Thailand Floods Disrupt Supply Chains
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Just recently at the APEC 2011 Summit in Hawaii, multinational business leaders expressed concern that any repeat of the heavy flooding in Thailand will cause huge damage again and will not be tolerated by most global companies. Thailand Deputy Prime Minister and Commerce Minister Kittiratt Na-ranong announced that a new river, new highways, new railways and new towns are among the government’s long-term flood prevention measures and that the government would improve the water management system and would not allow such a disaster to occur on such a scale again. "The government has decided to seek help from the Japan International Cooperation Agency [JICA] for technical consultancy in water resource management, particularly in the Chao Phraya basin," said Finance Ministry and Chairman of the Committee for Reconstruction and Development Virabongsa Ramangkura, reported the Bangkok Post. There are several suitable sources available, including the World Bank, Asian Development Bank and the JICA. The World Bank has offered Thailand a US$1 billion loan to Thailand for investment in long-term flood prevention projects. Borrowing from the bank would help guarantee that any projects undertaken would be transparent as the bank would witness the procedure, Mr Kittiratt said. Meanwhile, Foreign Minister Surapong Tovichakchaikul told an APEC forum that Thailand would get back on its feet from the floods as soon as possible. A budget of about $10 billion has been earmarked for post-flood restoration. Of that amount, $2 billion will be allocated to big businesses and $5.5 billion to small and medium-sized enterprises, small vendors and individuals, report the paper. Thailand's Importance to the Supply Chain Linda Conrad, Director of Strategic Business Risk Management at Zurich Financial Services Ltd. in New York commented to Reuters that “The thing that's interesting about Thailand, it's a midsized country—about 65 million people—-but it's really outsized in terms of its importance to the supply chain,” Ms. Conrad also said her company's data shows more than 50% of supply chain losses are caused by “sub-tier” suppliers, and that businesses tend to underestimate the length and frequency of disruptions. She commented that this latest supply chain disruption should further companies' interest in evaluating and managing their supply chain risks. The Thai Board of Investment's data showed that Japanese direct investment in Thailand jumped 35 percent to about 100 billion baht in 2010, led by the auto, metals and machinery industries. According to Bloomberg recent news on November 15, Japanese companies, Thailand’s biggest foreign investors, may spend more to build factories in neighboring countries including Indonesia and Vietnam. Thailand accounted for about 3.2 percent of Japan’s cumulative foreign investment in the past two years, the second largest after China’s 12.6 percent among Asian nations and compared with 2.7 percent of the five-year total, according to data from Credit Agricole and the Ministry of Finance, reported the Bangkok Post. The distribution of Japan’s supply chain across the region may shift as well. The floods may also push back expansion plans for many companies , such as Toyota and Honda until the first quarter of 2012. However, Japanese manufacturers may have more difficulty shifting output away from Thailand, where they have more concentrated supply chains than US and European rivals including Ford Motor Co, said the paper. Thailand's Site Advantage: Will it Survive? The 10-member Association of Southeast Asian Nations is targeting 2015 for the creation of a single-market economic zone modeled after the European Union, without a common currency. Japan was the biggest investor in the bloc from 2008 to 2010, topping the U.S. and China, according to Asean statistics. Indonesia and Vietnam, which both attracted more foreign direct investment than Thailand in 2010, look set to attract more Japanese investment, said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo to the Bangkok Post. Thailand advantage are its infrastructure, a comfortable lifestyle for business executives and industrial clusters that make it an easier place for many foreign companies to operate. Yoichi Yajima, Business Support Center Representative for the Japan External Trade Organization(Jetro) said he didn’t expect a big withdrawal of investment from Thailand and as long as big firms like Toyota, Nissan, Honda, Toshiba or Hitachi stay here, their suppliers won’t leave. However, while those with flooded factories have little choice but to rebuild and start production as soon as possible, persuading new Japanese investors to choose Thailand over neighboring countries will be more difficult, said Pongsak Assakul, Chairman of the Thai Chamber of Commerce. The government must develop a plan to prevent flooding and implement it as fast as possible, he said to the paper. Our view is that the floods and more importantly Thai government actions in responding to the floods have already lost Thailand considerable luster in global boardrooms. We do not predict a major pullout of global investors but we do see that Vietnam and Indonesia have both gained from the events of the last few months in Thailand. We also believe that just as the Tsunami and Earthquake in Japan earlier this year caused Japanese companies to look at a greater geographical spread of their supply chain that the events in Thailand will have a similar effect. Japanese and other global companies and their suppliers will be taking a much wider look at Southeast Asian sites for new factories and in terms of suppliers. Thailand will need to play catch up to help convince these companies that it has fully responded to the dangers exposed by the floods and the rather chaotic government response. This will not be an easy task. About the Author: Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com) Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. |
