From Offshoring to Friendshoring Far from China
Offshoring, which has been one of the most crucial concepts in the global political economy, especially in the United States in recent decades, has been translated into Persian as ‘dorspari’. Offshoring refers to the fundamental and structural transfer of businesses and productions to regions and areas outside the country of origin and operation of those companies with the aim of increasing profitability and controlling high production costs.
The most important motivation for businesses and producers was and still is finding cheaper labor markets to reduce production costs. Many countries have hosted migrating businesses, and China has been leading in attracting these businesses for many years. On the other hand, a relatively new and interesting trend in the global political economy is emerging and expanding, which transforms offshoring into friendshoring. Friendshoring is creating a significant 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 process did to America’s important production areas resulted in tragic stories. States like Ohio and the entire vibrant production region known as the Rust Belt were emptied of manufacturing plants, and the migration trend from these states began and peaked over the past two decades.
Factories emptied of 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, full of labor enthusiasm and activity. One of the turning points in the American economy in the past three decades was the creation of the North American Free Trade Agreement (NAFTA) between America and its two northern and southern neighbors.
Following the creation of this agreement, referred to as NAFTA, Mexico hosted many factories and businesses, attracted by cheap Mexican labor. Many Americans do not forget what the transfer of companies to Mexico did to their lives. This agreement, established during Bill Clinton’s time, became so unpopular among many Americans that Hillary Clinton was criticized for NAFTA during the 2008 and 2016 election years, and her campaign was practically tortured daily by the whip of NAFTA.
Reshoring is Also a Path
Two specific approaches within the concept of reshoring are attractive: one is initiating production plans and programs or parts of production processes domestically by companies alongside continuing their production lines in countries with cheap labor markets, and the other is shutting down 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, there have been numerous instances of serious reshoring. These trends have also attracted the serious attention of experts and researchers. This trend has occurred not only in the production of goods but also in the provision of services, as illustrated by the examples we narrated. The past decade marked the beginning of the transfer of virtual and telephone service centers of some major British companies from India back to the UK.
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. Specifically, strategic industries have been the focus of expert discussions and policymaker strategies. Serious competition among different countries for the production of special and strategic goods has peaked in the past two years, and the pioneers of these goods are new generation lithium batteries, semiconductors, and processed samples of essential metals and minerals.
The semiconductor manufacturing industry alone has occupied a significant portion of policymakers’ discussions over the past six months. Interactions in this regard have become so complex that producing any specific type of semiconductors and batteries, their production volumes, and the technologies required for producing newer and more modern generations have each created their own unique processes. Reshoring production lines or creating new production plans to compete with other producers in each specific instance creates a different process.
Reshoring, Friendshoring, and National Security
A significant part of the efficiencies and benefits that governments seek in guiding self-sufficiency projects within the framework of offshoring is based on the key idea of national security. Nowadays, it is no longer possible to use important scientific and technological data related to the production of goods in an open country like China for the production of goods in terms of national security.
Moreover, international security for Western countries has been jeopardized by the adventures of Russia and China, and a country like Taiwan, which was a semiconductor production center, or Ukraine, which played an important role in battery production, are no longer safe spaces for one or 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 to start or expand production plans, and reshoring 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 the new hosts for manufacturing industries and Western capital.
This trend is not entirely new. The emergence of Vietnam in 2018 attracted attention, and following new policies in the United States during the Obama era and increasing political convergence with Vietnam from the middle of the 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 China’s production and distribution cycle and the more serious role of Vietnam. Vietnam’s economic growth with the development of manufacturing industries and Western capital in 2022 actually shows a kind of unexpected competition with the Chinese. While Vietnam’s economic growth surpassed China’s in 2022, cheap labor, trade agreements with various Western countries, and a favorable political relationship with both sides of the China-U.S. confrontation have provided the 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, Iran’s competition with its neighbors, and its connection with the JCPOA.