Should You Transfer Production Out of China? Key Factors to Evaluate Before Making the Move

It’s no surprise that companies have been re-evaluating their supply chains. Surprisingly, it’s not just companies exporting to the United States that are looking for other options. Companies exporting to Europe, Australia, and other markets are also evaluating how to build greater resilience into their production strategy. Tariffs, shifting trade policies, and geopolitical uncertainty have prompted global manufacturers to assess whether they should continue relying heavily on China or diversify into other regions such as Thailand, Vietnam, or Mexico. 

However, transferring production is not as simple as selecting a new factory. China has become the manufacturing hub of the world because of their engineering expertise, their supply chain network, and also its infrastructure. For some products, moving production can reduce tariff exposure and strengthen supply chain flexibility. For others, leaving China may introduce new risks, higher costs, and slower development cycles. 

The goal of this blog is to help you determine whether transferring production out of China makes sense for your product. For each topic, we’ll outline when staying in China is likely the better option and when exploring a phased China +1 strategy or full relocation strategy may offer strategic advantages.

Engineering Resources & Technical Support

One of China’s strongest advantages is the depth and availability of engineering resources across nearly every product category. Whether you are developing an electromechanical product, refining a complex plastic assembly, or iterating on tooling during early production, having access to engineers who can quickly diagnose issues and recommend improvements is valuable. In China, engineers, toolmakers, and supply chain partners are often located within the same city (ie. Dongguan or Shenzhen), making communication faster and problem-solving more efficient. If your product is still evolving or you expect to make regular revisions, staying close to this ecosystem can significantly reduce development time and avoid costly miscommunication.

When production is moved to a new region, the level of hands-on engineering support can vary widely. Some manufacturing regions have skilled labor but fewer specialists who can support design changes, DFM discussions, or assembly troubleshooting. This can result in slower response times, more back-and-forth, and greater reliance on remote communication, which may not be ideal if your product still requires refinement.

Key Takeaways: If your product requires ongoing engineering support, frequent changes, or tight tolerances, maintaining production in China, or at least keeping the PVT build there will generally lead to better outcomes.

Supply Chain & Component Availability

China’s supply chain remains the most integrated in the world. For most consumer products, especially those that combine plastics, metals, electronics, packaging, and surface finishing, the majority of required components can be sourced within a few hours of the assembly facility. This proximity reduces lead times, simplifies communication, and allows suppliers to work closely together to resolve issues quickly. When something needs to be changed, whether it’s a material selection, a surface finish, or the tolerances of a machined part, the supporting suppliers are already nearby and accustomed to working collaboratively.

When production shifts to Thailand, Vietnam, India, or Mexico, the supply chains are less mature. You may find an excellent final assembly partner, but the components they require might still need to be imported from China. This scenario is extremely common: tooling remains in China, PCB assemblies and packaging are both are sourced from Dongguan, even though final assembly takes place in Thailand. While this can still be a viable strategy, it requires careful planning to avoid new bottlenecks in logistics, lead time, and cost.

Key Takeaways: If your BOM is complex or if your product relies heavily on specialty suppliers making custom parts, maintaining at least part of your supply chain in China, or implementing a phased China +1 strategy, is often the most practical approach.

Volume Requirements

Production volume is another key factor when evaluating whether to move manufacturing out of China. China’s factories are uniquely flexible. Many suppliers are comfortable supporting low-to-medium production volumes. This flexibility is possible because China’s workforce, production infrastructure, and component suppliers are accustomed to handling a wide range of order sizes.

In contrast, several alternative manufacturing regions are structured differently. Thailand, for example, has become known for taking on high-volume, stable production runs, particularly in consumer electronics and automotive, but may be less inclined to support low-volume or frequently changing orders. Mexico offers strong labor cost advantages and proximity to the U.S. market, but many factories there prefer large, repeatable orders or contract-based long-term programs. Smaller-volume companies may find extended lead times or higher minimum order quantities when transitioning to these regions.

If your volumes are still fluctuating, if you release product in batches, or if you don’t expect to scale now but in the future, there is strategic value in staying in China until your demand is consistent and predictable. Once volumes increase, it becomes easier to justify relocating all or part of the production.

