Key Considerations for Foreign Businesses in Cross-Border Restructuring

Cross-border restructuring demands more than shifting production. This article outlines critical factors stakeholders must evaluate—from location strategy and tax structuring to workforce planning and customer continuity—offering a high-level roadmap to help businesses mitigate risk, capture regional advantages, and make restructuring efforts sustainable and successful.

As trade tensions reshape global supply chains, foreign-invested companies in China are under increasing pressure to adapt. For many, cross-border restructuring—shifting part of their operations to other Asian markets while retaining a China presence—offers a way to reduce geopolitical exposure without sacrificing market access or supply chain strength. But while the strategy is conceptually appealing, the path to implementation is far from simple.

Cross-border restructuring involves far more than choosing a new location and moving production lines. It is a complex, multi-layered transformation that touches nearly every part of a business, from tax structure and legal compliance to human resources, logistics, technology systems, and intellectual property (IP). Missteps in any of these areas can erode the intended benefits and lead to operational, financial, or reputational setbacks.

Moreover, restructuring decisions must be forward-looking. Companies not only need to consider current cost structures and regulatory risks but also assess the long-term scalability, digital readiness, and sustainability of new operations. The restructuring must also account for the company’s broader goals: maintaining customer satisfaction, preserving supplier relationships, and ensuring compliance across multiple jurisdictions.

This article unpacks the key considerations that companies must address to restructure successfully. From choosing the right host country and navigating outbound investment rules to ensuring tax efficiency, protecting IP, and managing workforce transitions, we provide a framework to guide businesses through the complexity, so as to move not just quickly, but wisely.

Rethinking the China operation: What stays, what shifts, and why?

For companies pursuing cross-border restructuring, one of the most difficult decisions lies in what to do with what they already have, particularly their China operations. The answer isn’t straightforward, and the stakes are high. China remains indispensable as both a market and a production base, but its strategic role is evolving under the pressures of geopolitics, rising costs, and compliance complexity. How companies respond depends on a clear-headed assessment of multiple factors.

First, what function does the China operation serve today—and tomorrow? For some firms, China is still a primary export base; for others, it’s increasingly a domestic market center, R&D hub, or supplier of high-spec inputs. A company with deep customer relationships or embedded supply chain ties in China will make different choices than one that has relied primarily on low-cost manufacturing. Cross-border restructuring starts with mapping these functional roles and evaluating whether each still aligns with the company’s goals and risk appetite.

Second, what are the operational, legal, and financial implications of scaling back? Downsizing in China isn’t as simple as flipping a switch. Labor laws mandate consultations, severance, and—in many cases—union engagement. Disposing of equipment may require approval, especially for sensitive sectors or foreign-owned assets. There may also be tax consequences related to asset transfers or capital gains. Companies must weigh these exit costs against the long-term savings and strategic advantages of relocation.

Third, which activities should be retained, and which can be relocated or phased out? A nuanced approach often works best. For example, labor-intensive processes may move to Vietnam or Indonesia, while value-added functions such as product customization, engineering, or quality control stay in China. Similarly, firms in regulated industries (e.g., pharma, food, or automotive) may find that retaining local compliance functions or partner-facing teams is non-negotiable.

Fourth, what are the reputational and relational consequences? Abrupt downsizing can raise red flags with Chinese regulators and local governments, particularly in regions that have offered incentives or supported job creation. Relationships built over the years with suppliers, JV partners, or officials can fray if restructuring is handled poorly. Transparent communication, compliance with local law, and even proactive outreach to explain the strategic rationale can help preserve goodwill.

In essence, there is no one-size-fits-all model. The smart play isn’t to withdraw from China, but to reconfigure its role—to shift from a one-dimensional manufacturing hub to a selective, high-value node in a diversified regional strategy. The right decision depends on sector-specific dynamics, regulatory exposure, long-term market goals, and the company’s internal capabilities. Cross-border restructuring isn’t just about where to go next; it’s also about what to keep—and why.

Where to go: Strategic location selection is about more than cost

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Cross Country Competitiveness Benchmarking

Choosing the right destination for relocating operations is arguably another one of the most consequential decisions in any cross-border restructuring effort. While labor and land costs remain important, the true calculus goes far deeper. The optimal location varies significantly by industry, and misalignment between a company’s sectoral needs and the new host country’s strengths can quickly erode anticipated gains. Labor cost alone is no longer a sufficient metric. What’s needed is a strategic, sector-informed assessment of operational viability, regulatory fit, and long-term resilience.

