Japanese Automakers to Halt Production over Japan Quake

Reviewed by Takahiro MIYAO

Article:
Japanese Automakers to Halt Production over Japan Quake
International Herald Tribune (7/18/2007)
http://www.iht.com/articles/ap/2007/07/19/
business/AS-FIN-Japan-Autos-Quake.php

Comments:

The strong earthquake which hit the Kashiwazaki region in Niigata on July 16 has turned out to be affecting Japan's major automakers more severely than anyone expected initially. As it is reported in this newspaper article, Toyota, Nissan, Mitsubishi, Fuji Heavy Industries and other automakers are forced to halt production, at least temporarily, due to the disruption of the suppy of key transmission and engine parts by Riken, which is located in the Kashiwazaki area.

Although a similar development was observed back in 1995, when the big Hanshin Earthquake shut down the operation of Kobe Seiko's steel plant and severely affected the production of as many as nine major automakers, very few expected a quake, however strong, in such a remote area as Kashiwazaki in Niigata to halt Japan's auto production almost altogether. This means that manufacturing processes for autos and for any other assembly-type products have now become so dependent on a nation-wide, or sometimes, world-wide network of supply chains, often with production sites located in remote regions, that any unexpected disruption of the supply of even a single key component could shut down the whole production process. In the age of globalization with emphasis on lean and efficient management, no automaker would be allowed to prepare for this kind of production disruption by securing alternative, presumably less efficient, suppliers or maintaining an unnecessarily high stock level of various components.

Possibly this implies that earthquake-prone countries like Japan might not be suitable for today's sophisticated production processes, and at least some production activities could move out of Japan to more stable countries in terms of earthquakes and other natural disasters. If this is indeed the case, it would probably be reflected in the stock market as well as in the currency market. In any case, we need to watch the situation very carefully from various angles in the aftermath of the big quake in Niigata.

Acknowledgment:
This review is adopted from the following blog (with its Japanese translation):
http://glocom.blog59.fc2.com/blog-date-20070719.html