In recent years a new group of ‘virtual states’—analogous to the virtual corporation—has emerged in world politics and economics. In order to concentrate upon high level services (research, development, product design, financing, marketing and transport), these countries have transferred much of their manufacturing production elsewhere. Hong Kong, Taiwan, Singapore, Switzerland, Holland, and others have earned large returns from producing abroad as home labour costs escalate. To some degree every major industrial nation has moved in a virtual direction as manufacturing declines to 20 per cent of Gross Domestic Product (GDP) and services rise to 65, 70 per cent or more. This evolution conflicts with traditional security assumptions about the necessity of a powerful and compact economic base. Now countries' economic potential is frequently divided between home and host nations, and security may depend upon reliable access to the economies of other states. Virtual states and nations moving in a ‘virtual direction’ may improve their position through economic growth in normal times, but may become vulnerable when security threats arise. In war they have to co-ordinate supply from a range of allied nations to carry on the struggle against opponents. It might be thought that their pattern of peacetime interdependence undermines their long-term security.