What is friendshoring and how will affect your business?

Have you heard of friendshoring? Yes, this does sound like offshoring – that is, moving certain business operations and activities to another country – and it functions rather similarly.

What is friendshoring?

Friendshoring is very similar to offshoring, the former being a subcategory of the latter. As we all know, offshoring, though often confused with outsourcing, is doing certain business activities in another country, usually through a local branch of the same company – basically keeping everything in-house rather than dealing with independent contractors. 

With friendshoring, a business does not simply move its activities to just about any other country. They only have to deal with friendly countries, hence the odd moniker. “Friendly” countries do not have to share borders with the company’s host nation. Indeed, distance is not a factor in this case, as political proximity is the primary consideration; this is influenced by the current geopolitical climate, which narrows partners down to those in allied countries and friendly neutrals. 

Friendshoring came to the fore in response to the breakdown of globalisation during the CoViD-19 pandemic. It started out as major companies’ attempted to rebuild supply chains post-pandemic and minimise disruptions in case of significant events such as environmental disasters, disease outbreaks and wars. 

6 ways friendshoring can affect your business

Pros

On paper and in practice, friendshoring offers some significant long-term benefits, such as the following:

• Secure supply chain.

Friendshoring can mean that your company is practically immune to the economic effects of major social and geopolitical upheavals. Dealing with businesses in friendly countries enables the maintenance of a stable supply chain that exploits shared business principles and well-established routes and protocols. 

• Deeper partnerships.

Working with organisations that share similar values can only end up in deeper, more meaningful business relationships. This promotes mutual growth unhindered by any significant political development. 

• Optimised talent pool

Offshoring business activities in friendly countries lets businesses streamline their talent pool across their various regional locations. The shared values and methodologies make upskilling much easier.

Cons

• Increased expenses

Friendly does not necessarily mean cheap, especially when your country’s closest ally is half an ocean away, or if their laws make production and labour more expensive. Friendshoring, in this case, would lead to an increase in expenses that will reflect on the prices of your products and services, resulting in a possible decrease in profit.

• Exclusion of certain foreign markets

Some of the nations that are not allied or downright hostile to your country may have a consumer base that could have provided a profitable audience for your business or access to cheap material and labour. Friendshoring prevents businesses from leveraging these markets, narrowing down their options for profit.

• Difficult to implement

Friendshoring sounds easy if not for the fact that the concept can be tricky to implement. Finding alternative suppliers from friendly countries, for instance, is not as easy as maintaining an existing global supply chain. This is especially true for manufacturers of complex devices and equipment, some of whom have limited options when it comes to rare materials and specialised parts.