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Friend-Shoring in Perturbed Times

“I am eager to deepen our ties in the technology sector. The US is advancing an approach called ‘friend-shoring’ to bolster the resilience of our supply chains. We are doing this by strengthening integration with our many trusted trading partners, including India. We are seeing progress; as an example, technology companies like Apple and Google have expanded their phone production in India.” US treasury secretary Janet Yellen said at the meeting with tech CEOs, including Infosys chairman Nandan Nilekani.1 The US-China trade war, the Covid-19 pandemic and the supply-chain disruptions it produced, the Ukraine crisis, competing sanctions and export limits that followed have all resulted in an escalating series of trade disruptions for the world. The idea of a globalised economy has been questioned as a result of their combined impact.

To combat this, the USA especially, is promoting “friend-shoring” (also known as ally-shoring or allied-shoring), a cheery name for a divided globe in such trying times. It is a world in which supply chains could be more robust and less subject to economic blackmail. Probably a world that is less prosperous and productive. Simply put, friend-shoring refers to an approach where a nation purchases components, manufactured goods, and even raw materials from nations that share its ideals. The supply chains' reliance on the nations deemed a "threat" to their stability is being diminished. The semiconductor industry, green energy, telecommunications and mineral industries are all important sectors under this.

Relative Merits of Allied Shoring

Friend-shoring has its benefits and drawbacks, like two sides of the same coin. There is no doubt that protecting supply chains will cost a lot of money, and those costs may last forever. For some, even a partial change could take years and cost a lot of money upfront. There are difficulties with friend-shoring in addition to financial ones. It is possible that allies still have infrastructure and technological gaps or have issues with the quality of their labour force. Also, in some circumstances, it could be difficult for businesses to locate alternatives or to stray too far from their sources of raw materials. Last but not least, friend-shoring by itself won't result in more dependable supply chains.

Even in familiar ground, issues can still develop, and hyper-focusing on dependability may wind up harming the diversity and productivity of the supply chain. Making the most of new opportunities without sacrificing competitiveness will require finding the ideal balance between security and productivity. Leaders, particularly those managing critical supply chains, must carefully consider their alternatives and decide whether it is fair to pay a premium to secure production and boost security. Now let us understand the other side of the coin to arrive at a legible conclusion. The benefits of friend-shoring:

1. Support for Critical Minerals: When friendly nations support one another's needs for critical minerals, it lessens reliance on rivals and boosts sovereign resiliency, which helps both countries' economies grow.
2. Resilient Supply Chains: Global supply networks are dominated by strategic competitors. Unwinding this web of control generates new, safe and resilient supply chains that turbocharge industries.
3. Highly-Skilled Workforce: Friend-shoring uses highly skilled workers from around the world to bridge knowledge gaps and labour shortages, as well as to combat unemployment through trade policy.
4. Access to Scale Capital: As they want to participate in sovereign key industries, top investment funds provide friend-shoring with access to capital through trusted partnerships.
5. World Leading Research and Innovations: In order to foster next-generation innovations and ensure future technological advantage among friendly nations, strategic industries are partnered with global research leaders.
6. Creating Opportunities: By giving access to significant resources and incentives, advanced manufacturers in major industries can lower risk and support the growth of sovereign economies.
7. Bilateral Talent Transfers: Streamlined bilateral talent exchanges give friendly countries access to highly trained labour and technical know-how while establishing ever-stronger cultural relations.
8. Generous Economic and Tax Transfers: Economic and tax incentives offered by friendly nations promote more secure and robust supply chains while also enhancing the capacity of a nation's infrastructure. 2 The impressions of various nations and relationships with them amongst first-world consumers are presented in the following graph:

Friend-shoring, India and G-20 Presidency

An unabridged understanding of friend-shoring calls for perceiving India’s position in this rapidly changing global policy and economics. Much has been said — and still is — about India's promotion of its sustainability traits, dedication to renewable energy, affirmation of its Paris Agreement commitments and initiatives to convert portions of its economy to clean energy. However, one aspect of India's G20 leadership that requires more emphasis is its place in global economics. India is now the fifth-largest economy in the world and according to a new analysis from Morgan Stanley, India might become the third-largest economy in the world as early as 2027. The growth of supply chains, often known as off-shoring, has been a certain trend in the globalisation paradigm we have witnessed over the past thirty to forty years. This was the name given to the process of choosing to move manufacturing to cheaper locations - mostly in Asia- by companies in the Western world.

