Have Supply Networks Become More Fragmented Over Time?
42 Pages Posted: 22 Jun 2021
Date Written: May 2021
This paper uses the FactSet/Revere data set of supply linkages to study the structure of the global production network during 2003-2018. We examine five hypotheses. At the individual firm-level, we show that the in-degree of firms increased at 2.7% per year and out-degree increased at 2.1% per year on average, showing evidence consistent with multi-sourcing and customer diversification. Moreover, the number of industries in the immediate suppliers and customers of firms also increased by 1.1% and 1.6%, respectively. At the network-level, we propose a measure of integration and fragmentation that is based on a notion of communities in the production network. A community represents a set of firms that trade mostly connected with each other. Using intertemporal community detection, we show that although firms in the network grew their connections over time, the network became progressively more fragmented as the number of communities increased from 34 to 60 and their concentration measured by the Herfindahl-Hirschman Index declined from 0.065 to 0.045. This fragmentation manifested in both the extended supply and extended customer networks of firms, and it resulted in the emergence of firms with abnormally high betweenness centrality, which sit at the interfaces of communities. We illustrate the results of our analysis for the automotive supply chain in the context of the semiconductor chip shortage of 2020-21.
Keywords: Production networks, supply chains, network analysis, empirical study
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