‘Friend-shoring’: What Does It Mean for India

Over the past couple of years, owing to the US-China trade war, the Covid-19 pandemic and the resulting lockdowns, and Russia’s invasion of Ukraine and the resulting sanctions and export controls, the world has experienced a series of escalating trade disruptions. This has called into question the very idea of globalization. 

Meanwhile, the immediate effect of these disruptions is feared to result in a recession in the global economy. In response to these adverse developments, countries hitherto relied on outsourcing for reaping cost benefits are now exploring ways and means to build risk-free supply chains. One such concept pushed forward by the US officials is: ‘friend-shoring’, which is nothing but shifting manufacturing away from authoritarian countries such as China, Russia, etc., to allies. 

Friend-shoring, though not good for globalization, is a shade better than the extreme version of ‘reshoring’ i.e., bringing key manufacturing activities back to one’s own country. Right from Mr Donald Trump’s time, the American administration encouraged their companies to shift at least some of the hardware supply chains out of China, and the current President, Mr Joe Biden, has been pushing it even further. 

As a result, many companies have either started to set up new production facilities in other countries of Asia, such as Vietnam, Indonesia, and South Korea, or European countries, Mexico or Brazil that are considered sufficiently trustworthy by the US, or expanding their existing production facilities in countries that are trust-worthy for them. Such a move is believed to afford more resilient supply chains from external shocks such as war, famine, political change, or future pandemic consequences. 

In a recent meeting with India’s top technology leaders, Ms Janet Yellen, US Treasury Secretary, said: “As we look towards the future, I am eager to deepen our ties [with India] in the technology sector. The United States is advancing an approach called ‘friendshoring’ to bolster the resilience of our supply chains. We are seeing progress; as an example technology companies like Apple and Google have expanded their phone production in India”. She further said that the US is investing in digital technologies that will drive resilient growth in India. She also said that the US is aiming to mobilize $200 bn through 2027 for the Partnership for Global Infrastructure and Investment (PGII) to continue its investment in India’s future. 

Today, India is at a historic pivot: transforming itself into a fast-growing economy of the world. It could attract eight years of record FDI that spread across all sectors and regions. The world is looking toward India as the growth engine. To sustain this movement, India should leverage all of its strengths to become the destination of choice for not only the US but also for anyone seeking dependable supply-chain resilience. 

The logistics policy introduced by Indian government on September 18, 2022, is expected to give a gentle push to the manufacturing sector besides strengthening national supply chains through the establishment of eco-friendly waterways, air cargo terminals, multimodal logistics facilities, etc., to facilitate exports.. The recent budgetary push given for infrastructure development is sure to give a further fillip to its manufacturing activity. 

Strategically, it is worth bearing in mind here that attracting global supply chains in industries in which India has already made a mark in the global arena, such as the pharmaceutical sector, telecommunications, textiles, chemicals, automotive industry, software solutions, etc., would be more beneficial for it rather than spreading its efforts all around. For, it is said that leveraging on known strengths is a safer bet for success rather than attempting to pick up new strengths. In a similar vein, India should gear up to seize the opportunity to attract those who are hurrying to relocate rather than attempting to invite companies to establish supply chains afresh. 

The current attempt of multinationals to rebalance global value chains offers India a unique opportunity to transform its manufacturing sector. It however calls for cooperation between the government and the private sector to foster a competitive manufacturing ecosystem in the country. India did enjoy the benefit of the demographic dividend, but it should work to build an employable workforce by skilling/reskilling/up skilling them systematically to ensure quality and sustainability. The government should also focus on reducing trade barriers and the costs of compliance and establishing manufacturing capacities faster. 

A thriving manufacturing sector is a stepping stone for India’s economic growth and prosperity, and hence it is time for businesses and government agencies to work in tandem with each other to develop new strategies and approaches to capitalize on the new opportunities thrown open by the current geopolitical tensions.

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