DEFINITION of 'Fragmentation'

The use of different suppliers and component manufacturers in the production of a good. Fragmentation results in different companies producing component parts rather than the finished good, with the components being assembled as a final product elsewhere. Suppliers do not have to be located in the same geographical region.

BREAKING DOWN 'Fragmentation'

Fragmentation is often associated with globalization, as companies seek to use suppliers who are the most cost-effective, even if those companies are located abroad. For example, an airplane may have its wings manufactured in Germany, its electronics in Japan, its glass in China and its seats in Mexico. All the components are shipped to the United States, put together and sold as the final product.

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