Global manufacturing is undergoing a major shift. What started as a risk-mitigation strategy after the Covid-19 pandemic has now evolved into a structural shift: companies are reducing their dependence on China as a manufacturing hub. Large businesses and corporations are seeking out alternative hubs that can offer similar scale and competitiveness, along with stability.
This “China+1” strategy has prompted MNCs to move their production across multiple countries, with India emerging as one of the biggest beneficiaries. And within that change, the SME segment and smallcaps stand to gain. (Smallcaps are companies listed 251 and below, by market capitalisation, on the Indian stock markets.)
What is China+1?
The China+1 or China Plus One strategy is an approach where businesses are moving beyond China, diversifying their manufacturing and supply chains, and adding other nations to their lineup. For the past several decades, multinationals heavily in China thanks to low labour and manufacturing costs, leading to an over-reliance on the nation. With today’s geopolitical tensions and unforeseen supply chain disruptions, businesses are looking to curb risks and take their manufacturing to other nations. The aim is to expand operations out of China, while not letting go of the base already established in China. So China, plus one other country that can match supply.
Sectors set to gain
While the China+1 opportunity spans multiple industries, much of the growth is unfolding in sectors dominated by small and mid-sized manufacturers. These businesses form the backbone of global supply chains, supplying critical components and specialised products to multinational companies. Backed by rising exports, increased investments and growing integration into global supply chains, these five sectors are leading India’s manufacturing shift.
Electronics manufacturing
- Why: One of the biggest winners, with exports growing, since global electronics companies are looking to build more resilient supply chains post COVID.
- Products: Smartphones, consumer electronics, PCBs (printed circuit boards), semiconductors, telecom equipment, electronic components.
- Outlook: The sector has emerged as a real gainer, and electronics exports grew 41.9% YoY (Apr–Oct FY26), while smartphones became India’s largest export product, valued at ₹2.62 lakh crore in CY2025. The sector has attracted major investments from Apple, Foxconn and Samsung, cementing India’s position in global electronics manufacturing.
Auto components and the EC supply chain
- Why: India is becoming a global sourcing hub as businesses look beyond China and already has a mature auto ancillary and components ecosystem.
- Products: Forgings, castings, transmission systems, braking systems, engine parts, EV motors, battery components, wiring harnesses
- Outlook: India’s auto ancillary sector is already well-established and is home to some of the world’s biggest car makers. In addition, the sector has received government support with the Auto PLI Scheme, which is driving investments in advanced automotive manufacturing and helping Indian suppliers integrate into global value chains.
Engineering goods and precision manufacturing
- Why: With supply chains diversifying, the demand for high-quality engineering products increases, and India offers a skilled workforce and competitive manufacturing
- Products: Industrial machinery, machine tools, precision components, industrial valves, pumps, bearings, aerospace and industrial parts
- Outlook: Engineering exports — including industrial machinery, precision components and capital goods — have become one of India’s fastest-growing export categories as multinational firms diversify supplier bases beyond China. Engineering goods are now among India’s leading value-added exports: in the financial year 2024-25, they accounted for accounting for approx 27% of India’s total exports, valued at a little over $437 billion.
Pharmaceuticals and medical devices
- Why: India already has a globally competitive pharmaceutical industry and is a reliable +1 option for countries seeking to reduce their dependence on Chinese APIs and medical products.
- Products: Generic medicines, APIs (Active Pharmaceutical Ingredient), medical devices, diagnostic equipment, surgical instruments, healthcare consumables.
- Outlook: India still remains one of largest global suppliers of generic medicines. In the last ten-odd years, PLI schemes for pharmaceuticals and medical devices have driven new investments, capacity expansion and exports. India has grown to become the third-largest player by volume in the global pharmaceuticals market, with exports accounting for 50% of production.
Telecom equipment and industrial electronics
Why: Geopolitical concerns around telecom infrastructure and the rollout of 5G networks have encouraged countries to diversify their supplier base
Products: 4G and 5G equipment, routers, switches, fibre-optic equipment, networking hardware, IoT devices
Outlook: With the shift in choosing suppliers, India is now a key exporter of 4G and 5G telecom equipment and networking products, supported by PLI incentives and increasing localisation.
Other sectors to watch
While the sectors above have emerged as the most visible beneficiaries of the China+1 shift, several others are also well positioned to benefit as global supply chains continue to evolve and will be worth watching in the years ahead.
- Specialty chemicals: An important sector to watch as global manufacturers look to diversify their sourcing of high-value chemicals and reduce dependence on China. India’s strong manufacturing base, cost competitiveness and growing exports position the sector for long-term opportunities.
- Textiles and apparel: This segment continues to attract sourcing opportunities as brands diversify their manufacturing base, even with competition from countries like Vietnam and Bangladesh.
- Aerospace and defence manufacturing: This sector is seeing steady growth, supported by increasing localisation, rising exports and India’s growing capabilities in precision engineering.
Reshaping the global manufacturing landscape
The China+1 strategy is no longer a short-term response to geopolitical uncertainty. It is reshaping global manufacturing and supply chains. For India, this presents an opportunity to strengthen its position as a global production hub, particularly in high-value manufacturing within the SME segment — and smallcaps with niche expertise may gain in the long-run. While the pace of growth will vary, businesses with strong export potential, a competitive edge and increasing integration into global supply chains are likely to be at the forefront of this shift.
Sources
India’s China+1 Manufacturing Shift: Winners & Key Players
China+1 Strategy for Manufacturing in India Growth 2026
Production Linked Incentive Scheme Strengthens India’s Manufacturing Capacity and Export Performance