Stable trade relations between countries lay the foundation for friendshoring, an international supply chain strategy in which companies locate production and sourcing in the most politically favorable locales. The outlook for friendshoring is mixed in today’s global trading environment.
What Is Friendshoring?
In friendshoring, a company chooses to do business in countries that are its home country’s political or economic allies, rather than its rivals. Doing so may offer greater supply chain resilience against tariffs and other trade barriers that undermine the profitability of the company’s offshore production and sourcing operations. Friendshoring is especially favorable in countries where a free trade agreement or other preferential trading arrangement exists. But global alliances can be tested, as governments and their policies change, complicating any friendshoring initiative.
Friendshoring Explained
In a 2024 report from the Economist Intelligence Unit, 36% of executives surveyed globally said geopolitical events were driving them to friendshore; 28% of executives at US companies reported moving to such a strategy. One outcome is that Mexico overtook China to become the largest supplier of goods to the United States, as some American companies shifted sourcing and production from China to Mexico, Vietnam, and other trade partners in Asia. Since then, though, new US tariffs on goods from national allies have clouded the picture. These include the imposition of US duties on Mexican imports, despite a free trade agreement between the two countries.
Given uncertainty in global trade relations, companies should weigh the potential benefits of rerouting their global supply chains against the financial and operational costs of doing so—while also monitoring geopolitical developments to assess whether those benefits are likely to still be available after they restructure. Included in this analysis should be scenario planning for change, as well as consideration of diversification strategies such as dual sourcing and multishoring to mitigate supply chain risks.
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