Key Takeaways: If your production volumes are low or variable, or if your product is still early in its growth curve, keeping production in China is typically the most efficient and cost-effective option.

Product Differentiation

Another important factor to consider is how differentiated your product is. China’s manufacturing strengths are when the product has unique features, complex assembly steps, or requires tight coordination across multiple suppliers. When a product is highly differentiated, the supplier’s engineering team, problem-solving capability, and ability to iterate quickly all become part of the value you are paying for. In this case, China provides a strong advantage because design adjustments, fixture improvements, tooling modifications, and prototype updates can be executed quickly and with minimal disruption.

However, when a product becomes more standardized (or more of a commodity), the strategic value of staying in China decreases. If your product is easily produced by many suppliers, has simple assembly steps, or does not require ongoing engineering support, then lower-cost regions can be viable alternatives. For example, basic plastic housings, metal brackets, simple mechanical products, and low-complexity assemblies often transition well to Thailand, Vietnam, India, or Mexico. These regions may offer lower labor costs and competitive pricing without sacrificing quality, especially once the product design is fully stable.

Before moving, evaluate how much of your product’s value comes from unique engineering and how much comes from manufacturing execution alone. This helps determine whether China’s advanced capabilities are still required or whether another region can produce the same level of quality and repeatability.

Key Takeaways: If your product is highly specialized or still evolving, staying in China provides strategic advantages. If your product is more standardized and stable, transferring production out of China can be a practical and cost-effective move.

Tariffs, Duties, and Country-of-Origin Strategy

Tariffs and trade policies are one of the most common reasons companies consider shifting production out of China. For brands selling into the U.S., Section 301 tariffs can significantly increase landed cost. For companies selling into Europe or Australia, shifting trade agreements and import duties can also influence margins. However, the decision to move should not be based on tariffs alone, because where final assembly occurs often determines the country of origin (COO) labeling and the duty rate.

In many cases, companies choose a China +1 approach instead of a full relocation. Under this strategy, components and sub-assemblies may still be sourced from China, but the final product assembly and testing are completed in a different country such as Thailand or Mexico. This allows companies to benefit from China’s supplier base while still qualifying for a different country of origin and potentially avoiding certain tariffs. It also provides flexibility: production capacity can be adjusted across regions in response to future policy changes, rather than being locked into one country.

However, moving the final assembly to another region still requires planning. New quality processes must be validated, assembly training must be standardized, and packaging and logistics need to be coordinated. Brands should avoid rushing into transfers solely for short-term tariff relief without evaluating total cost and operational risk.

Key Takeaways: If tariffs materially affect your landed cost, and if your product’s assembly can be transferred, pursuing a phased China +1 approach may be the most strategic way to reduce duty exposure while maintaining supply chain reliability.

Labor Costs & Workforce Stability

Labor cost is often cited as a reason to consider moving production out of China. While wages in China have increased over the past decade, productivity has increased alongside them. Many factories in China have highly trained operators, efficient workflows, and established training systems, meaning higher labor rates can still translate into competitive unit pricing due to fewer errors, faster cycle times, and more mature production planning.

In contrast, when moving production to lower-cost regions such as Thailand, Vietnam, India, or parts of Mexico, the wages may be lower, but the workforce may require more training, oversight, and iteration before quality stabilizes. Additionally, employee turnover and labor availability vary by region, some regions experience high seasonal fluctuation, while others have limited pools of skilled technicians.

The result is that labor cost savings are not always as straightforward as comparing hourly wages between countries. A highly efficient line in China may produce more consistent results, and ultimately lower costs, than a new line in a lower-cost region that requires more supervision or experiences higher rework levels during early runs.

Key Takeaways: If your product requires skilled assembly or specialized operator training, China’s workforce stability and production maturity can still offer meaningful cost and quality advantages.

Quality Control & Process Maturity

China has had decades to refine quality control practices, process discipline, and supplier collaboration. Many factories have well-established workflows for incoming inspection, in-process checks, line audits, functional testing, and packaging verification. This maturity allows production issues to be identified and corrected quickly, often before they impact larger builds.

