Why do mncs get their production process completed in different countries

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Last updated: April 8, 2026

Quick Answer: Multinational corporations (MNCs) complete production processes across different countries primarily to reduce costs, access specialized skills, and optimize supply chains. For example, Apple assembles over 90% of its iPhones in China through Foxconn, leveraging lower labor costs estimated at 60-80% less than in the U.S. This strategy, known as global value chain fragmentation, has expanded since the 1980s with trade liberalization, enabling companies like Nike to manufacture shoes in Vietnam and Indonesia where production costs are 30-50% lower. By 2020, cross-border production accounted for nearly 70% of global trade, according to the World Trade Organization.

Key Facts

Apple assembles over 90% of iPhones in China via Foxconn, with labor costs 60-80% lower than in the U.S.
Nike produces shoes in Vietnam and Indonesia, where costs are 30-50% lower than in developed countries.
Cross-border production accounted for nearly 70% of global trade by 2020, per the World Trade Organization.
The practice expanded significantly after the 1980s with trade liberalization policies like NAFTA in 1994.
MNCs often use special economic zones, such as those in China established in the 1980s, offering tax incentives and streamlined regulations.

Overview

Multinational corporations (MNCs) distribute production processes across different countries to form global value chains, a strategy that has evolved since the mid-20th century with advancements in transportation and communication. Historically, this practice accelerated after the 1980s due to trade liberalization, such as the North American Free Trade Agreement (NAFTA) implemented in 1994, which reduced tariffs and facilitated cross-border manufacturing. By the 2000s, globalization enabled companies like Apple and Nike to leverage cost differentials, with China becoming a hub for electronics assembly due to its lower labor costs and established infrastructure. Today, this approach is common in industries like automotive, where a single car might involve parts from over 10 countries, reflecting the interconnected nature of modern production.

How It Works

MNCs implement this through mechanisms like outsourcing and offshoring, where different stages of production—such as design, manufacturing, and assembly—are allocated to countries based on comparative advantages. For instance, research and development often occur in high-skill regions like the U.S. or Germany, while labor-intensive assembly is done in countries with lower wages, such as Vietnam or Bangladesh. Companies use special economic zones, like those in China established in the 1980s, which offer tax breaks and relaxed regulations to attract foreign investment. Supply chain optimization involves just-in-time production and logistics networks, reducing inventory costs and improving efficiency, as seen in Toyota's production system that sources components from multiple Asian countries.

Why It Matters

This strategy significantly impacts global economies by reducing consumer prices—for example, electronics costs have dropped by over 50% in real terms since 2000 due to efficient production. It drives economic growth in developing nations, with countries like Vietnam seeing a 7% annual GDP increase partly from manufacturing exports. However, it raises concerns about job displacement in higher-cost countries and labor standards abroad, as highlighted by incidents in factories like Foxconn in 2010. Understanding this helps policymakers balance trade benefits with social responsibilities, influencing international agreements and corporate practices worldwide.