Understanding global supply chain
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Being a large city in the Western and inland region, Chongqing is less dependent on exports and more on domestic consumption and investment. Having invested in good infrastructure, the city's priorities are now to tackle crime and make the city greener.
Recently, the city began to attract electronics manufacturers that assemble PCs and other high value items, from the coastal areas. This is particularly clever, because PCs, handphones, e-books and tablets are high value items and, as long as there is good airfreight that connects to the major overseas markets, these factories need not be located in the coastal areas.
A small difference in wages would induce the electronics companies to shift their production location since they operate with low margins. What they need most of all is lots of good engineering graduates and critical mass in supporting industries.
It is very clear that the Chongqing municipal government has understood the importance of geography in the global supply chain and has gone out to attract all the key factories into the city. What I thought was amazing was that Chongqing has begun to understand that supply chains operate not only in private sector manufacturing, but also government service as part of the supply chain.
As we all know, the assembly line was invented by Henry Ford, who found that training workers to work in a supply line and specialize in one part of the operation could make manufacturing cars more efficient.
Very soon, manufacturing companies also began to integrate upstream and downstream to dominate the supply chain and to control the distribution chain. The largest food companies in the world are agri-food ventures like Nestle, which control the key brands and are global in production.
The supply chain demonstrates the importance of networks in global trade. Cities are simply nodes in these trade, manufacturing and distribution networks. The cities in the coastal areas invented the idea of the one-product city, such as specialists in batteries or lighters, because the cities realized that if production was specialized and clustered together, you get economies of scale from design, production, assembly, research and ultimately distribution.
