Three-minute explainer on… friendshoring

When geography and politics make doing business difficult, companies might want to consider a strategic restructure of their supply chains 

Tme Friendshoring

For many years, businesses have relied on sprawling, international supply chains as part of cost-effective solutions to manufacturing or importing. Labour, materials, ingredients or building costs might be cheaper abroad, they reason, while regulations might be looser. 

But recent events, such as the Covid-19 pandemic, the Suez canal obstruction and the Russia-Ukraine war, have highlighted the difficulties in leaving a business at the mercy of both geography and politics. 

What happens if a shipment can’t be completed? What happens if the country a business has relocated an arm of its operation to suddenly experiences a drastic change to its governance or economy?

What is friendshoring?

To mitigate such disruption, some companies are adopting a practice called friendshoring. This means means moving business operations into a country which can be considered a political or military ally.

This is like reshoring (transferring a foreign operation back to its country of origin) or nearshoring (keeping a foreign operation abroad, but moving it to a nearby country rather than a distant one), with added criteria. 

It means ensuring that when a business is spread over borders, it is done in a country that is politically stable, safe, and more aligned to the values of the business’s country of origin. Through friendshoring, firms can move to avoid countries which could fall foul of employment practices that would not be deemed acceptable domestically.

Should companies consider friendshoring?

Beyond the logistical advantages – it could be quick and easy for a company based in France to use a factory in Spain, for example, because they share a land border and are both members of the European Union – there is also a security in dealing with countries which have shared values and political interests. 

Increasingly, supply chains matter to consumers, too. It’s not enough for a business to just be ‘good’ in its home country. In a digitally empowered era, where people care about how their products are made, where companies’ carbon footprints are factored into purchasing decisions, and every aspect of a business is scrutinised, it makes sense for firms to do some due diligence on their partners too. 

Friendshoring could be viewed as an investment in reputational management as much as a move to save on time and transit. Even if executed at a cost-neutral level, then, it might still be considered a win for a business, as it reduces the risk of consumers disparaging or even boycotting a product or service due to its ties to an ‘unfriendly’ country.

Friendshoring, though, isn’t without its challenges. It’s important to remember that even friendly relationships between countries have the capacity to change over time, and businesses would do well to create contingencies for this.

And while friendshoring might be able to create efficiencies in some cases, in others, it might actually have the opposite effect. Some companies may rely on materials which are only available in ‘unfriendly’ countries and do not have the ability to reshore, nearshore or friendshore. 

Friendshoring is perhaps best understood on a case-by-case basis. For some companies, it may be part of a strategy to boost environmental, social and governance credentials; otherwise, it may be seen as a way to safeguard operations against variable geographic and political risks.