Companies discovered they could build plants in cheap locations, ship components there to be assembled and export the finished product around the world. While the first unbundling separated producing markets from consuming markets, the second broke up production entirely across long, multinational supply chains.That made industrialisation a cakewalk compared with earlier times. A business-friendly government and cheap workers were often sufficient to get started; foreign firms provided technology and management. Emerging markets quickly signed on. Trade data analysed by Robert Johnson of Dartmouth College and Guillermo Noguera of Columbia University track the shift. Along multinational supply chains, they note, a single component may be exported several times, adding to tallies of gross trade but not to measures of value added. A fall in the ratio of the two measures (which they call the VAX) signifies an increase in supply-chain fragmentation. On this score, 1990 seems a critical point, after which the VAX sinks while trade volumes soar (see chart). Emerging-market growth surged at roughly that time.Faster growth may be fickle growth, says Mr Baldwin. Whereas previous tigers built a deep technological capacity, many emerging markets now merely borrow technology from rich-world firms. Multinationals have an incentive to limit technology transfer, the better to preserve the bargaining power that comes with a credible threat to leave. Learning can still occur. China uses its size as leverage to extract concessions, often confining direct inward investment to joint ventures between foreign and domestic firms, for instance. Smaller markets lack that option. The limited spillovers from supply-chain industrialisation may leave them stuck in middle-income status. And there is always the risk that chains may shift again, leaving them high and dry.Some worry that sprawling supply chains may allow ill winds from abroad to blow in more easily. But evidence suggests that supply-chain trade may have declined less and recovered faster than overall trade during the financial crisis. Japans 2011 earthquake echoed across the world but also demonstrated the systems capacity for quick recovery. The more tenuous nature of supply-chain industrialisation may encourage governments to work harder to support trade and recovery in response to a crisis.Ships and chipsThe second unbundling has yet to banish distance. In a different paper, Messrs Johnson and Noguera find that supply-chain fragmentation has been greatest among neighbours. This has given rise to regional industrial clusters. Regional trade agreements are partly responsible, but time costs may be more important. ICT improvements have also made production more nimble, capable of just-in-time manufacturing and frequent design changes. Timely shipments of components are indispensable. Indeed, an analysis by David Hummels of Purdue University and Georg Schaur of the University of Tennessee estimates that a day in transit is equivalent to a tariff of between 0.6% and 2.3%, with the largest effects for parts and components trade. Industrialisation is now within easy reach of poor countries, provided theyre within easy reach of industrialisation.Economist.com/blogs/freeexchangeSourcesRichard Baldwin, Trade And Industrialisation After Globalisation's 2nd Unbundling: How Building And Joining A Supply Chain Are Different And Why It Matters, NBER Working Paper No. 17716, December 2011Robert C. Johnson, Guillermo Noguera, Fragmentation