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Managing Global Production: Theory and Evidence from Just-in-Time Supply Chains

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  • Pisch, Frank

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Abstract

Global value chains are highly fragmented across countries and dominated by a few large multinational firms. But the challenges of an increasingly difficult international business environment are raising the question of how these patterns will change. I study the role of international Just-in-Time (JIT) supply chains in how global production is organized and what the future may hold. Using survey and administrative data for a large panel of French manufacturers, I first document that JIT is widespread across all industries and accounts for roughly two thirds of aggregate employment and trade. Next, I establish two novel stylized facts about the structure of international JIT supply chains: (1) They are more concentrated in space and (2) more vertically integrated than their `traditional' counterparts. I rationalize these patterns in a framework of sequential production where failure to coordinate adaptation decisions in an uncertain environment leads to inventory holding. In JIT supply chains, information about downstream demand conditions is relayed upstream, which facilitates coordination. The associated inventory saving effect is stronger when firms are close to each other, so that the supply chain reacts quickly to changes in demand. This also applies when they are part of the same company and incentives for adaptation are aligned. I validate this model by supporting empirical evidence for further predictions and discuss potential long-term implications of Brexit and COVID-19 for the structure of international supply chains.

Suggested Citation

  • Pisch, Frank, 2020. "Managing Global Production: Theory and Evidence from Just-in-Time Supply Chains," Economics Working Paper Series 2008, University of St. Gallen, School of Economics and Political Science, revised Aug 2020.
  • Handle: RePEc:usg:econwp:2020:08
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    Cited by:

    1. Bacchetta, Marc & Bekkers, Eddy & Piermartini, Roberta & Rubinova, Stela & Stolzenburg, Victor & Xu, Ankai, 2021. "COVID-19 and global value chains: A discussion of arguments on value chain organization and the role of the WTO," WTO Staff Working Papers ERSD-2021-3, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Fetzer, Thiemo & Wang, Shizhou, 2020. "Measuring the Regional Economic Cost of Brexit: Evidence up to 2019," The Warwick Economics Research Paper Series (TWERPS) 1280, University of Warwick, Department of Economics.
    3. Fetzer, Thiemo & Wang, Shizhuo, 2020. "Measuring the Regional Economic Cost of Brexit: Evidence up to 2019," CAGE Online Working Paper Series 486, Competitive Advantage in the Global Economy (CAGE).
    4. Sébastien Miroudot, 2020. "Reshaping the policy debate on the implications of COVID-19 for global supply chains," Journal of International Business Policy, Palgrave Macmillan, vol. 3(4), pages 430-442, December.

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    More about this item

    Keywords

    Just-in-time; global value chains; multinational firms; vertical integration;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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