↓

connector

↓

camera

↓

display

↓

battery

↓

passive components

↓

materials

↓

tools & machinery

The next opportunity is to move upstream.

India’s Electronics Components Manufacturing Scheme (ECMS) is explicitly aimed at building this deeper ecosystem. By August 2026, 106 projects had been approved under the scheme, involving projected investment of around ₹69,548 crore, according to MeitY. 

That tells us something important:

The next China+1 opportunity may not be assembling products. It may be supplying the factories that assemble them.

---

6. There Is Already Evidence of This Shift

One of the most interesting developments is happening in India’s electronics trade with China itself.

According to Commerce Department data reported by Business Standard, India’s PCBA exports rose more than 20-fold in FY2026 to about US$1.9 billion, while exports of PCBAs to China alone rose to approximately US$1.5 billion. 

That sounds counterintuitive.

Why would India export components to China?

Because global manufacturing is becoming more interconnected.

China can remain a major manufacturing hub while sourcing certain components from India.

This means the future is not necessarily:

India vs China

It can be:

India + China + Vietnam + Taiwan + Europe + Mexico

with different countries specialising in different stages.

---

7. But There Is a Major Warning Sign

India is still heavily dependent on China for many industrial inputs.

India’s merchandise imports from China reached approximately US$131.6 billion in FY2025–26, with the trade deficit reaching roughly US$112 billion. 

In electronics, the dependency is particularly significant.

A recent study cited by Business Standard found that China supplied at least 80% of India’s imports across 71 electronics product lines in FY2025–26. The concentration is particularly strong in upstream components such as motors, cables and switching equipment. 

This creates an important paradox:

India is becoming an exporter of manufactured products while simultaneously importing many of the components required to make them.

That is not necessarily bad in the short term.

It is normal for emerging manufacturing economies to import intermediate goods.

But it identifies the next opportunity.

---

8. The Real Opportunity: Manufacture What India’s Factories Currently Import

This is probably the most useful insight for Indian entrepreneurs.

Instead of asking:

“What can I export to America?”

ask:

“What are Indian factories importing today because we don’t manufacture it competitively?”

That question can uncover businesses such as:

Electronics

• connectors
• PCB components
• precision enclosures
• motors
• sensors
• cables
• switches
• power electronics

Automotive

• precision gears
• motor components
• thermal-management parts
• sensors
• electronic assemblies
• specialised fasteners

Renewable energy

• power electronics
• electrical components
• specialised metals
• connectors
• control systems

Industrial machinery

• bearings
• gear systems
• valves
• pumps
• actuators
• precision components

Batteries

• battery-management components
• thermal systems
• current collectors
• specialised materials
• recycling equipment

The opportunity is not simply export substitution.

It is building an Indian industrial supply chain that can subsequently export.

---

9. Where India Has Already Built Momentum

Several sectors deserve attention.

Electronics

This is the most visible success story.

India’s electronics exports reached about ₹4.24 lakh crore in FY2025–26. 

---

Automobiles and Auto Components

The PLI-Auto programme had attracted approximately ₹44,326 crore of investment by March 2026. 

India already possesses one of the world’s largest automotive supplier ecosystems.

The opportunity is to move from:

ICE components

toward:

EV + electronics + software-enabled hardware + precision components.

---

Pharmaceuticals

India already has a globally significant pharmaceutical industry.

The government has also been attempting to reduce dependence on imported APIs and key starting materials.

The bulk-drugs PLI scheme had created capacity for several critical APIs and related products, with 39 projects commissioned by June 2026. 

That creates opportunities in:

• APIs
• intermediates
• pharmaceutical machinery
• packaging
• laboratory equipment
• specialty chemicals

---

Solar

The solar manufacturing ecosystem is expanding rapidly.

The PLI programme for high-efficiency solar PV modules had attracted approximately ₹64,873 crore of investment by March 2026, according to government data. 

But again, the bigger opportunity isn’t necessarily only manufacturing the finished module.

It is the supply chain around it.

---

10. Engineering Could Be India’s Biggest China+1 Opportunity

This deserves special attention.

India’s engineering exports reached approximately US$122.43 billion in FY2025–26.

The EU accounted for approximately 18% of India’s engineering exports, and engineering exports to the EU grew about 8.6% during FY2025–26. 

Engineering gives India an advantage because the ecosystem already exists.

India has:

• foundries
• forging companies
• CNC machining
• heat treatment
• fabrication
• electrical equipment
• automotive suppliers
• industrial machinery
• tooling
• engineering design

The challenge is to connect these capabilities to global procurement systems.

---

11. The Next China+1 Isn’t One Industry

It is a layered opportunity.

Think of manufacturing as a pyramid.

