Ripples from Japan spread worldwide

What do construction and mining equipment leader Caterpillar, technological giant Intel and international auto manufacturer General Motors have in common? They’ve all been affected – along with many other companies around the world – by an event that occurred thousands of miles away.

Japan’s earthquake, tsunami and potential nuclear crisis have had widespread repercussions for the international business community. Despite the fact that the area directly affected was relatively small in terms of Japan’s industrial output, the knock-on effects have been huge, although it is hoped that they will be short-lived.

The catastrophe highlights that, in the current global economy, the days are over when a disaster in one country only affected surrounding national businesses. A natural catastrophe can have unexpected consequences beyond local property damage, such as transport, power and other infrastructure issues, which reverberate in other national sectors and their global operations and markets.

The immediate effects for companies in Japan have been well publicised. Particularly affected, as much if not more by national fuel shortages and power outages as by the direct damage, are two of Japan’s key sectors, the motor and electronics industries. This has been a major blow in a country whose economy is largely reliant on its exports, and Japanese companies’ European operations and customers are sharing in the fallout.

Disrupted national production of vehicles and key components led to a world shortage, resulting in halted or decreased operations worldwide. Motor manufacturers whose operations both in Japan and internationally have been disrupted include Fuji, Honda, Mazda, Nissan, Suzuki and Toyota. The roll-on effect has extended to European vehicle manufacturers that buy parts from Japan, such as Mercedes, Opel, PSA Peugeot Citroën and Volkswagen.

An equal if not greater impact has been experienced by the electronics sector. Reportedly, Japan produces around 40% of the world’s technology components including chips, memory for digital phones, cameras and PCs, glass for flat screens, capacitors and transistors. It’s a formidable list and many of the manufacturers involved are well-established brand names in Europe. They include Canon, Panasonic, Sony and Toshiba. Less well known as brand names but nonetheless highly important in the electronics supply chain are leading chip maker Renesas Electronics and Shin-Etsu Chemical, the world’s leading maker of silicon wafers, used in integrated circuits for electronic devices.

In the highly competitive world technology market there are few electronics- based businesses that do not source some products from Japan – and all the companies mentioned above have been affected by the Japanese disaster, with far-reaching results. For example, not only has production from Sony’s plants in Japan been affected by the catastrophe: mobile phone group Sony Ericsson, Sony’s joint venture with the Swedish company Telefonaktiebolaget LM Ericsson, has been forced to consider sourcing alternative supplies outside Japan. SR

Sue Copeman, editor-in-chief, StrategicRISK