Under the current economic situation, trade exposure and country of origin rules are often the first consideration. Restructuring operations to move final assembly or key value-added steps outside China can help companies qualify for trade agreement benefits or avoid punitive tariffs. For example, producing in Vietnam or Malaysia may allow exporters to meet “Made in ASEAN” thresholds that open up preferential access to the US or EU under existing free trade agreements. However, the extent to which this strategy is viable depends on the product’s value chain complexity and origin rule thresholds specific to the sector.

Market access is another strategic lens. A new site that doubles as a regional hub—for instance, tapping into the 600 million-strong ASEAN consumer base—can unlock new revenue streams and justify the upfront investment. However, market access should be evaluated not just for geographic proximity, but also for sectoral demand. For example, consumer electronics firms may view Indonesia as a gateway to a fast-growing middle-class market, while pharmaceutical producers may prioritize regulatory alignment with markets like Japan or the EU.

Equally important is the state of infrastructure and logistics. Reliable energy, modern ports, highway connectivity, and access to industrial zones with digital readiness are all essential. These capabilities must also be assessed in light of industry-specific requirements. A textile manufacturer might prioritize access to ports and labor-intensive zones, whereas a semiconductor firm will demand power stability, water supply, and proximity to a skilled engineering workforce.

Similarly, regulatory stability varies in its implications. For life sciences, medical devices, or food processing, clear and science-based standards are critical. For digital services, countries with open data flows and coherent IP enforcement become more attractive.

Last but not least, incentives are also rarely one-size-fits-all. Governments increasingly tailor tax breaks, R&D grants, and industrial park access to targeted sectors. For instance, Thailand’s Eastern Economic Corridor offers enhanced packages for EV, biotech, and advanced electronics firms, while India’s Production-Linked Incentive (PLI) schemes support textiles and electronics with sector-specific thresholds and goals.

In essence, strategic location selection must align not just with the company’s global footprint and risk profile but also with the specific operational, regulatory, and market dynamics of the sector in question. Businesses that approach site selection through this dual lens—macroeconomic and sectoral—will be better positioned to reap both short-term relief and long-term strategic advantage.

The 2025 Asia Manufacturing Index Rankings*

* BD (Bangladesh); CN (China); IN (India); ID (Indonesia); JP (Japan); MY (Malaysia); PH (Philippines); SG (Singapore); KR (South Korea); TH (Thailand); VN (Vietnam)

Source: Asia Manufacturing Index, Dezan Shira & Associates

Structuring the new operation: Get the vehicle and timeline right

The question of how to enter a new country is just as important as where. In the context of cross-border restructuring, selecting the right legal and operational structure—and setting a realistic rollout timeline—can significantly influence whether the new setup meets strategic goals, especially around tariff mitigation and supply chain risk reduction.

Choosing the right legal structure—whether a wholly foreign-owned enterprise (WFOE), joint venture, contract manufacturing agreement, or strategic alliance—has implications beyond compliance. It determines the level of operational control, exposure to local risk, and access to investment incentives or trade preferences.

For businesses seeking to reduce US-China tariff exposure, structuring must also take into account country-of-origin rules. To qualify for tariff exemptions or preferential access under trade agreements (e.g., RCEP or CPTPP), the new operation must meet content thresholds or undergo substantial transformation. Simply repackaging goods offshore is not enough—value-add must be real and demonstrable.

For example, electronics assemblers moving operations to Vietnam must ensure that enough components and production steps occur there to qualify for “Made in Vietnam” status. This impacts how the production process is designed, where suppliers are located, and how much transformation occurs on-site.

Going “all in” with a full-scale move may seem bold, but a phased approach usually offers more resilience. Starting with a pilot or partial shift allows companies to test whether the new operation truly delivers tariff benefits, navigates local regulations smoothly, and maintains quality and supply reliability.

Timelines should also factor in:

• Construction and permitting delays
• Staff recruitment or training cycles
• Local partner onboarding
• Compliance ramp-up for customs, tax, and ESG standards

When done right, the structure and timeline of the new operation do more than enable market entry—they can strategically de-risk the value chain. Proper structuring ensures that companies not only qualify for tariff benefits but also gain operational agility, diversify geopolitical exposure, and build more resilient sourcing and manufacturing footprints.

Taxation and transfer pricing: Building a sustainable fiscal architecture

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Cross-border restructuring changes the flow of goods, services, and IP, which inevitably triggers tax consequences. These changes affect where value is created, how profits are allocated, and where tax authorities will seek to assert jurisdiction. For decision-makers, the task is to ensure that the redesigned structure does more than reduce tariffs or labor costs—it must also withstand scrutiny across multiple tax regimes, optimize global tax exposure, and remain adaptable in an era of tightening international compliance standards.

Reassessing value chains from a tax lens

Relocating operations alters the economic substance of the value chain. Executives must ask: Are we moving value-creating functions, or just shifting headcount? Tax authorities are paying closer attention to how real functions—such as control over R&D, procurement, and risk—align with profit allocation. Without substance to support new profit centers, tax risks increase across jurisdictions.

