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Foundations

Globalisation and supply chains

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Globalisation and supply chains

Over the past three decades, production has become globally fragmented in unprecedented ways. A car might have parts manufactured in six countries, assembled in a seventh, and sold in an eighth. A smartphone is designed in one country, components sourced from dozens of others, and manufactured in yet another. This fragmentation occurred because it reduced costs dramatically and improved efficiency—companies could source each component from wherever it was cheapest and most reliable rather than producing everything domestically. Yet this efficiency came with a hidden cost: vulnerability. When one facility is disrupted, global production stalls. This chapter explains how supply chains became global, why they optimize for cost and speed, and how recent shocks are forcing changes.

Why this matters​

Global supply chains shape the prices you pay, the jobs available in your region, and the resilience of economies to shocks. When a geopolitical event disrupts a crucial supplier—a Taiwan plant producing semiconductors, or a South Korean facility making batteries—prices rise globally and shortages emerge in industries dependent on those components. When workers in developing countries demand better wages, manufacturing spreads to other countries searching for lower costs. Understanding supply chains helps you interpret why particular products are scarce, why inflation rises unevenly across goods, and what structural changes in manufacturing are underway. Moreover, supply chain issues were central to post-pandemic inflation; understanding how disruptions feed into prices is essential for anticipating economic headwinds.

What you'll learn​

You'll discover how firms optimized supply chains for cost, speed, and flexibility, leading to just-in-time manufacturing where parts arrive just as they are needed. This approach minimizes expensive inventory costs but creates acute vulnerability to disruptions—there's no buffer. You'll learn how the discovery of lower-cost labor in developing countries and tax havens in special zones drove offshoring, and how improvements in container shipping, air freight, and telecommunications made global coordination feasible at scale. This chapter covers the distribution of production—which countries manufacture what, and how that has shifted over time as wages and capabilities evolved. You'll see how supply chains have become increasingly specialized and concentrated, with single suppliers for critical components, creating chokepoints. You'll finish by understanding the recent reshoring trend: companies are evaluating whether the cost savings of global supply chains are worth the geopolitical and climate risks.

How to read this chapter​

Start with how supply chains emerged from comparative advantage in trade and dramatic improvements in transport technology. Learn the economics of offshoring: when it's profitable to produce thousands of miles from markets, and when proximity and speed matter more than cost. Move to the structure of modern supply chains: the hubs and spokes that have emerged, the just-in-time systems that minimize inventory, and the concentration of critical components in a few countries or facilities. Understand how disruptions propagate—a single factory shutdown can halt production globally weeks later. The final articles cover the recent shift toward reshoring and near-shoring: why companies are reconsidering global fragmentation, how geopolitics is fragmenting supply chains, and what local manufacturing, automation, and inventory buffers mean for prices and jobs.

Articles in this chapter​