What is Fragmentation
Fragmentation is 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. Fragmentation is utilized in order to produce goods in a more cost-effective manner. Globalization and improved technology have paved the way for fragmentation, as it becomes increasingly cheaper and easier to source, ship and track goods as they travel from place to place.
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. All of the components of a finished good are researched and the cheapest places to source and assemble parts of the finished item are utilized.
Example of Fragmentation
For example, an airplane has parts that are sourced and assembled across many parts of the world. Not only does the metal have to be acquired, but larger items such as electronic systems also have to be assembled. An airplane may have its wings manufactured in Germany with metals from Africa, its electronics created in Japan with chips made in China, glass in China, and seats assembled in Mexico with textiles and thread from India. All the components are shipped to the United States, put together, and sold as the final product.