Friendshoring in global production networks: state-orchestrated coupling amid geopolitical uncertainty

2.1 Reducing risk exposure

Reducing risk exposure is perhaps the most pronounced geopolitical imperative of GPN formation in today’s polycrisis. For firms, reducing risk exposure implies that they are reorganizing production structures from prioritizing just-in-time towards just-in-case production (Jiang et al. 2022). Therefore, lead firms may be willing to incur short-term losses as they opt for less optimized cost-capability ratios in coupling with new suppliers if the respective supply relations are perceived to be more resilient to disruptions on the long run (Müller 2023).

States are also willing to subsidize substantial GPN reconfigurations as a means of de-risking the supply of strategic goods (Gabor and Sylla 2023). By shoring production to geopolitically aligned regions, a bandwidth of acute risks including geopolitical ruptures, pandemics, climate crisis-related catastrophes and bottlenecks can be alleviated. While this imperative may encourage technological fixes such as replacing risk-exposed by less risk-exposed commodities or intermediate inputs in the production process (Lambert et al. 2022), the reduction of risk exposure is mostly related to spatial fixes to risks that drive “the massive restructuring of global production networks in search for more diversified production bases, supply stability, and network resilience” (Yeung 2021: 435). Both from firm- and from state perspective, friendshoring is seen as a key approach towards raising the overall supply chain resilience against crises (Maihold 2022).

2.2 (De-)weaponizing supply chains

(De-)weaponizing supply chains is a second geopolitical imperative with growing effect on the restructuring of GPNs as it reflects how lead firms and states respond to variegated forms of “weaponized interdependence” (Farrell and Newman 2022). Weaponized interdependence applies when strategic chokepoints in supply chains of a GPN become leveraged by states and firms to coerce and harm their adversaries whilst being heavily dependent on the same inter-firm relations. The widespread return of industrial policy, trade protectionism, neo-mercantilism, and open economic warfare in form of retaliatory tariffs and export sanctions illustrates this trend of weaponized supply chains and as such also of weaponized inter-firm relations in GPN vividly (Aiginger and Rodrik 2020). Geopolitical imperatives of (de-)weaponization affect GPNs in a two-sided way.

Firstly, de-weaponizing supply chains refers to protective actions that safeguard up- and down-stream relations in GPNs from “predatory” interventions by state capital alliances of hostile geopolitical blocks. For instance, in a move complementary to the diversification of supply chains, GPN actors may pursue “geostrategic decouplings” (Blažek and Lypianin 2024) in order to withdraw their supply chains from exposure to adverse interventions. These interventions can take a more direct (e.g. tariffs, sanctions, confiscations of good and assets) or indirect form, when being crowded-out by “home-grown” GPNs receiving preferential support by their origin states (e.g. subsidies, public co-ownership, asymmetric industrial policy). Secondly, and vice versa, weaponizing supply chains can occur by leveraging “home-grown” GPNs to exert pressure on the strategic chokepoints of those GPNs that are predominantly embedded in a competing geopolitical block (Farrell and Newman 2022). The imperative of (de-)weaponizing supply chains is, therefore, not solely about maintaining a GPNs market development which mostly occurs on basis of inter-firm competition, but also about explicitly harming and sabotaging the market expansion or dominance of competitors through state-orchestrated intervention (cf. Laurenceson and Armstrong 2023).

2.3 Maintaining extraterritorial influence

Maintaining extraterritorial influence is a third geopolitical imperative that affects decisions of GPN actors beyond strictly firm-driven considerations of cost efficiency or market development. Extraterritorial influence is an imperative emanating mainly from wider political economic considerations including diplomatic goals and contingencies which may affect how home-grown lead firms must reorganize their GPNs. In order to maintain extraterritorial influence both on political as well as economic level, the friendshoring of GPNs can serve to simultaneously create shared benefits (inter-firm relations) and build political trust (inter-firm and inter-state relations) with existing or potential trading partners. This is especially the case when friendshoring involves assembling new inter-firm relations in GPNs that span across established blocks of geopolitical superpowers such as the US, China, and to some extent the EU and Russia by including “third countries” (Carbone 2023). Maintaining extraterritorial influence implies, therefore, that friendshoring does not only occur along the aim of relocation GPNs into the territory of allied states, but also to nurture new alliances through economic-diplomatic efforts.

