"Want to Friendshoring" European Companies Quadruple Increase

Global Geopolitical Crisis
42% of Companies "Relocating Production Bases to Friendly Countries"

As global geopolitical tensions escalate, including the US-China conflict, the number of European companies aiming to accelerate 'friendshoring' (allied supply chain solidarity) has significantly increased.

According to a survey conducted by the European Central Bank (ECB) on June 6 (local time) targeting 65 global companies within Europe, 42% of the companies responded that they plan to relocate their production bases to politically friendly countries within the next five years. This is four times the number of companies (11%) that said they had pursued friendshoring over the past five years.

This movement appears to reflect the trend of further blocization of the global trade system amid intensified geopolitical crises and diplomatic divisions caused by the US-China conflict, Russia's invasion of Ukraine, and the war between Israel and the Palestinian armed group Hamas.

More than two-thirds of respondents identified China as a country that could pose risks to Europe's supply chains. Companies also cited the US, Taiwan, India, T?rkiye, and Russia as potential threats to supply chains.

As the criteria for supply chain restructuring shift from the traditional focus on cost efficiency to reshoring (the return of overseas enterprises to their home country) and friendshoring in recent years, inflationary pressures are expected to gradually increase. Sixty percent of all respondents said that product prices have risen due to supply chain restructuring and production facility relocations over the past five years. Forty-five percent of respondents forecast that inflationary pressures will intensify further in the future.

Earlier, ECB President Christine Lagarde also stated that "the fragmentation of the global trade system has contributed to the surge in inflation over the past two years." The International Monetary Fund (IMF) likewise predicted earlier this year that global supply chain fragmentation could reduce world economic output by about 2%.

However, there is analysis suggesting that it will take considerable time for European companies to reorganize existing supply chains by partnering with politically friendly countries. The ECB analyzed, "Geopolitical risks are a major factor in deciding to relocate production facilities within the EU, but demand and costs are pushing production bases outside the EU." It added, "So far, there is no evidence of significant changes in Europe's trade patterns," and forecasted, "Considering the challenges and costs involved in changing business models and supply chains, such changes may take time to materialize."

Foreign media reported, "Due to geopolitical tensions, an increasing number of multinational companies are planning to relocate production bases to politically closer countries," and "these companies are also concerned about their heavy reliance on China for sourcing key raw materials."