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

Unit 2 Macro: The Current Account of the Balance of Payments [20 May 2012]
Unit 2 Macro: UK Trade in Services [20 May 2012]
Made in China - but not quite so cheaply…... [7 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Unit 1 Micro: Using the Cost-Benefit Principle [30 Apr 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 4 Macro: Globalisation Revision Quiz [14 Apr 2012]
Unit 2 Macro: Skills Shortages Hold Back Recovery [12 Apr 2012]
Unit 4 Macro: Productivity Improvements in China [3 Apr 2012]
Unit 4 Macro: Focus on India - Comparative Advantage [27 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 4 Macro: Focus on India - Economic Growth [24 Jan 2012]
Unit 4 Macro: Russia Joins the WTO [22 Jan 2012]
Unit 4 Macro: Competitive Advantage in Trade (Some Videos) [12 Jan 2012]
Unit 4 Macro: UK Trade Patterns [11 Jan 2012]
Unit 2 Macro: Brazil Overtakes UK in Economic Size [26 Dec 2011]
Great Economics Blog to Follow - Danny Quah [15 Dec 2011]
Jim O’Neill - The Growth Map: Economic Opportunity in the BRICs and Beyond [22 Nov 2011]
Economics Resources - Week Ended 6 November 2011 [6 Nov 2011]
Unit 4 Macro: China and India - Notes from Martin Wolf [6 Nov 2011]
Tour of the US income distribution – “The L Curve” [25 Oct 2011]
Unit 4 Macro: When China Met Africa [1 Oct 2011]
Unit 4 Macro: EU proposes a “Tobin Tax” [28 Sep 2011]
Unit 4 Macro: Bangladesh and Comparative Advantage in Textiles [19 Sep 2011]
Unit 4 Macro: Progress towards Millennium Goals [12 Sep 2011]
Unit 4 Macro: Inequality and Development [12 Sep 2011]
Starter Video: The Slums of Manilla [11 Sep 2011]
Slicing up the Apple - globalisation graphic [22 Aug 2011]
Guess where China exports its chopsticks from [7 Aug 2011]
A surprising example of trade between the USA, China, and Korea. [19 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
Six Global Trends Shaping Business Strategy [15 Jun 2011]
Not so much food inflation, but food hyperinflation! [30 May 2011]
A2 Macro: Revealed Advantage [12 May 2011]
What America makes [4 May 2011]
The New North - Population Shift [23 Mar 2011]
Focus on Japan - Human Catastrophe, Economic Risks [13 Mar 2011]
Dambisa Moyo - How the West was Lost [11 Mar 2011]
EU Economics: Germany leads Euro Zone revival [25 Feb 2011]
The US-China Trade Deficit [14 Feb 2011]
China and Africa - Resources on their relationship [14 Feb 2011]
Tuesday Talks! African development [8 Feb 2011]
The Chinese are coming! [5 Feb 2011]
Theory Thursday! Utility Possibility Frontier [3 Feb 2011]
Changes in Real Prices [24 Jan 2011]
Economics Q&A: Does the UK economy achieve a trade surplus in anything? [6 Jan 2011]
Trying to overcome deflation in Japan [1 Dec 2010]
The Acid Burns Through - Requiem for Neo Liberalism [28 Oct 2010]
Yes- Shift Does Happen! [27 Oct 2010]
Economics at the Movies - Black Gold [24 Oct 2010]
Economics at the Movies - Manufactured Landscapes [19 Oct 2010]
Update on Millenium Development Goals [19 Sep 2010]
LSE Lecture - Wealth Creation in Developing Countries [19 Sep 2010]
The OECD Insights Series [23 Aug 2010]
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Pressure for higher minimum wages in Bangladesh [28 Jul 2010]
A selection of revision notes on global trade and protectionism [3 Jun 2010]
Japanese economy - exports up but debt squeeze tightens [20 May 2010]
A2 Economics Revision - Protectionism [2 May 2010]
Global Business - who sets our standards [21 Apr 2010]
Is 70% of the world economy in a liquidity trap? [18 Mar 2010]
Economists do it with models - explaining trade theory [18 Mar 2010]
Finding and nurturing competitive advantage in the UK economy [3 Feb 2010]
Making trainers in the UK? How to compete with the world [28 Jan 2010]
Fly in the ointment for export-led growth [18 Jan 2010]
Assorted Links (10 Jan) [10 Jan 2010]
Jimmy’s Global Harvest [8 Jan 2010]
Navigating our Global Future - Ian Goldin at TED [25 Oct 2009]
Monopsony Power - Supermarket Bullies? [22 Oct 2009]
Will Japan go bankrupt? [21 Oct 2009]
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Protectionism and the free-market Economist [17 Sep 2009]
King confirms green shoots [15 Sep 2009]
Idle capacity in recession-hit Japan [11 Sep 2009]
Tobin or not Tobin? [3 Sep 2009]
Explaining comparative advantage [1 Sep 2009]
Japanese unemployment rises to record high [29 Aug 2009]
Recession prompts a return to protectionism [28 Jul 2009]
Race to the Market - Jacko Tribute Books [13 Jul 2009]
Rise in Baltic Dry Index hints that worst of global trade slump may be over [30 Jun 2009]
Europe Revision: EU Enlargement [4 Jun 2009]
Changing balance of economic power [2 Jun 2009]
Japan’s Worst Ever Post-War Slump [20 May 2009]
Interviews with John Micklethwait at the Big Think [22 Apr 2009]
Trade Adjustment [7 Apr 2009]
Around the World in 80 Trades [3 Apr 2009]
EU Revision: Challenges facing Eastern European Economies [3 Apr 2009]
Blatant protectionism [30 Mar 2009]
Japan’s Dangerous Downturn [22 Mar 2009]
Bubble Behaviour [22 Mar 2009]
Salad days - a new leaf for Japan’s steel economy [20 Mar 2009]
Land of the Rising Deficit [12 Mar 2009]
Dodgy Thermostats and the Global Crisis [6 Mar 2009]
Revision presentation - threats to globalisation [28 Feb 2009]
Stephen King at the Keynes [20 Feb 2009]
Economic darkness in the land of the rising sun [18 Feb 2009]
Trade Imbalances - Presentation [12 Feb 2009]
Video Case Study: Problems for Iconic Japanese Manufacturers [5 Feb 2009]
Protectionism is the crack of economics [4 Feb 2009]
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