Global supply chain threatened by Japanese disaster

One aspect of globalisation is that manufacturers source their supplies from around the world. This will depend on the comparative advantage those countries have developed in producing various types of components. Japan produces about 30% of the global output of ‘flash memory’ used in electronic cameras and smartphones, and about 15% of the DRAM memory used in PCs. If something happens to disrupt that supply chain, as is clearly the case after the horrific events in Japan, there will be global effects.

The Asian Development Bank reported last year that making the i-phone, for example, involves nine companies, which are located in?.?.?.?the Republic of Korea, Japan, Taipei, China, Germany, and the US. At present, most manufacturers in Japan have shut down production in order to carry out structural and energy checks of their facilities, with the result that the components and parts that they make are not available for use elsewhere in the world. It is easy to see, therefore, how their customers around the world may be impacted by the loss of supply of a vital component, which will in turn hold up their production of the end-product.

The Honda factory in Swindon gives a good example. All Honda’s five components factories in Japan have been closed for a week, and in Swindon a ‘task force’ has been set up to plan what can be done to keep the Swindon factory going, if they run short of supplies. Paul Ormond, Honda’s general manager for corporate affairs in the UK, said “We have two teams - one here and one in Japan - looking at the future element of components to ensure we don’t have that problem, looking at counter-measures and alternatives.”

If you are registered to read FT articles online – which you can do free of charge – then these two articles give some excellent background to this issue, providing good evidence of the potential problems of globalisation and comparative advantage.
Japan supply chain risk reverberates globally
BMW fears quake disruptions to supply chain