KNOWLEDGE, OBSOLESCENCE AND A NEW INTERNATIONAL DIVISION OF LABOUR. THE SEGMENTATION OF THE PRODUCT

 Isaac Minian Laniado (Facultad de Economía, Universidad Nacional Autónoma de México) 
The paper explains factors of localization in regions that export manufactures, particularly those where fragments of a product are made (parts and components). Its focus is in the international features of localization, not only the location of a whole product but also the one of parts and components of a product. We are facing the segmentation of production processes and the location of each part in several different places, sometimes geographically distant. This is the result of a technical and organizational choice that limits the economic impact of obsolescence. Multinational Corporations (MNC) try to detach themselves from manufacture activities – that suffer the biggest impact of obsolescence- and concentrate in key activities that bring competitiveness and profitability. Thus, segmentation implies a choice of simultaneous decisions: to break up the vertical integration of activities and to locate them where quality and low costs of production are guaranteed. Internationalization processes of production imply important costs as well as benefits. Segmentation allows firms to reduce risks and take benefits from uncertainty (demand variability, short product cycles etc) as it allows transferring risks and uncertainties to the suppliers. It acts as a portfolio of production sites where nevertheless trust and collaboration exist among firms and their suppliers. Segmentation requires a flexible organization to deal with environment changes, to manage the complexity of the whole process of innovation, production, distribution and internationalization of the value chain.

Besides the “specific” factors of localization, traditionally analyzed, I sustain that “relational” factors and “mobile” pecuniary externalities have gained importance. In modern manufacturing, knowledge (technological and organizational) is an essential input.

National and regional manufacturing production requires the combination of two sets of factors: on one hand international knowledge flows from firms (guarantying their intellectual property rights) and in the other human capital, infrastructure and absorptive capability from firms and institutions .The latter set has less international mobility than the former. I argue that in the actual world, where knowledge is rooted in production processes, the integration between both sets is a decisive factor for the localization of production segments.