Maintaining extraterritorial influence affects GPN restructuring increasingly because growing multipolarity in the global political economy has encouraged geopolitical superpowers to compete more explicitly for strategic partnerships with “small states” (Schindler and Di Carlo 2022). There is growing concern about the geopolitical and economic alignment of third country regions, including the Indo–Pacific region, Latin America, and Africa (Carbone 2023). Notably, competition over spheres of influence occurs not only through infrastructure construction and credit provision (Schindler and Di Carlo 2022), but also through engaging in mutually-beneficial trade partnerships (Müller 2023). On the one hand, these strategic partnerships may entail formations of economic blocs defined by regional free trade zones among “small states”. As a matter of fact, preferential trade agreements will soon cover about two-thirds of world trade (Dadush and Prost 2023). On the other hand, they may also entail bilateral trade agreements with one or another geopolitical superpower (Leshoele 2020).

Regarding GPN friendshoring, the imperative of maintaining extraterritorial influence unfolds, therefore, far from being unidirectional. While lead firm home countries may be driven by the imperative to secure geopolitical support and economic de-risking, target country state-capital alliances may use this imperative to leverage their non-aligned status in negotiating beneficial friendshoring outcomes (Müller 2023).

The three introduced geopolitical imperatives are far from being mutually exclusive but simultaneously at play and self-reinforcing. Just as the polycrisis confronts the world with heightened uncertainty and geoeconomic complexity, so must GPNs adhere to inter-related imperatives when reorganizing their supply chains. Dynamic reorganization under uncertainty and geoeconomic concerns bears, therefore, substantial possibilities for friendshoring outcomes that occur against-the-odds when they are negotiated and implemented between unexpected partners and play out at unexpected places (cf. Das 2020).

3.1 De-risking extraterritorial investments

De-risking refers to practices where public funds are used to improve the overall risk-return profile of an investment, making it more resilient to adverse market conditions and economic fluctuations. Risks are often associated with concerns about political and financial stability, as well as regulatory and institutional conditions, which together result in a high weighted average cost of capital (Schinko and Komendantova 2016). The practice of de-risking has become “immensely powerful as a vision of statecraft” (Gabor and Sylla 2023: 2): various government programs, such as the Inflation Reduction Act in the US or the Green New Deal in Europe, aim to achieve industrial transformation by accompanying catalytic private investments with public funds to encourage industries to adopt transformative technologies with reduced uncertainties (Kedward and Ryan-Collins 2022]). By shifting financial risks from private to public actors, it is hoped to increase overall economic resilience in times of technological change.

States apply this technique not only to their own territories, but also conduct de-risking exercises in foreign territories of geostrategic interest in order to create a stimulating environment for investment capital (Choi and Laxton 2023). Any form of external financial and institutional support that reduces the risks associated with investment falls under the category of extraterritorial de-risking: preferential loans, green bonds, interest rate subsidies, loan guarantees, or insurances (Steckel and Jakob 2018). Financial de-risking lowers the perceived risks and required returns, thereby reducing the cost of investment. Many development agencies have launched de-risking programs to attract private investment in development projects, and the European Union currently expands its blended finance approach (van Waeyenberge et al. 2020). At the international level, bilateral and multilateral development banks play an important role in supporting development by providing financial and technical assistance. These development finance institutions (DFIs) are usually majority-owned by national governments, which ensures their high creditworthiness and enables them to raise large amounts of capital on the international market. As a result, they are able to offer grants or provide debt and equity at lower interest rates than domestic capital providers (Sweerts et al. 2019).

In sum, states can push domestic lead firms out by altering the risk environment for investment in “friendly” regions. Measures may include international agreements, or policies aimed at creating a more favorable environment for their firms operating abroad. For example, states can negotiate with other nations to establish free trade agreements, protect the rights of their investors, build distinctive financial ecosystems dominated by institutional (patient) capital, or secure markets through long-term off-take agreements.

