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Sunday, January 10, 2016

Facilitating International Production Networks

The emergence of international production networks has been a notable feature of the global economy in recent years. This dynamic has been particularly marked in East Asia, where parts and components frequently cross borders a number of times before assembly into a final product is completed. Although a wide range of countries in Asia and elsewhere are now actively seeking greater integration into international production networks, relatively little is known about the kinds of policies that can promote the growth and development of cross-border production chains. 

This paper makes a first step towards filling that gap in the literature by focusing on one area—trade logistics—that we believe is likely to have a profound impact on the ability of firms to produce goods using network methods. Trade logistics is a crucial part of the modern, globalized economy (Arvis et al. 2010). Better logistics performance enables firms to move goods across borders quickly, cheaply, and reliably. It helps reduce cost overheads by lowering inventory levels and making it possible to adopt “just-in-time” techniques.

Networked production of goods such as consumer electronics relies particularly heavily on logistics to coordinate the production and distribution of large numbers of parts and components, and their final assembly into a finished product. Apple’s iPod, for example, contains over four hundred intermediate components sourced from domestic and overseas operators mostly in the Asia-Pacific region, for final assembly in Taiwan, China (Lo 2008). Such a business model can only be profitable if it is supported by high quality trade logistics. Similarly, the auto cable industry in Tunisia has substantial advantages such as geographical proximity to European customers and low wage rates, but its future expansion depends on the development of high quality logistics platforms that can reduce inventories and improve reliability and reactivity to customer requirements (World Bank, 2007).

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