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3 - Patterns and determinants of production fragmentation in world manufacturing trade

Published online by Cambridge University Press:  02 September 2009

Filippo di Mauro
Affiliation:
European Central Bank
Stéphane Dees
Affiliation:
European Central Bank
Warwick J. McKibbin
Affiliation:
Australian National University, Canberra
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Summary

Introduction

International production fragmentation – the geographic separation of activities involved in producing a good (or service) across two or more countries – has been an important feature of the deepening structural interdependence of the world economy in recent decades. After a modest start in electronics and clothing industries in the late 1960s, international production networks have gradually evolved and spread into many industries, such as sport footwear, automobiles, televisions and radio receivers, sewing machines, office equipment, electrical machinery, power and machine tools, cameras and watches. At the formative stage, outsourcing predominantly involved locating small fragments of the production process in a low-cost country and reimporting the assembled components to be incorporated in the final product. Over time, production networks have begun to encompass many countries, resulting in multiple border crossings on the part of unfinished parts before the completion of the final product.

In the early stages of the international fragmentation of production, the processes normally involved a multinational enterprise (MNE) building a subsidiary abroad to perform some of the functions that it once did at home (Helleiner, 1973). Over the years, MNE subsidiaries have begun to subcontract some activities to local (host-country) firms, to which they provide detailed specifications and even fragments of their own technology.

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Publisher: Cambridge University Press
Print publication year: 2009

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