Posted on 08/04/2022 9:51:18 PM PDT by SeekAndFind
Wary of mounting tensions surrounding out-of-favor countries like China and Russia, multinational corporations are shifting operations to places that present less geopolitical risk.
The trend has been labelled "friendshoring." While that's a play on "offshoring," this isn't about companies moving operations back to the United States or Europe, but rather seeking foreign alternatives that retain the benefit of low labor costs but with less international controversy.
For now, the conversation is principally about China. “Every company that I speak to at the moment is engaged in rethinking their [China-focused] supply chains," Tony Danker, head of the Confederation of British Industry, told the Financial Times, "because they anticipate that our politicians will inevitably accelerate towards a decoupled world from China.”
Congress is actively working to accelerate the friendshoring trend: The $433 billion climate and tax bill that's grinding toward Senate approval includes a tax credit for electric vehicles assembled in North America -- not just the United States. That's sparked some grumbling from the omitted EU.
China and the United States already had an increasingly adversarial relationship before this week's saber-rattling over House speaker Nancy Pelosi's visit to Taiwan. A long-simmering trade war heated up on on June 21, when the Uyghur Forced Labor Prevention Act (UFLPA) started imposing a guilty-til-proven-innocent regime that bars all imports from China's Xinjiang province unless businesses prove their products are not made with forced labor.
Geopolitical and trade-war tensions aren't the only factor pushing multinationals away from China. The country's over-the-top zero-Covid policies have disrupted supply chains, and China has been known to target foreign companies in a variety of ways, to include encouraging Chinese consumer boycotts of businesses that have somehow managed to earn the Chinese government's ire.
Demographics are a factor too. The youngest generation is the country's most-educated ever, and there's a growing stigma attached to vocational schooling and factory work -- a dynamic that puts upward pressure on labor costs. Gen Z Chinese are also increasingly gravitating toward working for the government or state-run companies.
None of this is to suggest multinationals will abandon China altogether. For many, this is an exercise in diversifying risks. Those calculations are made more difficult by uncertainty over who may fall out of favor with reckless, sanction-happy Western governments in the future.
There could be a downside for consumers: To the extent friendshoring moves some operations to places more expensive than China, the trend could nudge prices higher.
A Rabobank analysis of friendsharing projects that chief beneficiaries will include countries like Vietnam, India, Brazil, Bangladesh, Indonesia, Mexico, Turkey, Egypt and South Africa. However, expect both Eastern and Western European countries will be in on the action too -- with the latter most likely to see new high-tech presences.
Foreign Policy provides examples of some recent corporate moves:
Apple has begun moving manufacturing from China to Vietnam, where its AirPods Pro 2 are now likely to be produced. Two years ago, Samsung moved its Chinese manufacturing to Vietnam. Hasbro has moved its Chinese production to India and Vietnam. In July, Volvo announced that it would open its first European factory in 60 years, in Slovakia. (The Swedish carmaker is owned by Geely of China.) Apparel and footwear companies such as Adidas, meanwhile, have shifted production to Vietnam, though this was primarily motivated by cost.
Friendshoring beneficiaries have to perform their own careful calculations. As Alan Beattie notes at the Financial Times, "Few countries will want to be an immutable part of a U.S. friendshoring gang if it opens them up to strategic and commercial retribution from Beijing."
We really need to focus on getting Taiwan Semiconductor companies to have at minimum a backup production capability in the US.
I understand Taiwan produces 50% of the world’s semiconductor and 90% of the premium chips.
That’s a nice spoil if China decides to take it.
We don’t want to be entirely dependent on Taiwan for chips if China starts a war.
Backup production facilities in the US also allows the Taiwan companies to destroy the tech in Taiwan, should a Chinese invasion appear to be going badly for Taiwan.
Of course, the one place they will never locate is here.
RE: We really need to focus on getting Taiwan Semiconductor companies to have at minimum a backup production capability in the US.
I think TSMC is already doing that in Arizona.
Their big problem? Well read about it here:
[EXCERPT]
Taiwan Semiconductor Manufacturing Co. on Wednesday said the cost of building its U.S. chip plant is higher than previously estimated, and again called for Washington to extend planned support for the chip industry to foreign as well as domestic companies.
TSMC Chairman Mark Liu told shareholders at the company’s annual meeting that the facility in Arizona — its first advanced chip plant in America in more than two decades — is turning out to be “more costly” than expected, though the increase will be “manageable.”
He did not say by how much the costs are exceeding expectations.
Liu also said recruiting engineers and technicians in the U.S. is “more difficult than in Taiwan ... but hiring is on track and currently meets the number of hires we are seeking.” Nikkei Asia previously reported on the challenges facing TSMC in recruiting chip talent in Arizona.
RE: Of course, the one place they will never locate is here.
Read Post #4
This effort began under the Trump administration because the business world was suddenly realizing that Trump could unilaterally make trade and tariff decisions that drastically screwed up corporate planning that takes years to set in place.
If these things hadn’t started under Trump, the supply chain disruptions we had during Covid would have been even worse. Nobody would dare give Trump credit for being prescient on that front though.
Unfortunately, a lot of the factories in “friendlier” countries might as well be in China because the intellectual property has already been stolen and the Chinese are still playing a major role in setting up non-China-based factories because the Chinese have gotten really good at setting up effective manufacturing operations quickly.
Let's see if our International Corporation can screw American Workers and America better in some quiet Foreign Country, after all, we have to keep those jobs and investment OUT of America.
A huge TSMC plant is under construction just north of Phoenix.
I don’t need my new clothes washer to sing me a song when its cycle’s finished. If we lost half of Taiwan’s chips it wouldn’t bother me.
That we can't get either back now are just the consequences of our own stupidity.
Our own stupidity, and the Washington DC - Wall Street Axis selling out Main Street to Chine for the last 30 years.
Its a baby step in the right direction.
As much as possible, western companies should be bringing as much of the supply chain as possible back to western countries. At the very least though, they need to first move a lot more of their supply chains OUT of China. They are actively strengthening an enemy by remaining there AND they are leaving themselves wide open to both disaster if China ever cuts them off and to being pressured by the Chinese government whenever it wants something.
I tried making this point to Wal-Mart when I worked at their corporate HQ 20 years ago. My exact words were “Imagine what happens to our stores if one missile flies over the Taiwan strait.” Nobody wanted to listen then. Maybe they’ll listen to that message now.
On any given day in the news cycle I come across at least a dozen reasons why it’s a bad idea to invest heavily in my U.S.-based business.
>>I understand Taiwan produces 50% of the world’s semiconductor and 90% of the premium chips.<<
>>That’s a nice spoil if China decides to take it.<<
...The crown jewel and the communist know it.
That’s a really dumb sounding term.
True.
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