Re-evaluating supply networks strategically involves friend-shoring. Companies need to carefully consider and maintain transparency about where and how their products are made as tensions continue to escalate on a global scale.
Unwanted geopolitical leverage over supply chains poses a serious threat to both businesses and governments as the world experiences more economic and political unrest. In response to China’s “unfair trade practices,” U.S. Treasury Secretary Janet Yellen has urged the country and its partners to improve supply chain resilience. She has emphasised strengthening supply chains for essential components like semiconductors and electric car batteries.
Businesses are looking for measures to stabilise the global supply chain and prevent increasing economic complexities as a result of COVID-19, the geopolitical turmoil in Ukraine, and increased reliance on China. The pandemic also brought to the sobering awareness that many nations no longer possess the capacity or know-how to produce their own goods, placing the United States and many other nations in the world in heavy dependence on a nation that encourages unethical trade and labor practices. While historically globalised specialisation has resulted in more stable supply chains and greater production capacity, it is now necessary to reconsider the model for the most important goods, parts, and raw materials produced by nations whose guiding principles differ from those of the West.
The necessity of supply chain restructuring is emphasized by Yellen’s call for action. Global supply chains can be stabilised by enhanced insulation from external geopolitical and economic dangers through procedures like friend-shoring (restricting supply chain networks to allies and friendly countries).
Replacing China’s Dependence
China manufactures a massive amount of goods, ranging from electronics and fast fashion to cleaning products and home appliances. In 2021, the United States imported $541.53 billion in goods from China, making the United States one of China’s largest trading partners. However, the various supply issues encountered during the pandemic, ranging from toilet paper to critical technologies, demonstrated how heavily the world relies on China for everyday items. With this enormously powerful global position, China’s market monopoly not only causes problems during critical times, but also reveals massive areas of weakness – for both commercial business and national government security – when it comes to managing risk within our supply chain systems.
The enforcement of regulations and policies that encourage domestic investment to drive growth is becoming a higher priority for the United States government. President Biden signed the Uyghur Forced Labor Prevention Act on December 21, 2021. (UFLPA). This regulatory act prohibits trade between the United States and providers in the Xinjiang Uyghur Autonomous Region (XUAR), which has been accused of criminal workplace practices such as torture, forced labour, and genocide.
Countries can prioritise friend-shoring to redefine their position in the global supply chain in order to reduce their reliance on China even further. These alliances will allow countries that have lost their global economic positioning to capitalise on their unique offerings while also providing them with a newfound competitive advantage. Furthermore, because the supply chain is so extensive, it is difficult to track every step of the manufacturing process. The line between cheap goods and ethical consumption is frequently blurred. The shift to friend-shoring will refocus other countries’ contributions to the supply chain and reduce economic risk.
The recent supply chain disruptions have prompted more businesses to investigate onshoring operations, which gives them greater control over how and where their products are manufactured. Similarly, the Biden administration recently finalised a rule that increases domestic content requirements for federal government procurements subject to the Buy American Act (BAA). This change is intended to align Federal procurement policy with the Biden Administration’s recently published strategy to improve supply chain resiliency in critical sectors such as ICT, clean energy, defense, public health, agriculture, and transportation. Similarly, friend-shoring allows countries to not only re-establish their position in the global supply chain, but also strengthen relationships with countries that share common values.
Friend-shoring encourages companies to relocate their operations to allied territories. Close relationships with trade partners allow businesses to not only closely monitor operations but also help utilize offerings specific to their region. Yellen emphasised the significance of the relationship between the United States and South Korea, which has long maintained a strong economic and political alliance. With a strong global reliance on Chinese exports such as batteries and semiconductors, the United States and South Korea can collaborate to strengthen the supply chain by employing economic displacement tactics such as price increases. Countries can better regulate supply chains and monitor economic restructuring from a friendlier vantage point by deploying friend-shoring operations.
Strategic partnership with allies
Friend-shoring promotes consumer relationships and deepens strategic partnerships in addition to strictly economic factors. A 2021 Label Insight Food Revolution Study found that 94% of customers consider how transparent brands are about themselves. Transparency can be achieved by implementing allied supply chain partnerships that will ultimately improve customer experience.
Businesses that use friend-shoring are able to closely regulate manufacturing processes and monitor production, resulting in increased security. Consumers have more peace of mind when purchasing goods produced in the United States because stricter regulations on supply chain standards are being enforced. With a growing emphasis on workplace ethics, consumers are prioritising purchases from brands that promote an ethical environment.
Furthermore, friend-shoring enables smaller countries to grow alongside larger counterparts while maintaining greater control over regional resources. Even if countries replicated a specific material, the costs of production would almost certainly be higher than the industry’s worth. For example, the United States can combine advances in manufacturing technology with natural resources from allied nations to produce high-demand goods under more ethical conditions. It is common knowledge that countries that do not have access to advanced technology are doomed to fall behind in both social and economic terms. Because many smaller countries lack the technological advances and funding necessary to manufacture goods, friend-shoring allows these countries to collaborate with larger countries that can capitalise on their unique offerings. This benefits both developing countries and world leaders, such as the United States, by deepening their relationships.
Friend-Shoring to Encourage Supply Chain Resilience
Although eliminating reliance on China will be difficult, friend-shoring is a strategic approach when re-evaluating supply chains. As global tensions rise, it is critical for businesses to properly evaluate and remain transparent about where and how their products are manufactured.
Transparency will help to strengthen not only business relationships, but also customer relationships. Countries can collaborate to improve their economic standing and promote ethical practices throughout the global supply chain.