3.2 Outward-oriented network brokering

To establish new connections in global production networks, agents are needed that bridge ties between regions. Notions of “public knowledge facilitators (Bathelt and Li 2020])” or “boundary spanners (Wu 2022)”, describe a process of outward-oriented coupling driven by individuals and organizations in GPNs. Boundary spanners are understood “as both individuals (e.g. entrepreneurs, inventors, designers and scientists) and organisations (e.g. government actors, firms, universities and trade/professional associations)” engaging in “a set of activities, processes, and practices that connect entities separated by boundaries (Wu 2022: 261)”. Similarly, “knowledge facilitators” are “organizations that voluntarily or on a for-profit basis broker valuable market, industry, and business knowledge across borders – or bridge structural holes across dispersed knowledge pools (Bathelt and Li 2020: 3)”. While private knowledge facilitators such as global consulting firms and law agencies work on a for-profit basis and provide more specific know-how, public knowledge facilitators encompassing trade commissioners, government representatives, business associations, and chambers of commerce provide broad location specific knowledge (ibid). Both concepts have in common that they emphasize the necessity of brokering agents and processes to bridge the gap between regional assets on the one hand, and transnational capital on the other hand, either by building cross-border knowledge pipelines, or by establishing contacts between otherwise separated organizations.

One of the first accounts of this type in the context of GPNs was Kleibert (2014) who analyzed how local coalitions, function as brokers by translating between the interests and ideologies of incoming transnational capital and more local sets of interests and agents. Similarly, geographical political economists have developed the concept of “coupling creation” (Dawley et al. 2019). The coupling creation approach seeks to unpack how temporary coalitions actively use their agency to connect with lead firms. In this understanding, the creation of couplings is seen as the driving force behind the dynamics of inside-out couplings.

We follow this argument, but describe these processes more generally as network brokering to highlight its bidirectionality: not only can local actors of host regions form temporary coalitions and link to lead firms (inward-oriented), but also state-capital alliances of regions with outgoing investments can engage in activities of connecting with regional institutions to prepare for strategic coupling (outward-oriented). Besides individuals, agents of outward-oriented network brokering include export promotion agencies, business fora, or development agencies linking lead firms to local institutions. By establishing new connections to regions equipped with potentially interesting assets, state and state-linked actors can push the network out to strategic coupling.

3.3 Extraterritorial institution-building

States rely on institutions to exercise power. To maintain extraterritorial influence, the existence of institutions abroad linked to state interests is crucial. To pursue geo-economic interests, states actively engage in institution-building abroad (Phelps 2007). GPN research tends to use a rather broad understanding of institutions, including organizations, norms, and conventions (Coe and Yeung 2015). However, following Bathelt and Glückler (2014), we distinguish between organizations as clearly separated entities from their environment on the one hand, and rules, laws, and regulations as codified prescriptions on the other hand, from institutions as stabilized forms of social relations that emerge from interaction.

With respect to rules and regulations, extending the legal reach of states is an important segment of extraterritorial institution-building (Potts 2020). This includes the use of explicitly “extraterritorial” laws that extend regulation to people and activities around the world, transnational certification schemes, or the application of jurisdiction abroad on the basis of minimal connections to foreign activities. With respect to organizations, states are actively building organizations abroad as anchors of extraterritorial influence. Efforts to build a global network of language centers such as the Confucius Institutes, the Alliance Française, the Goethe-Institut, and the British Council can be seen in this light, as they reflect an attempt to gain geopolitical traction through cultural values and ideals (Kluver 2014). These organizations thus act as agents that, on the one hand, change the institutional landscape of regions by enhancing their ability to connect with GPNs, and on the other hand, organizations are used to modify endogenous institutions with the aim of leveraging regional assets.

