A single manufactured product now typically contains components from many countries, and this arrangement required three separate developments to become possible.
The three enablers
Falling transport costs, driven principally by containerisation.
Trade liberalisation, reducing tariffs and removing quantitative restrictions.
And communications technology allowing coordination of dispersed production.
Which together made it viable to separate stages of production geographically, which had not previously been practical.
The unbundling
Production stages that had to be co-located could be separated once coordination became cheap.
Which allowed each stage to be located where it was cheapest, rather than requiring the whole process in one place.
The consequence was that comparative advantage applied to tasks rather than to finished products.
What determined location
Labour cost for labour-intensive stages.
Skills and infrastructure for complex stages.
Proximity to markets for bulky or time-sensitive goods.
Regulatory environment including tax and trade agreements.
And agglomeration, since suppliers cluster around assembly, producing self-reinforcing concentration.
Just in time
Minimising inventory by receiving components as needed.
Which reduced working capital substantially and required reliable supply.
The efficiency and the fragility are the same property, which recent disruption demonstrated.
The visibility problem
Firms know their direct suppliers and frequently not the suppliers behind them.
Which means a disruption several tiers deep is invisible until it arrives.
Mapping exercises following recent disruptions found substantial dependencies that firms had not known about.
Labour and standards
Dispersed production placed manufacturing in jurisdictions with different labour and environmental standards.
Which produced auditing schemes, supplier codes and, more recently, due diligence legislation in several jurisdictions requiring firms to identify and address risks in their chains.
Auditing has documented limitations, including announced inspections and audit fraud, which has been established repeatedly.
The reconsideration
Recent disruptions, geopolitical tension and policy have prompted reassessment.
Nearshoring, friendshoring and diversification are the stated responses.
Actual relocation has been considerably smaller than the volume of announcements, since the cost advantages and the accumulated supplier ecosystems remain.
Concentration risk
Specific inputs are produced by very few firms or in very few places.
Which includes several critical materials, processing capacity and specialised components.
Policy responses including subsidy programmes have been introduced in several economies, and building alternative capacity takes years.
Inventory and its return
Decades of inventory reduction reversed after recent disruptions.
Which carries a real cost in working capital, and the pressure to reverse it builds as disruption recedes.
Historical patterns after previous disruptions suggest buffers erode within a few years.
Trade finance
Instruments allowing exporters to be paid and importers to receive goods without either trusting the other.
Which includes letters of credit, documentary collections and increasingly supply chain finance arranged by large buyers.
Access to trade finance is a documented constraint on smaller exporters, particularly in developing economies.
Digitalisation
Trade documentation remained paper-based long after everything else digitised, because legal frameworks required original documents.
Which has been addressed through model laws recognising electronic transferable records, adopted progressively.
The efficiency gains are substantial, since documentation delays frequently exceed transport times on short routes.
Measuring value
Conventional trade statistics record the full value of a good at each border crossing.
Which massively overstates the contribution of the final assembly country when most value was added elsewhere.
Value-added trade statistics address this and produce very different pictures of bilateral balances.
Modern slavery and forced labour
Documented in several supply chains, including in the production of components and raw materials.
Which has produced reporting requirements and, in some jurisdictions, import bans on goods produced with forced labour.
Enforcement depends on traceability, which is precisely what complex chains lack.
Environmental standards
Production moved to jurisdictions with different environmental regulation.
Which shifted emissions and pollution rather than eliminating them, and consumption-based accounting shows very different national footprints from production-based accounting.
Border adjustment mechanisms charging for embedded emissions in imports have been introduced in some jurisdictions to address this.
What firms actually do
Mapping beyond the first tier, dual sourcing critical inputs, and holding inventory selectively for items whose absence stops production.
Which are the practical responses, and each carries a cost that has to be justified against a risk that is difficult to quantify.
Regionalisation
Trade has increasingly organised into regional blocs rather than being uniformly global.
Which follows from trade agreements, transport costs and the advantages of proximity for coordination.
The pattern is visible in the data and predates the recent reconsideration of globalisation.
Air freight
Serves high-value and time-sensitive goods, at a fraction of the volume of sea freight and a substantial share of the value.
Which means components and pharmaceuticals move by air while bulk goods move by sea, and disruption to either affects different categories.
Much air freight travels in the holds of passenger aircraft, which is why passenger flight reductions affected freight capacity substantially.
Small firms
Participation in international supply chains is dominated by larger firms, since the compliance and coordination requirements are substantial.
Which means the benefits of trade are distributed unevenly across firm sizes.