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Thai Flooding Has Many Impacts: Business Around The World Touched, Parts Makers’ Production Delays Expected to Last Months

October 21, 2011

This morning, Thailand’s government warned that floodwaters may reach parts of inner Bangkok, sending stocks and the baht lower as the government struggles to control a deluge that has inundated thousands of factories. The worst flooding in half a century has forced a number of parts makers and Japanese manufacturers to halt production in Thailand, raising fears the flooding may affect manufacturing worldwide.

This chart demonstrates the dramatic impact of the Thai floods on business.

All five key industrial zones were under water in the historic city of Ayutthaya, about a one-hour drive north of Bangkok. Many Japanese automobile and electronics manufacturers are located in the city.  It has been impossible to enter the area without a boat, and many factories are completely submerged. There are reports of many manufacturing plants flooded up to the first floor ceiling. About 320 Japanese companies suffered damage from the floods.  It is expected to take several months before full operations resume, and companies are rushing to find alternate production facilities or supply routes for parts.

Thailand, home to many parts makers, plays a critical role in the global supply chain. If disruptions are prolonged, it could upset manufacturers worldwide. The floods are having similar impact as the Great East Japan Earthquake and ensuing nuclear crisis. Honda Motor Co. suspended production at its factory in Rojana, Ayutthaya, on Oct. 4. The factory is the company’s largest in Southeast Asia annually producing 240,000 cars, including the Brio, a compact passenger car released this year for the Asian market.

Today the flood death toll reached 320, with more likely to come as the flood waters continue to rise.

Since submerged production equipment needs to be replaced, and utilities have to be restored, a lengthy disruption is likely.  Toyota Motor Corp. is expected to suspend production at its three factories there until Saturday as it is unable to obtain some parts, including aluminum wheels, due to submerged roads and factories.  The situation is thought to be a serious blow for Toyota, whose production in Thailand is its third-largest outside of Japan, following the United States and China. In 2010, it produced about 630,000 vehicles in Thailand. To make up for the production loss, Toyota said it is considering importing parts from Japan or temporarily shifting production to other countries.

Electronic manufacturers also are heavily dependent on production in Thailand. Nikon Corp.’s Thailand plant produces low- to mid-range single-lens reflex cameras, which account for 90 percent of the company’s SLR camera production. Sony Corp. manufactures all of its digital SLR cameras in the industrial area of Ayutthaya. Nidec Corp. suspended production of hard disk motors at its factory in Thailand on Oct. 10, causing concerns about supplies to other companies

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