Managing exposure across multiple regimes

While moving out of China may reduce geopolitical risk, it can expose companies to fragmented tax regimes with different interpretations of permanent establishment, CFC (Controlled Foreign Corporation) rules, and withholding taxes. For example, an asset-light structure in one ASEAN country might be efficient on paper but trigger disputes over effective control or residency in others. Integrated, multi-jurisdictional planning is required to minimize exposure.

Transfer pricing: Beyond documentation, toward defensibility

Restructuring will bring fresh scrutiny to intercompany pricing policies. As functions move across borders—say, manufacturing to Vietnam or logistics to Thailand—the transfer pricing model must be revisited. Arm’s length pricing must reflect the actual risk and value creation in each location. This requires a fresh functional analysis, considering which entities bear production risks, own intangibles, or control key decisions.

For example, if China shifts from being the main manufacturer to a limited-risk distributor, the profit allocation will need to be adjusted accordingly. Tax authorities in China and in the new host country will closely examine whether the new pricing model aligns with reality.

China’s outbound tax lens: Strategic exit, not a quiet departure

For businesses scaling back in China, attention must be paid to exit taxation, including capital gains on asset transfers, indirect equity sales, or intellectual property migration. China’s tax authorities have become more assertive in reviewing outbound restructurings, particularly when high-value functions or assets are shifted overseas. Early engagement with local tax bureaus and careful structuring of asset redeployments are essential to avoid delays and disputes.

All in all, tax and transfer pricing should not be treated as back-end compliance tasks. Instead, they must be part of the executive-level governance of restructuring. This involves aligning legal, operational, and financial decisions from the start, with guidance from global tax professionals who understand both local enforcement practices and international rules. A resilient tax structure supports business continuity, regulatory confidence, and long-term competitiveness.

Workforce and leadership considerations

Supply chains can be rebuilt with capital and infrastructure, but operational continuity depends on people. Cross-border restructuring often puts stress on leadership pipelines, disrupts workforce dynamics, and creates cultural and regulatory complexity. If not managed proactively, talent disruptions can erode productivity, delay ramp-up in new markets, and damage morale in legacy operations. A people-centered strategy is therefore critical to the overall success of restructuring.

Relocation and mobility of key personnel

In many restructurings, technical or managerial talent from China is expected to play a role in establishing the new operation, whether through short-term deployments, long-term relocation, or hybrid oversight. This raises immediate challenges:

• Immigration barriers: Host countries may limit foreign work permits or impose quotas on expats (e.g., Indonesia, India).
• Tax residence risks: Employees spending extended periods abroad may trigger unintended personal or corporate tax obligations.
• Cultural adaptation: Leaders operating in unfamiliar legal or cultural environments may need support to succeed.

A clear talent deployment plan, aligned with immigration counsel and tax advisors, is essential.

Retention and morale in China operations

Even when downsizing is strategic, it creates uncertainty among employees. If not addressed head-on, this can lead to departures of high performers or reputational risk in local labor markets. Companies are advised to:

• Communicate transparently about the rationale and future role of the China operation.
• Provide retention bonuses or career development pathways for key staff.
• Engage with unions and local HR bureaus early to ensure compliance and minimize friction.

A stable China team is vital, especially when the remaining footprint includes R&D, high-end production, or customer service functions.

Building a workforce in the new destination

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Success in a new location hinges on quickly building a competent, motivated workforce. Key considerations include:

• Labor market mapping: Is there sufficient availability of semi-skilled or technically trained workers?
• Training and onboarding: Are local institutions or in-house programs equipped to develop needed capabilities?
• Localization requirements: Many jurisdictions mandate hiring quotas, training commitments, or restrictions on expat roles.

Partnering with local vocational schools, government agencies, or industrial park HR services can ease the burden.

Leadership and governance continuity

Effective cross-border execution also requires clarity on leadership responsibilities. Will decision-making be centralized at HQ, delegated to the China team, or shared with new-country leadership? Fragmented authority often leads to delays and accountability gaps. Structuring the right governance model—possibly through cross-location leadership teams or transitional steering committees—can prevent drift.

Restructuring isn’t just about where factories go, it’s about who leads them, staffs them, and sustains them. Companies that take a holistic approach to talent retention, relocation, hiring, compliance, and culture will find themselves not only better equipped to execute change but also more resilient in the face of future disruption.