Enhancing the ability to connect with GPNs refers to actors that are mobilized to bridge relations between regions and thus facilitate strategic coupling (Kleibert 2014). For example, transnational development corridors such as China’s Belt and Road Initiative are used to build discourses that legitimize investments in strategic sectors and thus facilitate strategic couplings (Tups and Dannenberg 2023). Modifying endogenous institutions refers to mobilizing, transforming, and leveraging local assets to meet GPN coupling criteria (Dawley et al. 2019). Local government initiatives can actively engage in institution building to create favorable conditions for strategic coupling: For example, the Namibian government built domestic institutions to meet the coupling criteria of the tourism GPN (Kalvelage et al. 2023a). While most of the literature on these types of institution building refers to intra-regional actors, we suggest that more attention should be paid to extraterritorial institution building activities by states: by deliberately creating, altering, or repurposing organizations in target regions, states alter the institutional fabric of host regions to make them suitable for strategic coupling.

In sum, one possible reaction towards geopolitical imperatives is the friendshoring of production into geopolitically aligned states. To pursue this goal, states and state-linked actors together with lead firms exert extraterritorial practices to alter the conditions for strategic coupling and thus, push the network out. Host states of arriving GPNs on the other hand may use their agency to accelerate or hinder their region’s embeddedness into GPNs. To test the usability of this framework in the following we turn to two different cases of friendshoring: state-directed friendshoring in China versus state-incentivized friendshoring in Namibia.

5.1 Leveraging an old friendship for food security: China’s soybean politics in Tanzania

China’s friendshoring practices in the soybean GPN can be explained by our conceptualization of three main geopolitical imperatives.

First, high import shares of about 60 % of worldwide soybean trade comes with substantial inflationary risks for China’s economy (Wesz Junior et al. 2021). China aims to reduce its supply chain risks through strategic diversification of the China-oriented soybean GPN which is highly dependent on imports from few production regions and their supplying intermediary firms (US, Brazil, Argentina). China used to be a net exporter for soybeans until the mid-1990s. However, following the WTO entry, China made the strategic choice to use Chinese farmland mainly for grain production whilst offshoring the land intensive production of soybeans and using Chinese state-owned enterprises (SOEs) to operate as buying lead firms in off-shored production regions (Oliveira 2016). This decision resulted in a dramatic downturn of China’s soybean self-sufficiency ratio that has dwindled to about 15 per cent (Wesz Junior et al. 2021).

Second, China’s soybean imports have become a weaponized commodity in the US–China trade war. China used retaliatory tariffs on US soybeans and banned its home grown SOEs from buying US soybeans since mid-2018. This was meant to strategically harm the US (agro-)economy and exert political influence of voter behavior. By gradually shifting the major supply chain of the soybean GPN towards alternative production frontiers including Latin America and more recently Africa and Russia, China de-weaponizes its own supplies (Wesz Junior et al. 2021).

Third, China seeks to establish new spheres of geopolitical influence in Africa. Remarkably, this imperative goes beyond funding and building infrastructures as it also includes the coupling of Chinese GPN with African economies. Embedded in Cold War ties and the socialist brotherhood between China and Tanzania (among a number of African states), agricultural “green lanes” have recently been proposed by China. This coincides with strategies to strengthening Sino–African trade and GPN integration via the Belt and Road Initiative (BRI) (Tups et al. 2024) and demonstrates China’s ambition to compete with Western countries for geopolitical influence (Large 2022; Li 2023).

Taken together, the above geopolitical imperatives define why the Chinese soybean GPN is being friendshored to couple with new production regions in Africa. Below it will be shown how this process is governed by Chinese SOEs and more indirectly orchestrated by the Chinese communist party which can directly define key agendas of soybean SOEs through shareholder rights as well as ownership of key firm assets (Fares 2023).

