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  • Print publication year: 2020
  • Online publication date: March 2020

3 - Global Production Network: India and Developing Countries

Summary

The current phase of globalisation entails interdependence between spaces and regions of productions at a much higher scale compared to earlier phases of expansive growth realised through trade and commerce. The significant feature of the current phase is the breaking down of production tasks into multiple phases and the international division of labour is no longer based on the average factor intensity of final products. Instead, comparative advantages of production location are driven by factor intensity of particular components or intermediate inputs. The regime of production appears to be inclusive as it offers greater opportunity to developing countries in becoming a part of global production structures. It is no longer necessary to build a single-nation supply chain producing a final product for export. Instead, the process of industrialisation can be short-circuited by specialising in the production of particular inputs or assembling a final product. Hence, it is possible for a country to export a technology-intensive final product while contributing to only a labour-intensive task required for that particular product. This is often termed as ‘second unbundling’ of production. The first one relates to spatially separating spaces of consumption and production facilitated by steam-power and the use of railways and steamships. This separation soon became inevitable because of scale economies and comparative advantages derived from a particular factor intensity matching the abundance in factors of a region. Such division of labour that emerged in the early nineteenth century facilitated increased global trade and migration due to fall in transportation costs, but it also led to concentration of production in certain regions in the form of clusters and industrial districts. The dual trend existed as coordination costs increased with the dispersion of production sites. The ‘second unbundling’ was caused by the information and communication technology (ICT) revolution as ICTs allow the coordination of production from a distance. Hence, the spatial scale of production is no longer fixed and networks of production span beyond national boundaries with simple or complex architecture of transactions.

The change in the organisation of production has altered the pattern of global trade. Today, almost 60 per cent of world trade consists of intermediate goods and services that are incorporated in global production networks. This has given rise to a wide divergence between a country's export figures and its actual contribution in adding value.

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