Courtesy Reuters

Japan's Disaster and the Manufacturing Meltdown

What the Earthquake and Tsunami Revealed About Globalization

The effects of Japan’s March earthquake and tsunami are being felt far beyond the shattered region around Sendai and Fukushima. As U.S. auto assembly lines grind to a halt for want of components that usually come from now-disabled factories in northeastern Japan, business strategists may be forced to rethink the way globalized companies do business. The result could well be a retreat from current manufacturing methods -- sourcing key components from a single supplier and running “lean” factories without stocks of supplies on hand -- whose main goal is to minimize costs. Now, management may also pay close attention to risks.

Such a change would represent a reversal of course for major international companies, potentially transforming the way that many of the world’s industrial giants have functioned for the past two decades. Whereas companies used to run separate operations in many countries, each serving a given national market, in the 1980s multinational corporations started to run their affairs with diminishing attention to national borders. Today, a single plant or research center will often take worldwide responsibility for a particular product or business area. And whereas factories once manufactured their own components or purchased them nearby, now even some small plants have supply lines that stretch across the globe. Almost every manufacturer, from your local maker of wedding dresses to Boeing and Caterpillar, is a global company, because its production relies critically on parts or other inputs made or designed outside its home country.

The globalization of manufacturing is responsible for much of the boom in international trade over the past two decades. Around half of the maritime shipping containers that arrive in the Los Angeles and New Jersey ports, for example, contain not products for retail sale but “intermediate goods,” products partially manufactured in one location and destined for further processing somewhere else. Similarly, a large proportion of airfreight consists of high-value components, such as semiconductors and optical lasers, rather than finished consumer goods.
The shift to dispersed,

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