Global Account Leader, Consumer, Co-leader, Supply Chain Talent Optimization
How ‘Friend-Shoring’ Can Create Enemies
The supply-chain manager was exhausted. Labor shortages, geopolitical crises, and upheaval from the pandemic left him reaching for an obvious solution. He found one: moving manufacturing to trusted ally countries. Even Treasury Secretary Janet Yellen favors this practice. But is it the best way to go?
Firms are increasingly moving sourcing and manufacturing to friendlier shores—often the same friendlier shores. Experts say that this is a precarious option in a tricky situation, and the latest example of how complex purpose leadership has become. “Friend-shoring can be extremely risky,” says Tom Wrobleski, co-leader of Korn Ferry's Supply Chain Talent Optimization practice. “You’re picking sides and can unintentionally forge bad blood with other countries.” In the long term, this could backfire if the country your company relies on—for lithium for batteries, say, or precious metals for computer chips—feels alienated.
Of course, many firms have maintained their supply chains with long-term partner nations. Few companies, for example, have pulled out of China. But the sudden crashes of myriad supply chains throughout Asia and the Slavic nations caught nearly everyone off guard. Seth Steinberg, a Korn Ferry senior client partner in the firm's Supply Chain practice, says that building resilient friend-shoring supply chains comes with two high costs. The first is the steep price tag of relocating manufacturing operations to another hemisphere, which involves visiting and vetting suppliers, linking B2B systems, closing plants, and bringing online new ones. It’s a lot.
The second is the potentially excessive workloads this places on supply-chain professionals who have already spent two years hyperfocused on meeting customer demand. “It’s asking people in an incredibly demanding environment to keep the lights on, while simultaneously driving big strategic transformations that could make or break their careers or companies,” he says. That might not be a reasonable ask.
Experts suggest approaching potential supply-chain nations and focusing on business metrics, starting with labor availability, particularly for products that are highly dependent on manual labor (less so for products built by robots). The second most important consideration is materials and their transport, both of which likely involve sustainability considerations.
The third consideration is trade policies and financial incentives, such as tax credits for providing jobs. “That entire puzzle has to be rejiggered, with numerous variables,” says Steinberg.
The puzzle grows still more complicated when it’s infused with values and politics, says Wrobleski, who says these considerations play an important role in the decision-making process. “There must be balance between political alignment and the actual reason for doing business in a particular country,” says Wrobleski.
The benefits of including values in the puzzle are not just financial, says Dan Kaplan, senior client partner in the CHRO practice at Korn Ferry. Supply-chain choices present a chance to demonstrate the purpose and mission that are driving business decisions. Rather than awaiting potential criticism from stakeholders, firms can positively and proactively frame the narrative. “By presenting it from a place of values, companies have the opportunity to get out in front of this,” he says.