From Offshoring to Friendshoring Far from China
From Offshoring to Friendshoring Far from China is a report about one of the most key concepts in the political economy of the world, especially in the United States in recent decades, which has been and still is Offshoring. In Persian, it is translated as ‘dorsapari’. Offshoring is the fundamental and structural transfer of businesses and productions to areas and regions outside the country where those companies were born and operate, with the aim of increasing profitability and controlling high production costs.
The most important driving force and motivation for businesses and producers was and still is finding a cheaper labor market to reduce production costs. Many countries have been and still are hosts to migrant businesses, and China has been the leader in attracting these businesses for many years. On the other hand, a relatively new and attractive trend in the global political economy has emerged and is expanding, which transforms offshoring into friendshoring. Friendshoring is creating a serious transformation in international political economy equations.
Offshoring and What It Did to America
The story of businesses and companies leaving America to settle in cheaper and more profitable labor markets is a long one. What this trend did to America’s important manufacturing regions wrote tragic stories. States like Ohio and the entire vibrant manufacturing region known as the Rust Belt were emptied of manufacturing plants, and the migration from these states began and peaked in the last two decades.
Empty factories with machines and production lines and semi-ruined and abandoned buildings became part of the urban landscape in states that were once the beating heart of production and full of worker enthusiasm and activity. One of the turning points in the American economy in the last three decades was the creation of the large North American Free Trade Agreement between the United States and its two northern and southern neighbors.
Mexico, following the creation of this agreement, known as NAFTA, hosted many factories and businesses that found Mexican cheap labor very attractive. Many Americans do not forget what the transfer of companies to Mexico did to their lives. This agreement, created during Bill Clinton’s time, became so unpopular among many Americans that many criticized Hillary Clinton in the 2008 and 2016 election years because of NAFTA, and her campaign was practically tortured by the whip of NAFTA day by day.
Insourcing is Also a Way
Two specific approaches within the concept of insourcing are attractive. One is initiating production plans and programs or part of production processes domestically by companies alongside continuing their production lines in countries with cheap labor markets. The other is closing those production lines abroad and bringing all or part of the process back home.
In both the previous decade and the early years of the current decade, we have witnessed numerous instances of serious insourcing. These trends have also attracted serious attention from experts and researchers. These trends have not only occurred in the production of goods but also in the provision of services, as illustrated by the examples we recounted. The past decade marked the beginning of the transfer of virtual and telephone service centers for a group of major British companies from India back to Britain.
The return of manufacturing and service companies during the transition from the previous decade to the COVID-19 pandemic era and beyond has taken on new meaning. In particular, strategic industries have been the focus of discussions among experts and policymakers. Intense competition among different countries for producing special and strategic goods has peaked in the past two years, with new-generation lithium batteries, semiconductors, and processed samples of vital metals and minerals leading the way.
The semiconductor manufacturing industry alone has occupied a significant part of policymakers’ discussions in the past six months. Interactions in this regard have become so complex that the production of each specific type of semiconductor and battery and their production levels, as well as the technologies needed for producing newer and more modern generations, have each created their own trends. Insourcing production lines or creating new production plans to compete with other producers in each specific instance creates a different trend.
Insourcing, Friendshoring, and National Security
A significant part of the efficiencies and benefits that governments seek in directing self-sufficiency-oriented plans within the framework of outsourcing is based on the key idea of national security. Now, it is no longer possible to use important scientific and technological data related to the production of goods in an open space in a country like China for producing goods from a national security perspective.
Moreover, international security for Western countries has been threatened by the adventurism of Russia and China, and a country like Taiwan, which was a center for semiconductor production, or Ukraine, which played an important role in battery production, are no longer safe spaces for one- and two-decade planning. Work must be started and completed domestically.
However, costs and various economic equations are still at play. In a situation where it is no longer possible to trust a country like China for starting or developing production plans, and insourcing is also costly, friendshoring is the solution. Finding new countries to establish manufacturing industries is a strategy that has been under consideration for a long time and is being implemented in interesting cases. Countries like Vietnam have been and are new hosts for manufacturing industries and Western capital.
This trend is not entirely new. The rise of Vietnam in 2018 drew attention, and following new policies in America during Obama’s era and increasing political convergence with Vietnam from the mid-previous decade, Vietnam demonstrated its ability to attract manufacturing industries.
What happened during the COVID-19 era and up to today has been the slowing down of the Chinese production and distribution cycle and the more significant role of Vietnam. Vietnam’s economic growth with the development of manufacturing industries and Western capital in 2022 actually showed a kind of unexpected competition with the Chinese. While Vietnam’s economic growth in 2022 surpassed that of China, cheap labor, trade agreements with various Western countries, and a favorable political relationship with both sides of the China-US confrontation have created an opportunity for friendshoring by Westerners.
However, Vietnam is not the only cost-effective and reliable country for friendshoring. Friendshoring will provide special opportunities for many countries in the coming years. In the future, we will write about the importance of friendshoring and its relationship with Middle Eastern politics and Iran’s competition with its neighbors and its connection to the JCPOA.
