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Monday 21 Aug 2017 | 05:43 | SYDNEY
Monday 21 Aug 2017 | 05:43 | SYDNEY

Second thoughts on second unbundling

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27 June 2012 11:54

I want to add something to Stephen Grenville's recent post about the 'second unbundling' of international trade, which he describes as 'the division of production itself, so that each stage of the production process is done in the most efficient location.'

It's true, as Stephen says, that companies such as Apple see many advantages to this model, but it's also worth restating something I have blogged about before: that aviation giant Boeing actually decided to reverse the second unbundling process after embracing it on the 787 program, and getting badly burned.

I have no idea whether Boeing's experience with globalised production is a one-off or part of a trend (if you do, email me: blogeditor@lowyinstitute.org). It almost certainly says something about the unique difficulty of manufacturing large airliners, which involves not only the design and building of highly complex individual components but their integration into a seamless whole. Apple and companies like it do not face manufacturing challenges of such complexity.

One other factor that complicates the picture in aviation is the high levels of political involvement in this industry, with governments around the world using incentives to lure high tech aviation jobs to their shores. Perhaps Boeing, when it decided to unbundle 787 production, was not so much trying to maximise the advantages of free trade and open markets but was instead engaged in subsidy shopping. Globalisation of production might also have been a short-term tactical move, a lever for Boeing in its struggles with American unions.

It barely needs saying that such subsidisation goes on in the military sphere also; multi-billion dollar equipment decisions do not arise from a 'pure' strategic policy process. Norway's commitment to the US Joint Strike Fighter program, for instance, is at least partly motivated by an agreement to integrate a Norwegian missile into the aircraft.

Photo by Flickr user Drewski2112.

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