The Geography of Global Supply Chains: Evidence from Third-Party Logistics

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INTRODUCTION

The outsourcing process is well understood, particularly its rationale of lowering production costs and helping firms focus on core competencies (e.g., Rao and Young 1994; Kholer 2001). Its organizational outcome on global supply chains is less so as outsourcing is related to fragmented production systems and complex supply chains (Jones and Kierzkowski 2005). In such a context, there is an emerging geography of freight distribution supporting global supply chains that rests on two interdependent concepts. First, the global economy is a system of locations where inequalities incite trade and their related flows. These inequalities can be related to basic natural endowments, standard production factors (land, labor, capital), technological and technical capabilities as well as income. What is relatively new is the capability to more effectively overcome the friction of distance and to manage the complexity of fragmented production systems. This underlines the second geographical concept looking at global supply chains as a system of friction where the physical capabilities of transport mode, terminals and infrastructure play a fundamental role (Hesse and Rodrigue 2004).

Although the growth in international trade is a well-established trend, the geographical and functional integration of production, distribution and consumption with the emergence of global production networks remains to be better understood (Coe, Hess, Yeung, Dicken and Henderson 2004; Dicken 2011). Complex networks involving flows of information, commodities, parts and finished goods have been set, which in turn demands a high level of command of logistics and freight distribution. In such an environment, powerful actors such as maritime shipping companies, terminal operators and third-party logistics providers have emerged. They are not directly involved in the function of production and retailing, but mainly take the responsibility of managing the web of flows on behalf of others.

Global supply chains are thus characterized by a growing level of integrated services, finance, retail, manufacturing and distribution. This integration is favored by improved transport and logistics, efficient exploitation of regional comparative advantages and a transactional environment supportive of the legal and financial complexities of global trade (Rodrigue and Notteboom 2010). This essay will look at the three interdependent geographies of global supply chains: the geography of production, distribution and consumption. Once these geographies are covered, the analysis will focus on the role of third party logistics providers and their propensity to cluster around terminal facilities.

THE THREE GEOGRAPHIES OF GLOBAL SUPPLY CHAINS

Geography of Production

Up to the 1970s, the three dominant factors of production, land, labor and capital, could not be effectively used at the global level. For instance, a corporation located in one country had difficulties taking advantage of cheaper labor and land in another country, notably because regulations would not permit full (and often dominant) ownership of a manufacturing facility by foreign interests. This limitation was gradually overtaken by economic integration and trade agreements (Walker 2000). Facing integration processes and massive movements of capital coordinated by global financial centers, factors of production have achieved an extended mobility, which can be global in some instances. To reduce their production costs, especially labor costs, many firms have relocated segments (sometimes the entire process) of their industrial production systems to new locations; a process commonly known as offshoring. In the past quarter of a century, no other components of the global economy than China have more impacted the geography of production and particularly the location of manufacturing (Demurger et al. 2002).

Special economic zones (SEZ) played an instrumental role in the integration of China to the global economy and brought forward an entirely new geography of production. …