When Mother Nature (and Our Planet) Raises the Supply Risk Specter

It's been hard to avoid the tragic headlines in the past week coming out of China and Burma. What's happened in Burma in particular is just plain appalling, especially from a governmental supply chain humanitarian assistance standpoint which basically has made it look like the government is intentionally trying to kill hundreds of thousands of its citzens (but that's the subject of another post). For those who have managed to stay away from all forms of media, the Sichuan province of China was recently devastated by an earthquake which shook buildings for minutes as far away as Beijing and Shanghai. And the coastal and rice growing regions of Burma were leveled by a massive cyclone.

Throughout Asia, supply chains were disrupted, especially as a result of the China quake (Burma, in a stroke of dictatorial luck, has so isolated itself from the global economy that the disaster has had only a limited impact on the export economy of the region). If the Burmese cyclone had hit Vietnam or Thailand, the situation could have been very different. The Chinese -- and companies doing business with Chinese companies -- were not as lucky from a supply risk realization standpoint. In the best case, productivity ground to a halt in the East and South as companies evacuated offices and manufacturing centers. In the worst, companies shuttered production facilities entirely as they inspected for damage. Toyota, in one case, made headlines by closing one of its production facilities in a region far from the epicenter of the quake.

All told, both disasters will most likely kill tens -- or possibly even hundreds -- of thousands of people. Damages will run into the many billions of dollars. And companies sourcing from and doing business in the region -- China, especially -- will face supply disruptions and even supplier failures from those crippled by the tragedy. But both disasters could have been so much worse had they occurred in more strategic business regions. Much of China is traversed by fault lines and earthquakes are not entirely out of the ordinary (i.e., it's safe to assume something like this will happen again in the not so distant future). And as I mentioned, there are cyclone and typhoon prone areas which are far more critical to export markets than Burma, a country that makes Cuba look like a Western Democracy in comparison to itself. Given this, let's hope that these recent events serve as a wake-up call for companies to consider geographic and weather-related supply risk when doing business throughout Asia.

- Jason Busch

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