Layer 1 — Finished Products

Phones
Cars
Machines
Solar modules

↓

Layer 2 — Assemblies

PCBA
Battery packs
Motors
Power systems

↓

Layer 3 — Components

Gears
Connectors
Sensors
Valves
Housings

↓

Layer 4 — Materials

Specialty steel
Chemicals
Copper products
Magnetic materials

↓

Layer 5 — Manufacturing Infrastructure

Machine tools
Robots
Testing equipment
Industrial software
Tooling

India’s greatest opportunity may be in moving up and down this pyramid simultaneously.

---

12. The Machine-Building Opportunity Is Particularly Interesting

Here’s a question Indian manufacturers should start asking:

If India is going to build 100 more factories, who will manufacture the equipment used inside them?

Every new factory requires:

• CNC machines
• robots
• conveyors
• compressors
• furnaces
• testing equipment
• inspection systems
• electrical panels
• automation
• sensors
• tooling
• material-handling equipment

This creates a second-order China+1 opportunity.

Instead of manufacturing the final product, manufacture the machinery that manufactures the product.

That is a potentially much deeper industrial opportunity.

---

13. India Should Stop Thinking Only About Labour Cost

China’s competitive advantage is not simply cheap labour.

Its ecosystem includes:

supplier density

• ●

infrastructure

• ●

engineering

• ●

scale

• ●

logistics

• ●

automation

• ●

capital

• ●

speed

That is why some companies that moved manufacturing away from China have subsequently faced difficulties reproducing the same economics elsewhere. 

India’s competitive proposition therefore needs to become:

Competitive cost

• ●

engineering capability

• ●

reliable infrastructure

• ●

quality

• ●

digital manufacturing

• ●

scale

• ●

geopolitical diversification

That is a much stronger proposition.

---

14. The MSME Opportunity Is Bigger Than It Looks

Suppose a large electronics company establishes a plant in India.

The obvious business opportunity is:

Supply the company directly.

But the bigger ecosystem may include hundreds of smaller businesses supplying:

• metal brackets
• moulded plastics
• fasteners
• packaging
• precision machined parts
• tooling
• cables
• connectors
• logistics
• maintenance
• industrial automation
• testing
• clean-room equipment
• consumables

This is where India’s MSME sector becomes critical.

The China+1 opportunity does not belong only to Tata, Foxconn, Samsung or large industrial companies.

It can create an entire supplier economy around them.

---

15. What Should an Indian MSME Do Differently?

This is where the article needs to become practical.

If you are a ₹5–100 crore manufacturing company, don’t ask:

“How do I become a global manufacturer?”

Start with:

Question 1

Which global company is already manufacturing in India?

Question 2

What does its Indian factory import?

Question 3

Which of those imported products could we manufacture?

Question 4

What quality standard does that company require?

Question 5

Can we become an approved supplier?

Question 6

Once qualified in India, can we supply the company’s plants overseas?

That is a much more realistic China+1 strategy.

---

16. A Practical China+1 Opportunity Map

Opportunity

India’s position

What to build

Electronics assembly

Strong and growing

Components + sub-assemblies

Auto components

Strong

EV/electronic/precision components

Pharmaceuticals

Strong

APIs + intermediates + equipment

Solar

Rapidly expanding

Components + manufacturing equipment

Industrial machinery

Established

Precision + automation

Defence manufacturing

Expanding

Components + systems

Semiconductors

Emerging

Packaging + materials + equipment

Batteries

Emerging

Components + materials + recycling

Industrial automation

Growing

Robots + controls + integration

Tooling

Underdeveloped relative to need

Dies, moulds, fixtures, precision tools

---

17. The Biggest Mistake India Could Make

India could misunderstand China+1 as:

“Companies are leaving China, therefore they will automatically come to India.”

They won’t.

Companies have choices.

Vietnam

Thailand

Malaysia

Mexico

Indonesia

Eastern Europe

India

and sometimes China itself.

The real competition is not:

India vs China.

It is:

India vs every other location competing to become the next reliable manufacturing node.

---

18. So Where Should India Focus?

The data suggests several directions.

1. Move from assembly to components

Electronics provides the clearest example.

2. Move from components to materials

Specialty steel, chemicals, battery materials, magnetic materials.

3. Build industrial machinery

The factories of tomorrow need machines.

4. Build supplier ecosystems around large factories

MSMEs should follow the anchor companies.

5. Build export-grade quality systems

Global buyers don’t purchase only capacity.

They purchase repeatable quality.

6. Digitise manufacturing

Traceability, production visibility and quality data increasingly matter to global customers.

7. Develop engineering capability

Design-for-manufacturing and value engineering can create much higher-value relationships than contract production alone.

---

19. The “China+1 Factory” of 2026 Looks Different

The old model:

China factory

↓

Export

The emerging model:

China

• ●

India

• ●

Vietnam

• ●

Mexico

• ●

Europe

with each location specialising in particular:

• components
• assembly
• engineering
• logistics
• markets
• risk management

India’s goal should therefore be to occupy high-value positions within this network.

