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BBX: Brandeis Business Explains...Made in the World

What does the “Made in the World” concept mean?
“Made in the World” is a term coined by the World Trade Organization to describe the reality of trade flows in the 21st century – which aren’t always perceived with full scope.

In many industries, production processes are divided into many different tasks – design of a product, upstream and downstream production, assembly, marketing and distribution – and these tasks are completed in various locations around the globe.

Take the iPhone, for example. “The innovation, design and much of the retail are done by Apple in the U.S.,” says Judy Dean, Professor of International Economics at Brandeis International Business School (IBS). “But firms in other countries produce some of the iPhone’s chips and many other components in the global value chain. The end product may appear to have been made in China, but only a very small percentage of the value of the product is actually made there.”

The Global Value Chain: Camera - USA; Screen - Japan; Touch ID - Taiwan; Battery - South Korea; Accelerometer - Germany. The product does not simply originate from one place, but follows a global path.

(Source: https://www.lifewire.com/where-is-the-iphone-made-199950)

As show in the graphic above, firms add value to the product, and then export the semi-finished good to the next firm in the chain. This graphic shows just a few of the many firms and countries evolved in the iPhone’s global value chain, and only shows just one of the many roles that Apple itself takes on in the chain.

Where a product is made is crucial to efficiency.
What factors go into determining where a certain product or part of a product is created or assembled?

“A lot of people think this is determined by labor costs, but that is only one part of the decision process,” Dean explains. “The driving force behind most trade between countries is the relative cost of all factors of production – capital equipment, high-skilled labor, less-skilled labor, land and energy, for example – and the relative intensity with which they are used to make the product. These relative costs and technological requirements determine whether you’ll be more efficient by putting a certain task in a certain location.”

Global trade presents unique opportunities.
In developing countries, it would take a long time to build up the skills and the capital equipment to take on advanced high-technology processes. As a result, they have been largely excluded from building certain products like computers and aircraft. However, now they can contribute to these products by adding value where their skills align with a particular task in the production process.

This is what makes “Made in the World” so inspiring, says Dean. “The concept opens up opportunities for developing countries to be part of something they previously wouldn’t have thought possible.” It also means industrial countries concentrate on tasks that are more skill- or tech-intensive, leading to increased productivity.

Products that are “Made in the World” encompass the best of the world.
Ultimately, declaring products as “Made in the World” is about accurately representing the international interactions involved with globalization. But it also emphasizes the importance of joint efforts.

When several countries produce a share of a product’s value, the end result represents the best of what each country is capable of. In this way, every country in the chain gains something through working together to create the product more efficiently.

“One misconception people have about trade in general is that it’s a zero-sum game,” Dean points out. “‘Made in the World’ helps make it clear that trade produces gains for all countries.  The end products are cheaper and better than they would be if one company produced the whole product on its own.”

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