Why Australian Businesses Are Rethinking Global Supply Chains

As global tensions continue to simmer—from ongoing trade rifts between the United States and China to security concerns in the Red Sea—businesses across the globe are re-evaluating who they trade with and where they source from. For Australian firms, this has accelerated a shift towards a growing trend: friendshoring.

Coined in the aftermath of the COVID-19 pandemic and reinforced by geopolitical instability, friendshoring is the practice of relocating supply chains to countries with shared values, stable governments, and predictable regulatory environments.

In 2025, with economic uncertainty looming and global trade friction at a high, Australian SMEs and large corporations alike are reassessing traditional globalisation strategies. A recent report from the Australian Industry Group found that 42% of mid-sized manufacturers are actively pursuing friendshoring strategies, prioritising trade with nations such as Japan, South Korea, the United Kingdom and New Zealand.

From Just-in-Time to Just-in-Case

“In the past, efficiency was everything—just-in-time supply chains kept costs low and inventory lean,” says Dr. Louisa Cheng, a trade economist at the University of Sydney. “Now, resilience and reliability are just as valuable as cost. Businesses are willing to pay a premium to avoid being blindsided by political upheaval or sanctions.”

The shift is particularly evident in sectors like pharmaceuticals, defence, and technology—industries where reliance on unstable or adversarial trading partners could pose strategic risks.

For example, the Australian government recently signed a $2.3 billion agreement with South Korea to co-manufacture advanced semiconductors and lithium battery components, aiming to reduce reliance on China while tapping into Seoul’s tech expertise.

Small Businesses Catch On

While large corporations have the resources to diversify, small and medium enterprises (SMEs) are also adapting.

“About 60% of our raw materials used to come from China. But after repeated delays and price swings last year, we’ve now shifted 70% of our sourcing to suppliers in Malaysia and Singapore,” says Olivia Tan, founder of a Melbourne-based skincare brand. “It’s slightly more expensive, but the consistency is worth it.”

According to a March 2025 survey from Export Finance Australia, 31% of SMEs say they’ve changed suppliers or trade partners in the past 12 months due to geopolitical or economic risk, a figure expected to climb further this year.

A Strategic Opportunity for the AUD

Friendshoring isn’t just about risk mitigation—it could also reshape Australia’s trade profile and currency strength. As trade ties deepen with politically aligned countries, economists predict a more stable demand for the Australian dollar, especially if investment flows from partner countries accelerate.

“Friendshoring creates predictability, which markets love. If Australia becomes a preferred partner for critical minerals, food exports, and advanced manufacturing inputs, it can support the dollar in the long run,” notes economist Priya Malhotra from Westpac.

However, she cautions that diversification takes time and requires strategic government support. “We can’t simply wish away our top trading partner. China still accounts for over 25% of our exports. So the transition has to be carefully managed.”

Looking Ahead

As global economic alignments shift in response to politics and power, Australia’s role in the new friendshored world remains a balancing act. For businesses, that means making difficult decisions today—often at higher cost—for greater certainty tomorrow.

“We’re not deglobalising,” Dr. Cheng concludes. “We’re just entering a new phase of global trade. It’s more cautious, more value-driven—and possibly more resilient.”

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