Global supply chains are like teams where different countries do different parts of making a product. For a time, companies have been making products all around the world to save money. Global situations like the COVID-19 pandemic, wars between countries like in the Middle East and the Russia Ukraine war have shown that relying on faraway suppliers is not a good idea.
So countries and big companies are rethinking their supply chains and redefining their chains. Moving towards new strategies like “friendshoring” and “nearshoring. This is breaking up the way of making products.
When and Why did this change start?
This change started to happen a lot after the COVID-19 pandemic in 2020. The pandemic caused factories to close, shipping to be delayed and people to not have the things they needed. Then countries started to not trust each other much and there were more fights between them.
Governments started to ask companies to not rely on countries that are not trustworthy. This led to “friendshoring”, where countries get goods and parts from countries they trust. For example many countries in the West are working more with countries in Asia and Europe.
At the time “nearshoring” became popular. This is when companies make products closer to where they will be sold to save money on shipping and to make sure they get the products on time. For example, some companies in North America are making products in Mexico because it is close by.
How is it affecting the economy?
The move from friendshoring to nearshoring is changing how countries trade with each other and invest in each other. It can make supply chains strongers and create new chances for countries that are in advantageous locations.
There are also downsides. It can make manufacturing more expensive because companies might not be able to set up manufacturing units at the same places. Some smaller countries might not be able to sell their products to countries if they are not part of the new supply chains.
Countries like India have a chance with this change. India has programs like "Make in India" and Production Linked Incentive (PLI) schemes to attract companies that want to make products in places.
Suggestions and the way forward
It does not make sense to separate global supply chains. Instead, countries should make sure their supply chains are strong and diverse. Governments should invest in things like roads and trains to make it easier to move goods and train people to have the skills they need.
Countries should still work together even if they do not always agree, as trade has been ongoing from the past. Sudden restrictions would make the situation even worse. Developing countries should try to be part of supply chains by being more competitive and using new technologies.
In conclusion, the shift from friendshoring to nearshoring is a change in the global economy. It makes supply chains more secure, easier and less costly. It is also important to make sure that the benefits of globalization are shared by everyone through nearshoring and friendshoring.