The commerce clause of the U.S. Constitution ensured that the various state economies would unite into a vast American market allowing for the free movement of goods, capital, and labor anywhere within the nation. As the economy developed, the government intervened to subsidize the building of a transportation infrastructure (roads, railways, ports, and airports) and communication facilities, to regulate business, and to protect intellectual property. This huge, unified market gave U.S. businesses a distinct advantage in global markets because they could spread their operations across multiple state markets and take advantage of concentrations of consumers, natural resource endowments, and different labor skills and wages but still operate under a common federal regulatory system.
Over the past half century, three revolutionary changes have redefined business production methods and spawned the development of globalized supply chains. The first has been the development of low-cost shipping along with fast and cheap communications. The second is business management strategy that calls for a focus on core competencies,9 just-in-time production,10 steady improvement in product quality, risk minimization, flexibility in meeting consumer demand, and profit maximization over a supply chain rather than for each entity within that chain. The third is the reduction in international trade and investment barriers worldwide through both multilateral and bilateral trade agreements. These changes have encouraged the globalization of business, but they also may coincide or conflict with national goals of full employment, economic growth, balance in international trade accounts, and national security.
In the world today, a supply chain exists for almost all products traded in the international marketplace. Figure 3 illustrates a typical supply chain for furniture companies with headquarters in either the United States or China but with most of the manufacturing done in China with some inputs from the United States. This could be a brand-name furniture chain with headquarters in the United States, or it could be a major retailer that pulls product through its network of suppliers. In 2007, the United States exported $593 million in wood (for all uses) to China and imported $20 billion in furniture. The United States also provided furniture design and branding, distribution, some upholstery fabric, certain machinery and tools, some chemicals, quality control to a certain extent, and some shipping and other logistics as well as U.S. distribution and retail operations.
9 The idea of core competencies is that they represent the true sources of competitive advantage and that such competencies should be the focus of firm effort. All other activities could be outsourced. See G. Hamel and C.K. Prahalad. “The Core Competence of the Corporation,” Harvard Business Review, Vol. 68, No. 3, 1990. Pp. 243-244.
10 A just-in-time production system is the coordinated manufacture of components or products so that materials are received or produced at the precise time and in the exact quantity to meet the demand of the customer or the next operation in an assembly process. This reduces costs by eliminating the need to hold large inventories of parts and product and allows for defects in parts to be corrected before being incorporated into a product.