JimFulcher

The show must go on

Posted by JimFulcher Mar 18, 2011

I admire the actions of the “Faceless 50” workers at Japan’s Fukushima nuclear power plant, and am fascinated by the concept of “Yamato-damashii”—Japanese spirit—which is demonstrated as group responsibility as those workers continue to fight the fires and keep the reactors from melting down. As I watch the event unfold, I am also reminded of the words of an old mentor. He was fond of the old theatre/show business saying, “The show must go on,” meaning of course that regardless of what happens, the show (or business) must continue as planned.

 

So while our hearts and thoughts are with the people of Japan as they continue to struggle with the aftermath of the earthquake and tsunami, the business of conducting business, continues. That, for many companies, will be considerably easier said than done.

 

An article this morning in Businessweek points out that Japanese companies are not the leader in the consumer electronics industry or in the semiconductor industry either. But here’s the rub: Japanese factories still produce about one-fifth of the world’s semiconductors and 40 percent of electronic components. Secondly, together, Japan’s Mitsubishi Gas Chemical and Hitachi Chemical produce almost all of the world’s BT Resin--a raw material used in chip packaging. Furthermore, Hitachi Chemical has a 70 percent market share for a type of chemical slurry used by semiconductor producers to polish chips.

 

Furthermore, big chipmakers generally keep between four weeks and six weeks of supply on-hand, so a temporary plant shutdown in Japan doesn’t resent much of an obstacle. However, Japanese companies haven’t been--or aren’t--able to estimate when plants might re-open or production may resume. Photos show considerable damage to buildings and infrastructure such as roads, so it may well be anybody’s guess as to when some of those companies can begin production again.

 

The Businessweek article describes the potential impact for Nokia, which is a major purchaser of Japanese components for its cellphones. The region in Japan hit by the earthquake, tsunami and nuclear accident is home to many manufacturers of those parts, and the disaster is likely to hit the handset industry the most, according to a March 14 report by Barclays Capital cited by Businessweek. For Nokia, finding other sources in the event of an extended disruption to the supply chain won’t be easy, Barclays analysts wrote, since the Finnish company’s “declining market share has reduced its once legendary ability to procure alternate supply.”

 

My old mentor also often said “One man’s loss is another’s gain,” meaning no matter how tragic somebody’s situation may be, it represents an opportunity for somebody else. I believe that’s what we’ll see here; that the recent events in Japan will spur short-term changes in many markets—most likely creating opportunity for other companies.

 

Consider, for instance, the automotive industry. Earlier this week, Toyota announced that nearly 70 percent of its vehicles sold in the U.S. are produced in North America. However, its Prius hybrids, which may become more sought after if gas prices continue to rise, are built in Japan and availability may be impacted by the production halt. For now anyway, Toyota said that inventory levels of the Prius at U.S. dealerships are generally still adequate.

 

But in an IndustryWeek article yesterday, Craig Giffi, vice chairman and U.S. automotive practice leader for Deloitte LLP, explained that we may see what he termed a, “blip,” in the availability of high-mileage vehicles produced by Japanese automakers. If Toyota’s ability to export vehicles to the U.S. is hampered, it could be just enough to trigger “a door opening for U.S. manufacturers,” Giffi says. So, if Prius production suffers a long delay, and if gasoline prices continue to rise, American consumers who favor Toyota and other Japanese brands for fuel-efficient vehicles might turn to domestic brands such as the Ford Focus and Chevy Cruze, Giffi says.

 

What, if any, impact has your company or supply chain seen so far? Do you expect your business to be effected by the events in Japan?

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