Editor's Note: This article originally appeared in the February 2012 issue of SMT Magazine.
Still recovering from the impact of Japan’s tsunami disaster in May of last year, the manufacturing industry was recently dealt another blow as Thailand suffered its worst flooding in more than 50 years. These force majeure events caused considerable supply chain disruptions in many industries at a time when they were still reeling from the disruption caused by Icelandic volcano in 2010.
In Thailand, specifically, driven by government incentives, opportunities to lower costs, and reap tax rewards, manufacturing companies have been lured to this lower-cost region, including the provinces bordering Bangkok. The result of which is that the area has become the Silicon Valley of the Far East, with many automotive and high-tech companies now conducting a large amount of critical component manufacturing there. Sadly, during the floods, seven of the industrial estates bordering Bangkok were under water, with thousands of people being put out of work and global supply chains for some of the world’s biggest manufacturers significantly disrupted and under threat yet again. Figure 1: An aerial view of the Chaophraya River, Ayutthaya Province, Central Thailand, October 12, 2011 (Source: AP).
The events in Thailand have been a major humanitarian disaster, with over 400 deaths, one third of the country flooded, and over 9 million people directly affected. It hit many industries and some major companies very hard, with more than 14,000 factories suffering some degree of flooding. Industries which suffered include automotive, semiconductor, hard disk drive, and EMS.
The flood waters disrupted eight major OEMs in the automotive sector, with an estimated loss in production of approximately 250,000 units in Q4 2011. As a result of the complex network of local suppliers, and the fact that hundreds of lower-tier component suppliers have been affected, predicting recovery has proved very difficult. The loss of critical suppliers has particularly impacted major Japanese car manufacturers as companies shutter plants in Thailand and Japan due to critical component shortages.
Japan has suffered indirectly as one of the largest inward investors in Thailand with over 1,800 Japanese manufacturers operating in the country. Of these, nearly one third have been flooded. Motohisa Furukawa, Japan’s Economics Minister, stated, “Thailand is at the centre of Japan’s supply chain.” This disaster has been a double blow to the Japanese economy coming so soon after the country’s devastating earthquake and tsunami.
The hard disk manufacturing sector is probably the hardest hit due to the cluster of major manufacturers based in the affected regions in Thailand. It is estimated that the flooded plants across the top five suppliers account for nearly 30% of global supply of hard disks.