However, this process has been under pressure for years, first as a result of frequently misplaced accusations that "foreigners are stealing jobs" but the more serious and long-lasting issue emerged during the Covid-19 pandemic, when it became clear that the issue of manufacturing particularly in China- was much more fragile than had been initially thought. Thus, supply-chain resilience became a major issue during the pandemic. Could concepts like ‘in-time’ manufacturing work if the underlying supply chain is unreliable? This has sparked a lot of discussion about reshoring, however, the statistics required for reshoring don't add up for many multinational firms. Their native countries lack the scale or the number of trained employees necessary to manufacture an abundant supply of commodities to meet their worldwide needs. Reshoring, in many cases, would just not make economic sense. What other options were there? Supply-chain resilience through international cooperation that would stop hostilities... Allied shoring ‘advocates’ for a peaceful world or good relations between nations giving a background for the advancement of trade and technology, not trade or technology itself. Understanding this is important because it provides India with the framework it needs to present its economic argument while holding the G20 presidency.

With a prime minister who encourages his people to become job-givers and not simply job-seekers, India is currently one of the world's most entrepreneurially supportive countries. The third-largest startup ecosystem in the world is found in India, with unmatched opportunities for growth and expansion., it is becoming the largest democratic marketplace in the world, thanks to investments in physical and digital technology. India should capitalise on the G20 to highlight its contribution to preserving the global economy and resilience of some of the most important supply chains. It is a harbour for manufacturing and financial assets owned globally. The gateway to the Indo-Pacific is through India. The biggest prospects of the next twenty years will be brought about by India's many transitions from a green economy to widespread digitalization. The vast production of mobile phones and other digital items in India as well as electric cars would import minerals from all over the world, including critical minerals. India would produce goods not merely for its own needs but also for the global market. Friend-shoring is an agreeable way to summarise Indian discourse at the moment. In the midst of a crisis, it can safely deliver economic necessities ashore that are crucial for the stability and expansion of the global economy.

India must use this economic justification to support its G20 efforts and invite the concept of off-shoring from around the world to India since it is in a position to provide this much-needed relief at a time when the globe is experiencing one of the worst economic crisis in the history.3 The idea of friend-shoring, which first surfaced in April 2022, has the potential to significantly alter world trade and as proclaimed, stop the environmental problem in its tracks. The term ‘friend-shoring’- which combines the words ‘friends’ and ‘offshoring’ - encourages forming alliances with close allies in order to prevent the transfer of industrial operations to unfriendly regions of the world. Building regional value chains is the main notion, which might lead to far more sustainable outcomes. An analysis of friend-shoring was published on the website Project Syndicate by Raghuram Rajan, a professor of business at the University of Chicago and a former governor of the Reserve Bank of India. He pointed out that although four regional corporations provide the majority of the baby formula in the US, shortages still occurred.

“Friendshoring is an understandable policy if it is strictly limited to specific items directly affecting national security.” Rajan wrote. “Unfortunately, the term’s public reception already suggests that it will be used to cover much else.” This brief communication's purpose was to draw attention to the conditions surrounding the appearance of the friend-shoring concept and its main economic issues from a value chain perspective, and then to insist on the advantages and disadvantages of its implementation.4 With India holding the presidency of G20, and the world shifted from a Unipolar to a Multipolar world, the role India is playing and will play will bring a positive paradigm shift in every sector.

Chaarvie Yadav
Graduate of 2022 Batch from Lady Shri Ram College for Women Presently pursuing a Master's degree from Delhi School of Economics

References:

1. Yellen: Friendshoring With India Is Making Progress: Yellen | Bengaluru News - Times of India (indiatimes.com)

2. Friend Shoring | Home

3. Look forward to supporting 'friend' PM Modi during India’s G20 presidency: US President Joe Biden | India News - Times of India (indiatimes.com)

4. supply chain: What is 'Friendshoring', the buzzword in global supply chains? - The Economic Times (indiatimes.com) Benson Emily and Ethan B. Kapstein. (1st February 2023), The Limits of “Friend-Shoring, Centre for Strategic and International Studies. The Limits of “Friend-Shoring” (csis.org) Jha Sonika. (1st February 2023). Friend-shoring: India’s rising attractiveness for an emerging partnership- modern diplomacy. Friend-shoring: India’s rising attractiveness for an emerging partnership - Modern Diplomacy Kessler Sarah. (18th November 2022). What Is ‘Friendshoring’?. New York Times. What Is ‘Friendshoring’? - The New York Times (nytimes.com) Lau, Y. (July 19 2022) What is friend-shoring? Janet Yellen's new strategy for fixing the supply chain crisis. Fortune. Janet Yellen pushes 'friendshoring' to strengthen supply chains | Fortune

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