5.2 Healing old wounds with development: Germany’s green hydrogen promise for Namibia

Germany’s energy friendshoring efforts respond to the three geopolitical imperatives described above: First, to reduce its exposure to supply security risks, the German government is seeking to diversify its energy imports and increase imports of renewable energy carriers, such as green hydrogen. Second, in response to Russia’s invasion of Ukraine, Germany quickly used its purchasing power for natural gas and oil as a weapon in the trade war. The trade sanctions imposed targeted Russia’s commodity export sector to hit its economy at a vulnerable point. Third, to maintain influence in the region and ease diplomatic tensions from its colonial past, a German development cooperation representative in Namibia confirms that Germany seeks to support economic development in Namibia (C4). Despite years of negotiations between the two countries, they have yet to reconcile the genocide committed by the German Empire in what was then South West Africa (now Namibia) from 1904 to 1908 (Melber 2020). The German Federal Ministry for Economic Affairs and Climate Action (BMWK) has developed green hydrogen partnerships with strategic exporting countries to face the janus-faced challenge of achieving the self-imposed target of climate neutrality, nuclear phase-out, and the need to ensure stable energy supply from reliable partners, including Canada, Egypt, Saudi Arabia, Australia, Chile and Namibia. While some of these countries are already closely aligned with Germany’s geopolitical aims, stronger alignment with other countries is to be achieved via this energy diplomacy (Quitzow et al. 2023). The hydrogen partnership with Namibia took the form of a joint declaration of intent signed in March 2022 and is aiming for a mutually beneficial outcome: exporting green hydrogen to Germany for increased energy security, while fostering significant industrial transformation in Namibia. The mutual benefits of this agreement was confirmed in a group discussion with high-ranking Namibian government officials (G2).

5.3 A brief comparison of Chinese and German friendshoring approaches

The two cases show that friendshoring is not a uniquely Western response to geopolitical turmoil and multipolarity, but both GPN actors from China and Germany are responding to pressing geopolitical imperatives by leveraging historical ties between friendshoring partners with the ultimate goal of sourcing strategic commodities from global peripheries (Table 1).

First, states aim to reduce the risk exposure of crucial GPNs: sourcing strategic commodities from various and preferably more aligned locations and GPN counterparts reduces supply-side risks such as crop failure due to climate change or energy shortages due to political instability (cf. Vivoda 2023). Second, states use their grip over GPNs to (de)weaponize strategic supply chains: in response to the ongoing U.S.-China trade war, China is seeking to simultaneously weaponize (reducing purchases from the US) and de-weaponize (diversifying supplies for the Chinese market) the soybean supply chain through a long-term strategy of spatially reorganizing its soybean GPN (Wesz Junior et al. 2021). Germany has taken an even more active approach of weaponizing GPNs, using its purchasing power to the detriment of the Russian economy by decoupling and sanctioning its energy exports whilst simultaneously fast-tracking alternative supplier relations (Zhang et al. 2024). Third, both countries are linking their friendshoring ambitions with large-scale infrastructure projects to maintain extraterritorial influence conducive to the market imperatives of home-grown lead firms. The revitalization of the BRI after the Covid-19 pandemic is directly linked to the launch of Sino–African green lanes for agricultural products just as Europe’s Global Gateway is linked to state-driven coupling attempts in energy or also critical mineral GPNs with alternative suppliers on the African continent (Heldt 2023). There are, however, differences in the way states influence inter-firm coordination:

Chinese state influence is expressed through mobilization of state-owned soybean SOEs (COFCO, Longping) that are well-coordinated with government institutions, equipped with patient capital and diplomatic backing allowing to de-risk otherwise infeasible investments. China’s high demand guarantees stable off-take agreements for producers which are further backed on diplomatic level. To achieve conducive network brokering and to build new institutions in form of prospective public-private partnerships (PPP) with Tanzanian actors and changing the soybean seed system, China mobilizes its SOEs quite directly.

Germany’s foreign trade policy, on the other hand, remains intertwined with EU initiatives such as the Global Gateway initiative and takes a more indirect approach, focusing on changing the conditions for strategic coupling to incentivize coupling with geopolitically aligning regions endowed with strategic assets. This explains the focus on financial de-risking and institution-building: more than network brokering, these practices alter the regional asset base and prepare the ground for strategic coupling. By orchestrating the actions of a wide range of state and state-linked organizations, diplomatic relations are strengthened in order to create opportunity spaces for domestic lead firms in strategic sectors in geopolitically aligned states.