production facilities to be located in different countries. Third,
the current very low costs of communication and
transportation make it possible to coordinate supply chains
globally and ship parts and final products anywhere at low
cost. (If fuel becomes expensive enough to make transport
costs a significant part of total costs, it will become economic
to do much more production closer to final markets than it has
been over the last several decades.)
Consider three examples. The iPhone sold by Apple clearly says
“Made in China” on the box, but most of the value from its
design occurs in the United States, many electronic
components come from Korea and Japan, and only the
iPhone’s final assembly occurs in China. Apple chooses to
locate assembly in China, using components manufactured
elsewhere, because by doing so it can maximize its product
quality and minimize costs.
Bombardier jet aircraft designed and assembled in Canada also
involve global supply chains. Fuselage parts come from Japan,
the wings are produced in Northern Ireland, engines are
imported from the United States, and the avionics are
engineered in the United States but sourced from Asian
suppliers. Bombardier adopts this business model because
costs can be reduced and quality maximized by using specialty
suppliers at each link in the global supply chain.