Falling transportation and communication costs have long affected the growth and development of markets. For example, reduction in shipping costs arising from the growth of the intercontinental railroad system in tandem with the adoption of telegraphy dramatically changed the scale and scope of U.S. retail markets and the industries that supplied them. Similarly, lean retailing represents a marriage of a set of transportation, communication, and business innovations that collectively reduce the transaction costs between the final consumer and the “first mover” in a supply chain. We have shown here that the end result of these falling transaction costs is a distinctive pattern of geographic sourcing that reflects firms efforts to deal with both “old” and “new” costs of production and distribution.
We believe that supply chains in other industries are increasingly balancing the old costs of supply (labor, factor, and direct transportation) against the new costs associated with managing risk. How particular industries balance these costs will arise from distinctive characteristics of production, technology, industrial organization, and the nature of final consumer markets.
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