Over recent decades the world trade pattern has changed. There has been a shift towards strategic alliances, global value networking, cross-industry clusters and virtual organizations. Nowadays companies distribute their services and sales worldwide, while production and research and development is intertwined between different organizations across different geographies countries.
E.g. British aerospace industry is worth £31bn a year to the UK economy and is the world’s second largest. This makes up 79% of the sector’s £28.4bn of annual exports.
By this, the airliner market is dominated by pan-European Airbus and US-based Boeing, and although neither builds complete aircraft in Britain, both rely on the UK-built parts to make their products.
Both manufacturers have record order books, meaning that even if they decide to ramp up production rates they have almost a decade’s worth of work in hand, and are reliant on the UK aerospace businesses to help them meet demand.
By being wired into the global value networks companies and countries raise their competitiveness through using intermediate goods and services from elsewhere without having to develop a whole industry. In most economies, around a third of intermediate imports end up in exports.
The growing interconnectedness of economies creates important opportunities but also new challenges for growing economies, including political ones.