Friday, December 7, 2007

Globalization and the 787 - Revisited

Back in July, I posted on the Boeing 787 and how it represented a great example of "globalization" in business. The Boeing "Dreamliner" can be used as a good example of how many firms, working together should be able to work to produce a single product. Boeing's strategy of outsourcing the subassemblies, and then shipping them to a final assembly point, combines concepts of comparative advantage, with ideas like "just in time" delivery. And all of this goes into producing a very complex piece of technology.

A story on page one in today's edition of The Wall Street Journal (subscription required) provides an update on my original post. It would appear that things are not as dreamy as originally planned. It seems that many of the contractors have not been able to deliver the goods. In some cases, the subassemblies arrived at the plant in a state that many parents have confronted on Christmas morning - "further assembly required" or with instructions written in a foreign language. Other subcontractors sent part of the work to other subcontractors (evidently unknown to Boeing) who were unable to deliver on time. And at least one contractor had unexpected delays when it ran into obstacles building a plant to build a specific component.

Does this mean that globalization, international trade, and outsourcing are failing? I don't think so. The lessons learned from this tie back to something I discuss with my students - the role of economic institutions in trade.

Any trade, domestic or international, is impacted by rules (formal and informal) and organizations that impact decisions. We often lump these rules and organizations under the concept of economic institutions. If you read the article, you'll see one company had to deal with replacing/replanting a 300 year-old olive grove. Another problem involved issues of documentation that had to go through layers of communication. I found this last to be particularly ironic having read The World is Flat by Thomas Friedman. Friedman talks about how communication technology makes globalization possible; but evidently the benefits of this technology can be trumped by bureaucracy (another economic institution?).

I don't think this means that globalization/trade/outsourcing are failing. I do think this is an example of how we don't quite have a handle on it, yet. I suspect the overall strategy for the Dreamliner is a good one. There are just a few nightmares to work through, first.

Your comments are appreciated.

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