In this world of global supply chains, corporate and national interests may coincide with or conflict with each other. For example, a business seeks to minimize costs of production and may turn to lower cost assembly plants abroad while a nation seeks to provide full employment for its citizens. A business seeks continual improvement in the technology and quality embodied in its products and may turn to a foreign manufacturer of a component, while a nation seeks to generate technological change at home. A business seeks to maximize profits and satisfy consumer demand by using a combination of domestic and imported products, while a nation seeks to balance its international trade accounts and to generate economic growth at home.
A fundamental issue is whether the claim still holds that what is good for business is good for the country, and vice versa (this was originally phrased as what is good for General Motors is good for the country.14) In an alternative way of stating the problem, Adam Smith postulated in 1776 that individuals seeking their economic self-interest, as if guided by an “invisible hand,” actually benefit society more than they would if they tried to benefit society directly.15 In short, the issue is whether efficiency and profitability for businesses also translate into efficiency and economic well-being for the country as a whole. Do the benefits of greater business efficiency and profitability trickle down to society in general in the form of higher pay and more jobs created?
Supply chains have added complexity to this issue. In the case of Adam Smith’s invisible hand or in the statement in 1953 about General Motors, U.S. business referred to companies located in the United States and doing most of their business here. With supply chains, business headquarters may be located in the United States, but production networks may be global. The company usually will attempt to maximize profits and efficiency across the entire supply chain and not just for the domestic part of it. Profits may accrue to the U.S. parent company, but many of the supplier and assembly jobs may be overseas. Whether a policy that is good for business is also good for the United States, therefore, depends on how the profits of business are distributed, how much of the value generated by the business supply chain is created in the United States, and what effect the supply chain has on the U.S. balance of trade and other international accounts.
In establishing a global supply chain, a corporation faces three basic issues. First, what are the core competencies of the company? What part of the manufacturing chain should the company do in-house and what should be contracted out? Second, where should the product be assembled and packaged? Should it be done in the United States, in China, or elsewhere? Third, should the company invest in manufacturing facilities and own the process or rely on suppliers? The outcome of these decisions determine the shape, location, and interconnections within the supply chain.
For example, the new Boeing 787 Dreamliner passenger aircraft (first deliveries scheduled for 2010) is based on a supply chain that incorporates many business and policy decisions involved in making a complex product. Although final assembly is done near Seattle, Boeing outsources
14 The actual quotation in 1953 by Charles Erwin Wilson (former President of General Motors) in his confirmation hearing to become Secretary of Defense was, “For years I thought what was good for our country was good for General Motors, and vice versa.”
Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations. (Dublin, Whitestone, 1776).