Friend-shoring reshapes supply chains

Globalisation once promised an economy in which efficiency, cost and comparative advantage determined where goods were produced. For decades, companies stretched supply chains across continents in search of lower costs. That model delivered growth, but it also created long, complex networks vulnerable to disruption. Recent geopolitical shocks have exposed the weaknesses of this hyper-globalised system. In response, a new concept called “friend-shoring” has emerged.

Friend-shoring refers to relocating supply chains to countries that share political values, strategic interests or geopolitical alliances. Rather than sourcing from the cheapest producer anywhere in the world, companies increasingly prefer to manufacture or procure goods from nations seen as reliable partners. By relying on trusted allies, firms hope to secure stable access to critical materials and components during crises. The term “friend-shoring” was popularised in 2022 by US Treasury Secretary Janet Yellen, who argued that trusted partners should work together to make supply chains more resilient to geopolitical disruption.

The idea gained traction during the supply-chain upheavals caused by Covid-19. Lockdowns at major manufacturing hubs delayed shipments of vital goods, from medical equipment to semiconductors. Shortages spread quickly across industries. The war in Ukraine and rising tensions between the United States and China further highlighted how deep economic interdependence could become a geopolitical risk. In this volatile environment, resilience now carries as much weight as efficiency. Governments and businesses want supply chains that are less exposed to political tensions, sanctions, trade disputes or sudden disruption. Across strategic sectors, they are reconfiguring sourcing and production towards trusted partners.

In semiconductors, legislation such as the US CHIPS Act and major investments by companies including Intel and TSMC are redirecting advanced chip production towards allied countries. In batteries and electric vehicles, new factories are being built in the United States, Europe and East Asia to reduce reliance on China. Covid-era shortages prompted efforts to reshore pharmaceutical and active pharmaceutical ingredient production. Partnerships on critical minerals and rare earth processing, notably among Australia, Japan, South Korea, the United States and Canada, aim to secure raw material supplies. Defence and dual-use manufacturing have become more concentrated within NATO and allied networks, while large technology firms have diversified assembly operations to countries such as Vietnam, India and Mexico.

Friend-shoring offers clear advantages. It can strengthen resilience by spreading production among politically reliable partners and reducing dependence on any single supplier for strategic goods such as chips, minerals and medicines. It may also deepen economic ties among like-minded nations. However, the shift is not without cost. Moving production away from the lowest-cost locations may raise manufacturing expenses and, ultimately, consumer prices. There is also a risk that global trade fragments into competing geopolitical blocs, eroding efficiency gains built over decades and potentially slowing global growth. For businesses, the implications are significant. Geopolitical risk must now be integrated into supply-chain strategy. Companies are diversifying suppliers, building regional production hubs and strengthening partnerships in politically stable countries. Flexibility, once viewed as inefficiency, is increasingly seen as protection.

Bangladesh faces both opportunity and risk as this trend unfolds. The country could attract new investment if multinational firms seek alternative production bases outside geopolitically sensitive locations. With its strong garment sector and competitive labour force, Bangladesh can position itself as a reliable manufacturing partner for Western markets. Yet challenges remain. If global trade increasingly operates within strategic blocs, countries outside major alliances may struggle to secure long-term commitments. To respond, Bangladesh must strengthen economic diplomacy, diversify export markets and upgrade manufacturing capabilities. Improving logistics, enhancing regulatory transparency and investing in infrastructure will be essential to remain competitive in a rapidly evolving supply-chain landscape.

The writer is the chairman and managing director of BASF Bangladesh Limited