As the devastating earthquake and tsunami in Japan earlier this year prove, nothing can disrupt the global technology supply chain quite like a natural disaster. Now, massive flooding in Thailand’s capital of Bangkok is claiming hard drive manufacturers.
Thailand is a leading producer of hard drives and hard drive components. As such, manufacturers that have been forced to shut down operations represent roughly a quarter of the world’s hard drive production capacity. The obvious fallout will no doubt be a shortage of disk drives and, some contend, price increases of as much as 40 percent.
“It’s not clear whether that will affect the prices you pay. As a testament to adequate supply and lower-than-expected demand, retail prices of hard disks have not taken off,” writes Woody Leonhard in Computer World. “Even if manufacturers hold the line on the product price, it’s highly unlikely that disk prices will go down anytime soon.”
Bringing the plants back online could take up to eight months in some cases. Many computer peripheral equipment manufacturers either have plants located in low-cost countries like Thailand or contract with producers there. The US alone imports more than $30 billion in peripherals each year. When production of specific products is concentrated in certain areas, natural disasters can consequently have a tremendous industry impact.
The March 2011 earthquake and tsunami that ravaged Japan’s northern prefecture of Fukushima led to rising costs of flash memory chips, mobile devices, and plant closures (including, again, Toshiba). Automakers were similarly forced to delay production, creating a temporary dearth of new cars worldwide. And in a particularly sad twist, Japanese automakers who were just beginning to recover from that country’s disaster now face shortages of key parts made in Thailand.
Thailand’s prominence as a tech manufacturing giant has come thanks to government incentives, tax breaks, and land acquisition deals. Global customers of these manufacturers will be especially hard hit since most producers embrace a “just-in-time” approach to manufacturing that minimizes inventories.
If flood waters do not recede until 45 days later, as some industry observers anticipate, manufacturers will be forced to drastically revise the end-of-year shipment expectations for a variety of industries.