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Understanding Friendshoring: A Shift in Supply Chain Strategy Amidst Geopolitical Tensions, (from page 20240630.)

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Themes

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Summary

The concept of “friendshoring” involves Western governments encouraging businesses to relocate their supply chains from geopolitical rivals to allied nations. This strategy, discussed at a recent central bankers’ meeting in Jackson Hole, is part of a broader trend that includes terms like “nearshoring” and “decoupling,” particularly from China. An example is the Biden administration’s recent ban on American investment in Chinese technology. While friendshoring aims to enhance trade security and reduce dependence on adversarial countries, it may lead to less efficient production as political considerations override profit motives. This approach has gained traction in light of geopolitical tensions, notably after Russia’s gas supply cut to the EU during its invasion of Ukraine.

Signals

name description change 10-year driving-force relevancy
Friendshoring A shift in supply chain strategies towards friendly nations to enhance trade security. Transitioning from globalized supply chains to localized ones with trusted partners. Supply chains will likely be more regionalized, reducing dependency on geopolitical rivals. Political motivations are driving businesses to prioritize security over efficiency in supply chains. 4
Decoupling from China Western nations are reducing economic interdependence with China. Moving from a highly interconnected global economy to a more fragmented one. Economic relations with China may shift dramatically, affecting global trade patterns. National security concerns are leading to reduced economic ties with potential adversaries. 5
Nearshoring Production is being moved closer to home to enhance security and reduce risks. Shifting from offshore manufacturing to regional production to mitigate geopolitical risks. Manufacturing hubs will likely emerge in politically stable regions closer to home markets. The need for risk mitigation in supply chains is prompting a move towards nearshoring. 4
Derisking Strategies to minimize risks in supply chains by diversifying sources. From reliance on single sources to diversified supply chain networks. Supply chains will become more resilient and adaptable to disruptions and geopolitical tensions. The desire to reduce vulnerabilities in global supply chains is motivating businesses to diversify. 4
Political Over Profit Governments influencing business operations based on political considerations. Shifting decision-making from profit-maximization to political alignment. Business strategies will increasingly reflect geopolitical considerations over financial ones. The interplay of politics and economics is reshaping how businesses operate globally. 3

Concerns

name description relevancy
Inefficient Production Shifting supply chains based on politics may lead to less efficient production processes. 4
Economic Vulnerability Friendshoring can create dependencies on friendly nations, leading to new vulnerabilities in global supply chains. 5
Geopolitical Tensions Increased focus on friendshoring may escalate geopolitical tensions between nations, particularly between the US and China. 5
Trade Security vs. Profitability Conflict The conflict between prioritizing trade security over profitability could adversely affect economic growth. 4
Response to Energy Supply Disruptions Political actions based on past energy supply disruptions can lead to erratic economic policies. 4

Behaviors

name description relevancy
Friendshoring A policy where governments encourage businesses to relocate supply chains to friendly countries to enhance trade security. 5
Nearshoring Shifting production closer to home as a response to geopolitical tensions and to improve trade security. 4
Derisking The strategy of reducing exposure to geopolitical risks by diversifying supply chains away from hostile nations. 4
Decoupling The process of reducing economic interdependence with rival countries, particularly China, to mitigate risks. 5
Political Influence on Production The trend of allowing political considerations to dictate production locations rather than purely economic factors. 3
Restructuring Supply Chains The adaptation of supply chains in response to geopolitical factors, prioritizing security over efficiency. 4

Technologies

description relevancy src
A strategy to restructure supply chains by moving production to friendly countries to enhance trade security and reduce dependence on geopolitical rivals. 4 b40a41eb59f6d6982119b848b09d63d7
Shifting production closer to home countries to improve supply chain efficiency and reduce risks associated with distant production. 4 b40a41eb59f6d6982119b848b09d63d7
The process of eliminating or reducing risks in supply chains by diversifying sources and locations of production. 3 b40a41eb59f6d6982119b848b09d63d7
The strategic separation of economic ties, particularly between the US and China, to enhance national security and reduce dependency. 4 b40a41eb59f6d6982119b848b09d63d7

Issues

name description relevancy
Friendshoring The shift of supply chains to friendly nations as a response to geopolitical tensions, impacting global trade dynamics. 4
Deglobalisation The trend of reducing global interdependence, influencing economic policies and international relations. 4
Nearshoring Moving production closer to home to improve trade security, potentially at the cost of efficiency. 3
Derisking Strategies adopted to minimize risks associated with reliance on geopolitical rivals, especially in technology sectors. 4
Decoupling from China The process of reducing economic ties and dependency on China, driven by political and security concerns. 5
Geopolitical tensions Increasing hostilities between major powers, notably the US and China, shaping global economic policies. 5
Impact of Russian actions on EU energy security The effect of Russia’s energy supply cuts on Europe’s political and economic strategies, especially regarding Ukraine. 4