Pluses of friend-shoring business strategy

As a business strategy friend-shoring is added to American trade policy and by extension privately owned businesses that deal in sensitive and/or critical technology most of these mainly engaged in military industrial complex. Lately this has morphed into a vital strategy within America and outside. More follows:

Technically friend-shoring also known as ally-shoring is a business strategy used to develop trade partnership with trusted friends who would not reveal secrets of the manufacturing process to third parties, facilitate surplus chain resilience and toe the line of the granter in terms of geoeconomics balance and perspectives. The bottom line is that supply chain should always remain un-disrupted at any cost even during hostilities in which the friend is involved with third parties.

As a vocal proponent of this business strategy, Secretary of Treasury Janet Yellen foresees friend-shoring as a vital tool in geoeconomics that on the one hand deepens binding relationship with allies of America and on the other builds up supply chain resilience amongst all of them. On this count she considers India as friend but dismisses China altogether.

Broadly in the commercial world friend-shoring is picking on cue. Most businesses in sensitive and/or critical technology have taken this business strategy seriously. Here are main advantages:

Chief amongst the pluses is the reduction of holding cost of inventory in finished and/or semi-finished form. Plainly put this is most suitable one for armament manufacturing where the main body is completed in semi-finished form and allies could add or supplement features that are deemed necessary for them.

By doing so manufacturing firm can avoid bottlenecks arising from catering to individual design parameters forwarded by buying nations resulting in additional cost on the part of him. There is added benefit to the allies who can achieve what we call “indigenisation” that boosts their production capability and capacity along with enthusiasm.

Friend-sharing dictates that technology transfer from the manufacture to the ally is the sine-quo-non. The paradox is that technology transfer has inherent risks as regards to the secrecy of process and proprietary rights of the manufacturer at risk. Conceivably, this transfer is conditional on the allies observing secrecy and shutting out any form of backdooring to competitors. Primary purpose of any business is optimizing the return on investment (ROI) and improving the core business. Needless to say this paradigm requires improved sales to customers, who in this case are allies too.

Finally, friend-shoring builds up team spirit as parties involved in this business strategy are provided with the opportunity in dealing in high-tech. The crux of the matter is “team work is always better than individual job’. For example, F35 Aircraft programme involves America, few NATO allies, Australia, and Israel. Interestingly Turkey is the odd man in and out.

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

 

 

Five types of shoring strategy

Shoring is a valuable and useful business strategy for growing and diversified entities. Equally it can be implemented by countries as well. Here is a bird’s eye-view of the five well-known types of shoring  business strategy:

1. In-shoring

Basically this strategy means that the entire production process in completed within a plant and/or premises. Sometimes storage and distribution may be located in a different place but within the perimeter of company property. Alternatively known as on-shoring, a terminology much preferred in policy papers, this one keeps overall control tightly so that management can monitor and supervise admin and growth.

2. Near-shoring

Succinctly put, this strategy differs from the previous one as regards to solitary location. One or more of the production functions could be located elsewhere other than in the main factory. Sometimes the entire marketing and/or distribution is re-located to give way for easy and smooth functioning of manufacturing. A word of caution: near-shoring does not mean the second location is outside the jurisdiction of a particular State or Country.

3. Off-shoring

Main thrust of this business strategy to move the main or significant part of the production abroad. America did this as regards to chip production in 1990s, when the manufacturing was devolved on Asia to Taiwan and South Korea. The entire plant & machinery was either moved out or new plants known as Fabs were built in these two countries. Presumably the sensitive and secretive part in chips manufacture is designing which the Americans kept for themselves in-shore.

Some literature uses “out-shoring” as an equivalent. Latter terminology started to give trouble as many construed it as an out-sourcing function used in data processing, supply of materials and provision of services by outside vendors. One more point: bankers use off-shore banking as a separate division. Here the idea is off-shore banking being outside the regulatory oversight of a country and not any physical separation of the banking arm from the main bank.

4. Ally-shoring

Alternatively known as “friend-shoring” this is a marvellous business strategy. Although executable in most types of business it has turned out to be popular in the military industrial complex where a perception has  grown that ally-shoring is the suitable one for production of weapons due to  comfort from the secrecy of its operations away from public eye.  Russia and Turkey are lead nations that follow this business strategy. Turkish drone manufacturer Baykar, is one of the key players who do ally-shoring with companies outside Turkey.

5. Re-shoring

Dubbed as escaping strategy, re-shoring fundamentally means getting back to in-shore after off-shoring attempts have either failed to materialize or succeeded to such an extent that the granting country’s security or business growth had been compromised. Good example is the American attempts to return to square one in chip manufacture. Arizona and Ohio are two states that are building new Fabs within their jurisdiction. TSMC in Taiwan and Samsung in South Korea are persuaded to invest in Fabs in America for this re-shoring exercise.

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

 

US three dimensional pressure on China failing

A phenomenon seen lately in the relationship between USA & China cannot escape attention of business strategists world over. All three branches, namely geopolitics, geoeconomics and geostrategy were in the play. Yet Chinese reaction shows none of these worked. On the contrary China hardened her stance. Let me explain:

Antony Blinken, US Secretary of State ushered in the scene one when he visited Beijing during June 18-19. “The Secretary emphasized the importance of maintaining open channels of communication across the full range of issues to reduce the risk of miscalculation.” So conveyed the read out of the State Department of his talk with the Chinese counterpart. But the protocol was breached as Chinese President was in the lead chair and both Chinese hosts and American delegation faced each other across the table. Result: China simply harkened down to the Secretary that geopolitics pressure is going nowhere.

In the previous month CIA Director secretly travelled to China and met with his counterpart for a discussion of mutual affairs. There were two reports. One source said “Director Burns travelled to Beijing where he met with Chinese counterparts and emphasized the importance of maintaining open lines of communication in intelligence channels”. Second source clarified it more blithely that the trip was “an intelligence to intelligence engagement, not a diplomatic mission”.  Unmistakably it is clear that this was an attempt to bring geostrategic pressure on China to play along but Chinese failed to do that.

What remains manifestly is the third level of geoeconomics. There were two visits in almost quick succession. First one was by Janet Yellen Secretary of US Treasury that lasted four days in July 6 to 9. Euphemistically the purpose was stated to be “aimed at rebuilding bridges between the two countries along with managing ties responsibly”. Conceivably Janet was on a mercy mission to plead with China to slow down liquidation of US Treasury investments and maintain the current level of holdings of 850 US$ Billion intact. Her emphasis was de-risking and not decoupling. China failed to make out any promise over this matter, though.

Concomitant to this trip US commerce Secretary Gina Raimondo began her tour of China on Sunday 27 August with the same message this time de-coupling was not even mentioned and de-risking was emphasised little more. While security concern is paramount in her engagement she was toning down geopolitical and geostrategic aspects and instead went for geoeconomics because stabilizing US- China trade currently around US$ 7000 Billion need to be improved as it funnels China surplus towards investments in treasury bonds.

Furthermore travel & tourism was selected as an ideal balancing item; as of late Chinese travellers are dumping plans for their tour in US cities. Cursory glance over the export curbs imposed on rare earth minerals for US chip manufacture was made without upsetting the Chinese officials. Overall the tone is friendlier and no threatening language was used.

The bottom line is America has fewer options than before to browbeat China into submission. America cannot go for paradigm change in her approach vis a vis China. Curiously enough, the Chinese officials showed little more courtesy to Gina Raimondo than the three other biggies who visited earlier. Simply said, all three pressure techniques in geopolitics, geoeconomics and geostrategy have hopelessly failed!

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist