Firms around the world are increasingly fragmenting production
processes and locating different stages of the production in specialized
plants across different nations. But uncertainty and delays in the arrival
of any single component can disrupt the production of the final good as
entire production lines might be shut down until all the necessary
inputs have arrived. Companies can mitigate this uncertainty by holding
large quantities of inventory but modern supply chain practices are
increasingly moving towards low inventory-holdings in an effort to
cut costs, part of the so called lean production strategies. Accordingly,
multinational corporations (MNCs) fragmenting production internationally
look to operate in locations with adequate transport and logistic
infrastructure to reduce delays and disruptions in the supply chain,
inventory-holding costs, depreciation costs as well as handling costs.
The examples of MNCs operating in environments with proper logistic
support abound fromBMQ, a subsidiary of Bombardier in the Queretaro
aerospace park inMexico relying on an international airport specifically
built to handle the logistics of this park (Brown-Grossman and
Domínguez-Villalobos, 2012), to Hewlett-Packard-Singapore, a subsidiary
of Hewlett-Packard taking advantage of the frequency of shipments
in the port of Singapore for a steady supply of cartridge components to
an assembly plant in Malaysia. The quality of logistic infrastructure
seems to be an intrinsic part of the location decision of many MNCs
that seek to engage in cross-border production sharing.