Jumping on the ‘Friend-Shoring’ Bandwagon Will Yield Marginal Revenue Benefits for Most Companies
Russia’s invasion of Ukraine has thrown the geopolitical fragility of global supply chains into stark relief, compounding pre-existing concerns linked to rising U.S.-China tensions and pandemic lockdowns.
European and U.S. politicians have proposed “friend-shoring” — relocating production to friendly countries — as a way to guard against geopolitical supply chain risk for critical goods like semiconductors. U.S. and European adults are broadly in favor of the concept.
In several major markets, consumers also strongly prefer imports from friendly and allied countries, providing an opening for manufacturers of other consumer goods to characterize their actions as friend-shoring.
The strategy has good public relations potential but limited revenue upside: Only around a quarter of U.S. and E.U. consumers are willing to pay more for goods produced using inputs from allied or friendly countries, and pluralities of U.S. consumers say they will only pay 1% to 5% more.
U.S. and European men are more willing to pony up than women, but not in sufficiently large numbers to dramatically alter the revenue calculus for companies that primarily serve that demographic.
The reputational benefits are worthwhile, but friend-shoring consumer goods is unlikely to make economic sense in the majority of cases.
Keep your friends close and your enemies out of your critical supply chains
In an April 13 speech on the future of the global economy, Treasury Secretary Janet Yellen used an ambiguous new term: friend-shoring. In contrast to reshoring (bringing offshored production back to the United States) or nearshoring (bringing production closer), friend-shoring refers to relocating production to, in Yellen’s words, “a large number of trusted countries.”
Yellen did not explicitly tell Americans who their friends are, but she did allude to it: European countries that exhibit a “strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system,” de facto placing countries like China and Russia in the opposing camp. Taiwan, with a new trade initiative in hand, as well as the countries of the Quad that signed the Supply Chain Resilience Initiative, are in the friendly club.
Semiconductors are the poster child for friend-shoring; U.S. and European adults are broadly supportive
The Biden administration’s approach to friend-shoring focuses on inputs deemed key to national security, including critical and high-tech goods like pharmaceuticals, rare earth minerals, large-capacity batteries and especially semiconductors. Majorities of adults in the United States and major European economies agree it is important for the United States and the European Union to cooperate on securing these supply chains.
Majorities in the U.S. and Major E.U. Economies Favor Cooperation to Secure Critical Supply Chains
Consumers prefer imports from allies, opening the door to broader use of friend-shoring
Producers of other high-tech and consumer goods stand to benefit from riding the friend-shoring wave, owing to strong public enthusiasm in major global markets for imports from allied and friendly nations.
In six major economies, consumers prefer imports from countries they view as “an ally” or “friendly,” a group that includes the United States. Our data also finds a large gap between favorability toward goods from countries that are clearly in the friend group and those identified as “an enemy” or “unfriendly” — in this case, China and Russia.
Consumers’ limited willingness to pay more means friend-shoring is no silver bullet
Friend-shored supply chains will be more resilient to geopolitical shocks. But they will also result in more expensive products if inputs (especially labor) are sourced from higher-cost competitors. These higher labor costs, coupled with data indicating that most consumers are unwilling to pay more for friend-shored goods, will result in limited upside revenue potential for most companies, even if the reputational gains are pronounced.
Only around a quarter of U.S. and European adults said they would pay more for goods with key inputs sourced from friendly countries, and only about a third said they would pay more for completely reshored goods, even though those supply chains would be even more resilient to geopolitical disruptions than friend-shored ones.
Only 1 in 4 Adults in the U.S. and Major E.U. Economies Are Willing to Pay More for Friend-Shored Goods
Gender colors respondents’ willingness to pay more for friend-shored goods
In every country except for Germany, where shares are evenly split, higher shares of men said they would pay more for goods made in allied and friendly countries, yielding potential revenue benefits for companies serving that demographic. Greater awareness of supply chain issues among male respondents — a trend we’ve observed in the United States — and presumably a clearer sense of friend-shoring’s consequences for supply chains is one potential explanation for the gender gap. But even so, the shares of men willing to pay more are consistently under one-third, again limiting upside revenue potential.
In the United States — which, along with the European Union, is leading the policy charge on supply chain friend-shoring — men are also more willing than women to pay higher premiums for friend-shored goods. Overall, U.S. adults who are willing to pay more for friend-shored goods were most likely to say they would only pay 1% to 5% more. But men were willing to pay a higher premium than women: 57% said they would pay over 5% more for friend-shored goods, compared with only 47% of women.
Pluralities of U.S. Men and Women Will Only Pay 1% to 5% More for Friend-Shored Goods
Tapping into the favorability of friend-shoring
Creeping protectionism under the guise of friend-shoring would be bad for both producers and consumers. But private-sector-led supply chain reorganization to ensure greater resilience in the face of geopolitical shocks is a positive trend.
While policymakers tout friend-shoring primarily as a means to secure critical technologies with national security implications, the term itself is not narrowly defined. Manufacturers of goods without clear national security relevance stand to reap reputational benefits from relocating production closer to their end users and characterizing the decision as friend-shoring. But the trade-off between reputational gains and revenue is unlikely to make sense for the wide majority of consumer goods producers, owing to consumers’ limited willingness to pay more for friend-shored products, regardless of widespread public favorability toward imports from friendly countries.
Sonnet Frisbie leads Morning Consult’s geopolitical risk offering for Europe, the Middle East and Africa. Prior to joining Morning Consult, Sonnet spent over a decade at the U.S. State Department specializing in issues at the intersection of economics, commerce and political risk in Iraq, Central Europe and sub-Saharan Africa. She holds an MPP from the University of Chicago. Follow her on Twitter @sonnetfrisbie. Interested in connecting with Sonnet to discuss her analysis or for a media engagement or speaking opportunity? Email [email protected]