Is Friendshoring the Right Approach for PCB Manufacturing?

Ever since the Chips & Science Act became law in the United States, there has been an ongoing debate regarding strategies for nearshoring, friendshoring, and onshoring. This is partially driven by a persistent supply chain problem related to consumer products and automobiles, as well as inflation and lack of localized production capacity. Although the macroeconomic environment and consumer spending patterns have allowed stocks of semiconductors to replenish, the underlying challenges of lacking geographic diversification of supply chains remains to be addressed.

In order to withstand further supply chain shocks and another major geopolitical situation overseas, friendshoring is becoming a more serious consideration for many companies in the electronics industry. The reasons for this go beyond availability of manufacturing capacity in Taiwan and China, and they include factors like import costs and IP protection. Keep reading to see how you can develop a supply chain strategy that centers around friendshoring.

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Friendshoring Defined

In the context of manufacturing, friendshoring broadly refers to allocation of manufacturing capacity to locations where the government and economic structure are more friendly to a company’s interests. Friendshoring and nearshoring are similar in that nearshored production capacity could also be considered friendshored. In defense production circles, friendshored capacity is considered to be located in allied countries, but in general this is not the case and alignment of economic interests is the broader driver of allocation of production capacity.

Import/export tariffs

Certain countries may impose tariffs and import taxes; friendshored locations are considered to have lower export/import costs.

Logistics costs

Shipping costs and time vary by location, which will further vary across different carriers. This point and import/export fees contribute to landed costs.

Import/export controls

Certain countries may have import and export controls imposed, and these limit which products can be produced, even in friendshored countries.

Access to fabrication capabilities

Although the most advanced fab capabilities for electronics assemblies reside in Asia, you can find a balance between cost and capability by looking elsewhere.

Operating restrictions and regulations

Compliance in the target country can factor into manufacturing costs.

All of these points play into the calculus for nearshoring and friendshoring operations, as well as for complete reshoring of critical production capacity. Manufacturers are taking the trend seriously and have already begun to shift production to EMS providers outside of southeast Asia. In a recent Deloitte survey, 62% of surveyed U.S. manufacturing executives stated they were actively pursuing or exploring expanding onshore production capacity.

Big names in the consumer product space are also taking the trend seriously. Most notable among the big tech names is Apple, who recently friendshored its iPhone production and assembly to India. The Apple story is instructive as they have dealt with quality problems on their first run of assembled products. This illustrates some of the challenges OEMs and EMS customers will face if they jump on the friendshoring bandwagon.

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What Friendshoring Can’t Guarantee

Despite the big names planning to onshore, nearshore, and/or friendshore their new and existing manufacturing capacity, there are many challenges to consider. Some of the biggest challenges include:

• Quality control - EMS companies in the destination country need to have a culture that values quality in the finished product, as well as comprehensive quality control programs.
• Inspection and testing - Companies in the destination country may compete on price and capability, but they might not have advanced testing and inspection equipment needed to qualify certain products.
• Skilled labor - The skill of the local labor force is an important consideration as it relates to the two previous points.
• Cost - While companies prefer to stay offshore to reduce overall production costs, there is no guarantee that friendshoring reduces costs, and in some cases it increases costs.
• IP protection - Bringing production to a friendly home does not automatically mean your IP will always be protected. Nations where there are rigorous IP protection and patent protection laws are a preferable option, however.

The last point in this list is arguably the biggest driver of friendshoring. According to Foley & Lardner LLP, a large law firm that specializes in manufacturing, IP protection is one of the major legal issues manufacturers will face going into the future. Strengthening IP protection is also one of the cornerstones guiding implementation of the Chips & Science Act, and this piece of legislation is one of the major factors that kicked off the recent reshoring and friendshoring movement.

Although nearshoring won’t solve all of your supply chain problems, it can be part of a larger solution to many of the problems that arose over the past year. In some cases, a nearshoring strategy is also a friendshoring strategy because nearshored production orders might be filled in friendly nations. There are also the day-to-day procurement operations and management tasks that need to be performed within a nearshoring strategy, and a supply chain management platform like Cofactr can help in these areas.