Friendshoring
Friendshoring The practice of relocating supply chains to countries with shared values and political alignment to reduce geopolitical risks.
What It Means
Friendshoring Simplified
Friendshoring is about choosing to do business with countries that share your values and are politically reliable. Instead of just looking for the cheapest option anywhere in the world, companies and governments are increasingly prioritizing trade relationships with allies and partners they trust. Think of it as building your supply chain with friends rather than potential adversaries—you might pay a bit more, but you gain security and reduce the risk of disruptions during geopolitical tensions.
Friendshoring represents a significant shift in global trade strategy from the efficiency-focused globalization model that dominated recent decades. Rather than primarily seeking the lowest-cost producer regardless of location, friendshoring emphasizes reliability, shared values, and reduced geopolitical risk in supply chain decisions.
This approach has gained substantial momentum following supply chain disruptions during the COVID-19 pandemic and escalating tensions between major economic powers. Governments and businesses are increasingly willing to accept moderately higher costs or reduced efficiencies to ensure more resilient and politically aligned supply networks.
Historical Timeline
U.S.-China Trade Tensions
Escalating tariffs and technology restrictions between the U.S. and China spark early considerations of supply chain realignment
Pandemic Disruptions
COVID-19 exposes vulnerabilities in extended global supply chains, especially for critical medical supplies
Concept Formalization
U.S. Treasury Secretary Janet Yellen formally articulates "friendshoring" as a policy approach
Ukraine Crisis Impact
Russia's invasion of Ukraine accelerates concerns about economic dependencies on authoritarian regimes
Policy Implementation
U.S. CHIPS Act and Inflation Reduction Act include provisions supporting domestic and allied production
Allied Coordination
Formation of various multilateral technology and supply chain agreements among like-minded countries
Corporate Adoption
Major multinational corporations begin explicitly incorporating friendshoring into strategic planning
Real-World Example
Case Study: MedTech Innovations' Friendshoring Strategy for Critical Components
Company Background
MedTech Innovations is a mid-sized medical device manufacturer ($350 million annual revenue) specializing in advanced diagnostic equipment. The company's flagship products rely on sophisticated semiconductor components, specialized rare earth magnets, and precision optical elements. Prior to 2020, the company had optimized its supply chain almost entirely on cost and quality considerations, with limited attention to geopolitical factors.
The Supply Chain Challenge
In early 2020, MedTech faced multiple simultaneous challenges that exposed critical vulnerabilities:
- Pandemic-related shutdowns disrupted access to key Asian manufacturing facilities, creating a six-month backlog for critical components
- Rising geopolitical tensions led to export restrictions affecting specialized semiconductor access
- Increasing regulatory scrutiny regarding component origins for medical devices sold to government healthcare systems
- Growing concerns from hospital customers about supply reliability for equipment essential to patient care
- New regulatory requirements in the U.S. and EU regarding supply chain transparency for critical medical equipment
Friendshoring Strategy Development
Strategic Approach
Rather than attempting a complete supply chain overhaul, MedTech developed a three-tiered friendshoring strategy:
- Tier 1 (Critical): Immediate diversification of highest-risk components to allied nation suppliers regardless of cost premium
- Tier 2 (Strategic): Phased transition to allied suppliers for important components over 12-24 months, balancing cost and risk
- Tier 3 (Standard): Maintain current suppliers with enhanced monitoring and development of contingency options
Policy Leverage
The company actively aligned its friendshoring strategy with emerging government initiatives:
- Participated in U.S. Department of Commerce trusted supplier program
- Applied for funding through allied nation semiconductor capacity development grants
- Joined industry consortium focused on rare earth processing in allied nations
- Leveraged free trade agreement benefits for qualifying components
Results and Impact
Risk Reduction
- Reduced high-risk component dependency by 62%
- Eliminated single-source vulnerabilities for critical inputs
- Decreased geopolitical exposure in supply chain by 48%
- Created redundant supply options for 85% of components
Market Positioning
- Secured preferred supplier status with government healthcare systems
- Gained competitive advantage in security-sensitive markets
- Reduced time-to-market for new products by 35%
- Enhanced brand reputation for supply chain resilience
Financial Impact
- Initial cost increase of 6.8% across product lines
- Offset 2.3% through redesign and efficiency improvements
- Passed 3.5% to customers as price increases
- Achieved 12% growth in government and healthcare sector sales
Key Takeaway: MedTech's experience demonstrates how a targeted friendshoring approach can significantly reduce supply chain vulnerabilities while maintaining business viability. By aligning with government policies, investing in supplier relationships within allied networks, and carefully managing the cost implications, MedTech transformed supply chain risk into a competitive advantage in sensitive markets.