---

20. What Should a ₹20 Crore Factory Do in the Next 12 Months?

Here’s the practical MFG Magazine playbook.

Month 1–2: Map your products

Identify your top 20 products.

Find:

• HS code
• material
• manufacturing process
• cost
• capacity
• current customers

Month 2–3: Find the import opportunity

Identify products currently imported into India from China, Vietnam, Taiwan or other countries that match your capabilities.

Month 3–4: Select 3 opportunities

Don’t chase 50 products.

Choose three.

Month 4–6: Build capability

Invest in:

• tooling
• inspection
• automation
• certifications
• process engineering

Month 6–9: Target anchor customers

Find large manufacturers establishing or expanding production in India.

Target their supplier ecosystem.

Month 9–12: Qualify

Get:

samples → audits → pilot production → approval → commercial order

This is much more achievable than trying to become a global exporter overnight.

---

21. The New Manufacturing Business Model

The winning model may increasingly look like:

Global OEM

↓

Indian Tier-1

↓

Indian Tier-2

↓

Indian MSME

Instead of an Indian MSME asking:

“How do I export to America?”

it can ask:

“Which global company’s supply chain is entering India, and what can I manufacture for it?”

That is a much more powerful question.

---

22. The Numbers Tell a Story

Three numbers are particularly revealing.

32%

China’s share of global manufacturing value added in 2024. 

₹15.2 lakh crore

Cumulative exports generated by India’s 14 PLI sectors by March 2026. 

₹4.24 lakh crore

India’s electronics exports in FY2025–26. 

These numbers tell us something important:

China remains enormous.

But India’s manufacturing base is also becoming materially different from what it was a decade ago.

---

23. The Opportunity Is No Longer “China+1”

Perhaps the most important conclusion is that the phrase itself is becoming outdated.

The next phase could better be described as:

China + X

Where X could include:

India + Vietnam + Mexico + Indonesia + Eastern Europe + other specialised hubs.

Supply chains are becoming multi-node rather than simply moving from one country to another.

That is why India’s objective should not be:

“Take China’s manufacturing share.”

It should be:

“Become indispensable in selected global supply chains.”

---

What Indian Manufacturers Should Do Now

1. Stop chasing “China replacement” headlines.

Look for specific products.

2. Identify what large Indian factories are importing.

That is your immediate opportunity map.

3. Move upstream.

Components → materials → machinery.

4. Follow the anchor companies.

When a global company establishes a plant, study its entire supplier ecosystem.

5. Become qualification-ready.

ISO, IATF, testing, traceability and customer-specific standards matter.

6. Invest in automation where it improves cost and consistency.

Not simply because automation looks modern.

7. Build export capability even if you start domestically.

Global customers increasingly evaluate suppliers against global standards.

8. Build engineering capability.

The higher-value relationship is often:

Design → Engineer → Manufacture → Supply

rather than simply:

Make → Ship.

---

The MFG Magazine Takeaway

The China+1 opportunity is not ending.

It is evolving.

The first phase was largely about:

“Where else can we manufacture?”

The next phase is about:

“Which parts of the supply chain should exist in each country?”

China will remain a manufacturing powerhouse. UNIDO’s data makes that clear. 

India does not need to replicate China’s entire industrial system to benefit.

It needs to become exceptionally good at selected parts of the global manufacturing chain.

And the opportunity is already visible.

India’s electronics exports have exploded. PLI investment has crossed ₹2.4 lakh crore. Engineering exports are growing. Manufacturing FDI reached US$19.04 billion in FY2024–25, up 18% from the previous year. 

But there is another equally important signal:

India still imports enormous quantities of industrial components and inputs from China. 

That means the next opportunity is sitting in the gap between the two.

India is building factories. Now it needs to build the industries that supply those factories.

For an Indian manufacturing entrepreneur, that may be the real China+1 opportunity of 2026–2030.

---

A 5-Question Test for Any Indian Manufacturer

Before investing in a new product, ask:

1. Is India currently importing this product?

2. Is the import concentrated in China or another dominant supplier?

3. Is domestic demand growing because new factories are being built?

4. Can we manufacture it at globally competitive quality and landed cost?

5. Can the same product eventually be exported?

If the answer to all five is yes, you may have found something much more valuable than another export product.

You may have found a China+1 manufacturing opportunity.

---

Data note

This article uses 2025–26 data where available and distinguishes current manufacturing performance from longer-term strategic interpretation. Government programme figures such as PLI investment and exports are reported programme-level figures and should not be interpreted as equivalent to India’s total manufacturing output or exports. Trade and manufacturing conditions can change rapidly, particularly because of tariffs, logistics disruptions and geopolitical developments.