Securing supply chains: The rise of friendshoring in modern manufacturing

Friendshoring is becoming a crucial strategy for manufacturers to enhance supply chain resilience, especially as the global trade environment becomes more complex and uncertain. Disruptive events of recent years—including the pandemic, the Red Sea shipping crisis, the Russia-Ukraine war and ongoing conflicts in the Middle East—have prompted companies to rethink their sourcing strategies to address heightened supply chain risk. With the new U.S. administration’s nationalist trade agenda focused on reshoring manufacturing, protecting national security interests and correcting unfair trade practices, companies must prioritize evaluating the risks in their existing supply chains and consider strategic shifts into U.S.-friendly countries. 

Friendshoring is the practice of relocating production and sourcing closer to countries that share similar values and political interests. The new administration aims to bolster domestic manufacturing through policies such as tax cuts, tariffs on imports, regulatory relief and workforce development programs; however, companies reshoring their supply chains are likely to face challenges in achieving profitability. Although the administration has floated incentives in exchange for bringing manufacturing back to the U.S., such as reducing the corporate tax rate for domestic production to 15 per cent, many products will likely remain too expensive to produce domestically.  

High labour costs and a historically low unemployment rate, both of which could come under further pressure due to anticipated immigration actions, will be an issue for companies looking to grow their U.S. workforce. Additionally, the value of the U.S. dollar, which could see further volatility as the administration pursues trade reform, may make it challenging for companies to onshore manufacturing activities profitably. In recent years, the U.S. dollar has strengthened against other global currencies, making it cost prohibitive for companies to bring operating and manufacturing activities back into the United States. As a result, friendshoring will be critical in creating a resilient and cost-effective supply chain. 

Benefits of friendshoring 

Diversifying operations across multiple U.S.-friendly countries can help manufacturers reduce the risk of disruption caused by geopolitical tensions, economic instability or labour strikes in any single country. As companies face new tariffs and trade restrictions, particularly on imports from China, it becomes essential to evaluate exposure to such risks.  

U.S. trade with Mexico, Canada and countries in the European Union has grown recently—though tariffs may threaten that trend—while trade with China continues to decline.  

In addition to enhancing political stability, friendshoring offers greater price stability. By sourcing from countries that share similar economic interests, companies can reduce the likelihood of disruptions caused by sudden policy changes or trade disputes. This can help shield companies from currency fluctuations that can arise from volatile international relations—enabling them to better forecast costs and maintain consistent, predictable pricing for their products. 

By relocating supply chains to countries that are economically stable yet less expensive than domestic options, businesses can reduce costs associated with tariffs and potential supply chain disruptions as well as benefit from lower labour costs. For example, according to the most recent data available from Trading Economics, the average manufacturing wage per hour in U.S. dollars is $28.34 in the United States, compared to $21.09 in Canada, $6.80 in China, $15.48 in Japan and $24.11 in South Korea. 

While friendshoring offers numerous benefits, companies should be aware of several challenges. Although some countries may offer proximity and cost advantages, they may lack the necessary infrastructure for efficient operations. In addition, regulatory environments can vary significantly from one country to another, and complex regulatory frameworks can pose challenges for U.S. businesses seeking to establish operations abroad. It is essential that companies conduct thorough due diligence to understand the regulatory landscape before committing to friendshoring initiatives.

Political instability may also pose a risk in certain countries, potentially jeopardizing business operations. Companies need to carefully evaluate political uncertainties when considering friendshoring options, as these factors can impact the stability and success of friendshoring arrangements. 

Looking ahead 

In an era marked by deglobalization and increasing geopolitical tensions, companies must not wait until disruptions occur to assess the resiliency of their supply chains. Proactive measures can significantly mitigate risks, ensure continuity in operations and protect profits—and past disruptions have borne that out. In the new and rapidly evolving tariff landscape, companies must stay attuned to constant shifts, prepare to pivot and develop contingency plans.

Transitioning supply chains is not an overnight task; it requires substantial planning and due diligence. With elevated risks stemming from current geopolitical dynamics, organizations should prioritize evaluating the costs and benefits of shifting their supply chains to better handle future disruptions while maintaining operational efficiency.