Safeguarding intellectual property

Cross-border restructuring often involves the transfer of proprietary processes, designs, technologies, or brands to new jurisdictions. These IP assets are frequently the backbone of competitive advantage. Yet, in the rush to relocate or diversify operations, companies may overlook how IP protections—and risks—shift across borders. Key considerations include:

• Legal protection across jurisdictions: IP protection is not uniform. Patent, trademark, and copyright enforcement vary widely between countries. Companies must assess whether the destination country offers strong legal mechanisms and judicial capacity to protect their IP, especially in sectors like tech, pharma, and consumer goods.
• Ownership and transfer structures: Will IP stay with the China entity, be transferred to headquarters, or be housed in a regional IP-holding entity? Each approach has implications for tax, control, and enforcement. Reallocating IP also raises issues of exit taxation, transfer pricing compliance, and local registration needs.
• Licensing and use rights: In cases where operations are split, clear internal licensing arrangements should be in place. If manufacturing shifts abroad while R&D remains in China, companies must define how IP will be shared, what royalties are charged, and who bears the legal risks in case of infringement.
• Operational leakage risks: Moving operations to jurisdictions with weaker IP regimes or less experienced partners increases the risk of unintentional leaks or deliberate misappropriation. Vetting partners, using robust contracts, and maintaining critical know-how in-house or in more secure jurisdictions can help mitigate this.
• Digital assets and data overlap: Increasingly, IP includes data sets, software, algorithms, and customer databases. Where data localization laws exist (e.g., in China), companies must ensure their data management protocols do not inadvertently expose valuable intangible assets to foreign risk or compliance failure.

Thus, before committing to a new production site, conducting an IP risk assessment tailored to the destination country and business model is necessary. Businesses are advised to consider developing a regional IP strategy that balances cost, control, and enforceability, especially when splitting operations across borders.

Managing customer and supplier relationships: Continuity amid change

Restructuring operations across borders inevitably affects a company’s upstream and downstream partners. For many foreign investors in China, long-standing supplier relationships and customer expectations are deeply embedded in current operations. Any shift in geography risks disrupting delivery schedules, service levels, and contractual obligations, especially for critical components or clients with strict just-in-time requirements.

The first step is to systematically map out key customer and supplier relationships that may be affected by the restructuring. This means identifying dependencies, such as sole-source suppliers or high-revenue clients tied to specific locations. Understanding these points of sensitivity helps companies avoid blind spots as they reconfigure supply routes or production hubs.

Operational continuity must be planned for. This includes developing interim supply plans, setting up logistics buffers, and coordinating with third-party logistics providers to prevent delivery disruptions during the transition. Contracts may also require updates, particularly regarding terms of delivery, tax treatments, or governing law, especially if goods will now flow through a different jurisdiction.

Communication is just as critical. Customers and suppliers should be engaged proactively, with clear messaging about transition timelines, expected changes in operations, and the company’s commitment to maintaining quality and service levels. Transparent dialogue helps mitigate uncertainty and builds trust through the transition.

In some cases, strategic suppliers or anchor customers may benefit from co-transition planning or incentives to maintain alignment. At the same time, companies may explore expanding their supplier base in the new location to reduce risk and build long-term resilience. However, for high-value components or specialty inputs, maintaining relationships with select Chinese suppliers—even in a dual-sourcing model—may still be the best option.

Ultimately, success depends on careful sequencing, mutual coordination, and a firm grasp of both commercial and logistical realities. Ongoing performance tracking, feedback collection, and Key performance indicators (KPIs) monitoring should be built into the transition plan to ensure that customer satisfaction and supplier reliability remain uncompromised throughout the restructuring journey.

Conclusion

Cross-border restructuring is not merely a defensive response to geopolitical tension or rising costs—it is a strategic opportunity to future-proof operations, deepen regional integration, and build lasting resilience. For foreign investors in China, the goal is rarely to exit entirely, but rather to rebalance exposure while preserving access to the Chinese market and its supply chain depth.

Success, however, hinges on getting the fundamentals right. The choice of destination must go beyond labor cost arbitrage, factoring in sector-specific advantages, regulatory environments, and market access opportunities. The structuring of the new operation, whether through greenfield investment, joint ventures, or contract manufacturing, must support both commercial agility and compliance. And post-move integration, including IP protection, tax and transfer pricing design, and workforce management, must be tailored to minimize friction and maximize long-term value.

Again, this is not a one-size-fits-all journey. Companies need to weigh the unique dynamics of their industry, operational footprint, and strategic priorities. But for those that continue to see value in China while seeking flexibility and risk diversification, cross-border restructuring offers a viable middle path—not an exit, but a recalibration.

By approaching this process deliberately and holistically, businesses can turn restructuring into a competitive advantage—one that positions them not just to weather today’s uncertainty, but to thrive in tomorrow’s regionalized economy.
This articles was originally published in our China Briefing Magazine issue titled: The China+ Strategy: Cross-Border Restructuring for Supply Chain Resilience.

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