"Today, nations can industrialise by joining a supply chain – there is no need to build a supply chain. Indeed in some industries the concept of a one-nation supply chain has disappeared. No nation today produces all the parts and components necessary to make aircraft, cars, or electronics. Some nations are headquarter-economies, others are factory-economies, but no one has the whole value chain. This matters.
Globalisation is often viewed as driven by the gradual lowering of natural and manmade trade costs. This is a serious misunderstanding.
- Globalisation made a giant leap when steam power slashed shipping costs;
- It made another when ICT decimated coordination costs.
- Railroads and steamships made it feasible to spatially separate production and consumption.
- Once the separation was feasible, scale economies and comparative advantage made it inevitable.
- It became increasingly economical to geographically separate manufacturing stages – to unbundle the factories.
- Once the separation was feasible, scale economies and comparative advantage made it inevitable.This was globalisation’s 2nd unbundling; production stages previously performed in close proximity were dispersed to reduce production costs. Theories to understand its implications are only now emerging.
- Production dispersion did not end the need to coordinate production stages – it internationalised it
- 20th century trade is the selling of goods made in factories in one nation to customers in another; the trade system is largely about demand, i.e. selling things.
- 21st century trade involves continuous, two-way flows of things, people, training, investment, and information that used to take place within factories and offices; the trade system is also about supply, i.e. making things.