Beyond China dependency: Building resilient industrial automation supply chains

Alex West

Senior Principal Analyst, Manufacturing Technology

Pillar 1: Assessing risks

Regional manufacturing
market risk assessment

Geopolitical uncertainty and tariff and export controls are challenging industrial automation supply chains. Most significant in impacting sourcing risk is the escalating trade tensions between the United States and China, which also have downstream impacts. Continued tariffs and export controls on key products and components from rare earth materials to advanced semiconductor chips have also significantly impacted industrial automation and manufacturing, driving price increases and supply chain resilience concerns.

China's role in this picture is difficult to overstate and even more challenging to quickly resolve. The country accounts for ~30% of global manufacturing output and 41% of industrial machinery produced in 2025, according to Omdia's Machinery Production Market Tracker. It dominates rare earth minerals, used extensively for permanent magnets in servo motors, robotics, EVs, smart phones, and much more. But this dominance extends beyond just mining production (~70% of global production) to processing and magnet manufacturing (>90%). This means simply addressing geographically new sources of the material does little to decouple China's dominance in this market. Efforts to develop alternative motor architectures that reduce rare earth dependency are underway but remain at an early stage.

However, supply chain concentration risk in this sector extends well beyond the components that appear on a standard risk register, especially given the complexity of the industrial sector. The automotive industry, a major end market for industrial automation, illustrates the challenge. Taking the example of a large original equipment manufacturer (OEM), Toyota manages approximately 400 Tier 1 supplier relationships, but its full network extends to around 60,000 companies across four tiers. However, beyond Tier 1, its visibility drops sharply, yet majority of supply disruptions originate in lower tiers.

The current Middle East conflict has further disrupted an already fragile supply chain, moving beyond oil to less discussed feedstocks that whilst seemingly innocuous, can be critical points of failure across supply chains. According to Dow Chemical CEO, Jim Fitterling, up to 50% of polyethylene supply is offline, constrained or impacted. The feedstock shortage has a knock-on effect on a range of materials including protective packaging such as bubble wrap. This can prevent the safe shipment of semiconductor components, ultimately halting production of products from automation to vehicles.

Resource shortages are also a growing point of concern. A global copper shortage is imminent, with a projected 10-million-ton deficit by 2040. Data centers are a primary contributor to this, with AI hyperscale data centers requiring three times more copper than traditional power and cooling buildings, according to the Copper Development Association. Demand is expected to triple by 2030.

How concerned are you about copper shortages impacting data center growth?

Very concerned — it's a critical issue
Somewhat concerned
Not concerned — solutions will emerge

Pillar 2: Identifying opportunities

For industrial automation, in the short term, this means higher production prices, as copper can account for 30% of motor costs. Consequently, lead times for motors and cabling are stretching significantly. Long-term access to resources should be an increasing concern for automation vendors as they plan.

These supply chain challenges are creating strategic openings. For industrial automation, the most immediate is product bifurcation. The quality of Chinese automation vendors, such as Inovance, ESTUN, etc. satisfy most requirements but at price points typically 30–40% below similar Western products. This "good enough" ceiling, combined with Chinese government subsidization for Chinese products on government projects, has created an uneven playing field for foreign vendors.

Many Western vendors have introduced a "China for China" approach, which is extending beyond production to a more holistic localization strategy including RND, HR, sales and marketing etc., to ensure rapid innovation and support for local customers. Illustrating this shift from global product adaptation to local co-innovation, Siemens launched 18 products specifically for the China market across automation hardware and software as part of its "China Accelerates 2.0" strategy.

In early 2025, Mitsubishi Electric launched the Lingling brand, aimed at the Chinese market and complementing the core Mitsubishi Electric portfolio rather than replacing it. Similarly, in November 2023, Bosch Rexroth signed a joint venture agreement with Zhejiang Hechuan Technology, targeting the Chinese automation market, while also acquiring a minority stake in HCFA using local partners cost structures and market relationships to compete.

At the same time, there is growing demand for "non-red" supply chains, those carrying no Chinese-origin components, particularly in defense-adjacent industrial sectors and critical national infrastructure, such as semiconductors. This is accelerating reshoring of manufacturing investment into regions such as Vietnam and Malaysia in Southeast Asia, India, and Mexico, as credible alternative sourcing and manufacturing locations. This shift is being accelerated by local manufacturing nationalization efforts.

Manufacturing market
opportunity identification

Pillar 3: Implementing strategies

Many vendors have adopted a "China Plus One" strategy—maintaining Chinese manufacturing while adding a single alternative production location, typically in Southeast Asia. However, the fragility of this approach has been highlighted with recent supply chain shocks and emphasizes that a single alternative production source doesn't provide the necessary resilience when disruption is widespread. Having at least two geopolitically distinct regions beyond China is becoming a necessity.

After the semiconductor shortage of 2021-22, manufacturing companies have started switching from a "just in time" manufacturing strategy to selectively considering "just in case" for components that are more critical, have the longest lead times, or are single-sourced.

Hub-and-spoke manufacturing design supports this approach practically. Regional assembly and customization centers drawing on standardized, modular platform architectures allow vendors to meet local certification, language, and integration requirements without duplicating full manufacturing capability in every market.

Manufacturing sourcing
strategy implementation

There are several examples of industrial automation vendors investing in a diversified supply chain strategy. Schneider Electric is building out regional hubs in North America, Europe, China, and India. Its target is for these to account for 90% of sourcing and manufacturing. To this end, it is investing $700 million in the US through 2027, its largest US capital commitment, which will span eight sites across six states.

In 2024, Rockwell Automation decided to open a 98,000-square-foot manufacturing facility in Chennai, highlighting how companies are addressing these challenges. With the investment, Rockwell, historically one of the more US-centric of the major automation vendors, is ensuring supply chain resilience and Asia Pacific market proximity. Equally relevant is adherence to India's BIS certification, which requires local manufacturing to access government and public sector procurement.

The insights in this chapter ‘Beyond China dependency: Building resilient industrial automation supply chains’ is derived from:

Alex West
Senior Principal Analyst