The article in today’s New York Times (May 30,2011) begins: “Maybe Japan is not as crucial to the global supply chain as those
first few weeks after the earthquake made it seem”. As an example, the Times describes STMicroelectronics, the $10 billion European semiconductor giant, which after the initial shock of losing Japanese components, quickly lined up alternative suppliers outside of Japan. “It is going smoother than we had thought”, says the CEO. And it turns out this experience is widely shared. Beyond a very short list of components (like auto micro controllers), it turns out that Japan plays only a small role in the global supply chain.
There may be 2 reasons for the limited impact of the Japanese disaster. First, the resiliency of supply networks and quick action by companies helped. But a new report by SCM World finds that Japan, despite being the world’s 3rd largest economy (behind the US and China), is not the major source of manufactured parts for companies outside that country. China was the #1 source (37%), then the US (20%), then Germany (7%). Japan tied with Canada for 8th place.
“What’s remarkable is how relatively isolated Japan is”, says the report’s author. “It’s far less integrated into the world’s manufacturing supply chains than you would expect, given the size of Japan’s economy”. Japan’s manufacturing prowess and global competitiveness are focused in a few industries, like autos and consumer electronics.
Further, big Japanese firms have preferred to have essentially captive suppliers. These tight, cooperative bonds have meant shared experiences and constant communication. But they also meant that Japanese suppliers have been less likely to sell to foreign corporations.
Discussion questions:
1. Why did the earthquake have a limited effect on manufacturers outside Japan?
2. How will the close relationship among Japanese companies help the country recover more quickly?