When transitioning production to another region, even a capable supplier may not have the same depth of experience with your specific product category or the same degree of process standardization. It’s common to see an increase in line variation or cosmetic defects during early production runs while the new supplier and their operators gain familiarity with the product. Additional documentation, training, supervision, and audits are typically required to stabilize quality and achieve the consistency many brands are accustomed to in China.

This doesn’t mean that other regions cannot deliver excellent quality, it simply means the ramp-up process may take longer, particularly for products with tight tolerances, multiple components, or sensitive surface requirements. Companies should be prepared for a phased transition that includes pilot runs, golden samples, and validation milestones before full production is released.

Key Takeaways: If your product demands consistently high cosmetic standards, tight mechanical tolerances, or complex testing requirements, staying in China or moving to a supplier with strong China-trained process leadership can help maintain quality stability while minimizing launch risk.

Lead Time

Shifting production out of China introduces new variables that can affect lead times. When your entire supply chain is concentrated within a single region, components move quickly between suppliers. This close connection is nearly impossible to replicate outside of China. 

When production is moved to regions such as Thailand, Vietnam, India, or Mexico, the supporting components may still originate in China. This means material lead times, freight coordination, customs clearance, and supplier scheduling all play a larger role in determining how quickly production can ramp and respond to demand changes. Even if the final assembly is efficient, the added logistics layers can introduce unpredictability, especially during the early transition period.

Additionally, transferring production requires time for validation runs, pilot builds, tooling transfers or requalification, and training of assembly teams and quality inspectors. These steps are necessary to stabilize output, but they extend timelines compared to continuing production in a system that is already running smoothly.

For brands with seasonal sales peaks, frequent product refreshes, or short fulfillment cycles, a rushed or poorly phased migration can cause stockouts or missed launch windows.

Key Takeaways: If lead time stability and responsiveness are critical, a phased transition, such as moving only final assembly or certain SKUs, may be more effective than a complete relocation all at once.

IP Protection & Control

Intellectual property (IP) protection is often part of the conversation when evaluating whether to move production out of China. While China’s reputation in this area has improved significantly, risks still vary depending on the region, the factory type, and the maturity of the relationship. The more subcontracting a supplier does, the harder it becomes to control where your designs, tooling, or internal processes are being replicated or discussed.

When you shift production to a new region, however, IP risk does not automatically decrease. In many countries, the supplier networks are more fragmented, and oversight is less consistent. If the factory relies on multiple external vendors for critical components, drawings, and product details may pass through more hands. Additionally, a new supplier may not yet fully understand which aspects of your design are most sensitive, meaning additional controls and communication are needed during the early stages of the relationship.

For brands manufacturing complex or differentiated products, the safest approach is not simply choosing a new country; it is choosing a partner with in-house capabilities, controlled production processes, clear traceability systems, and strong contractual and operational safeguards in place. In some cases, this may be a Western-managed factory in China or a China-trained technical team operating in Thailand or Mexico.

Key Takeaways: If your product has proprietary mechanical designs, firmware, or specialized manufacturing processes, prioritize suppliers with strong internal process control. Moving production without proper IP protocols can transfer risk, not eliminate it.

Conclusion: Should You Transfer Production Out of China?

Deciding whether to transfer production out of China is not a simple yes-or-no decision. It requires evaluating your product’s complexity, the level of engineering support it needs, the maturity of its supply chain, your volume stability, and your goals related to tariffs, cost structure, and long-term resilience. For many companies, the most practical approach is not a full relocation, but a phased China +1 strategy, where critical components, tooling, or early production builds remain in China, while final assembly or overflow capacity is developed in regions like Thailand, Vietnam, or Mexico. This approach reduces risk, maintains access to China’s engineering and supplier ecosystem, and provides flexibility as market conditions evolve.

There are situations where moving production makes clear sense, particularly when the product is stable, commoditized, and produced in high enough volumes to justify the transition. There are others where China’s engineering density, supply chain speed, and production maturity continue to provide significant advantages. What matters most is aligning your manufacturing location with the realities of your product, your operations team, and your growth strategy, not simply reacting to short-term cost changes or political headlines.

Taking the time to evaluate these factors upfront leads to a more resilient supply chain, smoother production transitions, and fewer surprises during scale-up. If you approach the decision strategically, it becomes less about where you manufacture today and more about where your supply chain needs to be positioned for the future.