Friend-Shoring

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This is the new buzzword for the business strategy of running supply chains only through countries that are close political partners.  Businesses, mindful of the complications relating to the maintenance of supply chains in the face of unexpected challenges, such as Covid-19 and the war in Ukraine, are becoming increasingly cognizant of the increase in political risks.  Perhaps limiting supply chains to friends may mitigate some of those risks.  At least that appears to be the basis for the emergence of friend-shoring. 

Investors might want to recognize that friend-shoring has some serious shortcomings.  Just who are “friends?”  Taiwan is now, but for how long?  Limiting your choices to “friends” carries the risk of your competitors lowering their costs by dealing with our “enemies.”  Moreover, some of the ingredients in a complex supply chain may only be readily available from unacceptable areas.  

Like many other of life’s experiences, it may be appropriate to “keep your friends close and your enemies closer” for supply chains too.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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