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The Nikkei View

Global companies must learn from Thai floods that upended supply chains

Bangkok should avoid repeat of 2011 disaster that halted production of autos and electronics

A resident carries his belongings as he wades through a flooded street on the outskirts of Bangkok in November 2011.    © Reuters

Ten years have passed since devastating floods caused Thailand's economic activity as the "factory of Asia" to grind to a halt. Supply chains were torn asunder, and the impact was felt around the world. Although the government launched a large-scale flood control plan to prevent a recurrence of the disaster, major measures have been delayed because of the country's political turmoil.

Both the Thai government and the private sector should draw important lessons from the disaster: Bangkok must urgently address its lagging implementation of flood control measures, while major companies need to decentralize their operations and diversify their supply chains.

Record-breaking rains from mid-2011 caused the Chao Phraya River, which cuts through the country, to swell. In late September that year, the levees in the center of the river basin broke, flooding the plain with an estimated 12 billion tons of water. More than 800 people died in the prolonged flooding.

Industries also suffered tremendous damage. In October, the floods hit seven industrial parks in the northern suburbs of Bangkok, affecting 730 companies, 450 of which were affiliated with Japanese businesses. The Thai government estimates the economic loss was worth 1.43 trillion baht ($42.2 billion at current rates). 

The region is a production hub for electronic components and hard disk drives, and disruptions in the supply of these parts forced auto production cuts in Japan, North America and Brazil, and caused shortages in products such as personal computers and digital cameras.

In 2013, the Thai government laid out a comprehensive flood control plan. Infrastructure projects worth the equivalent of $8.86 billion at current rates, including several hundred kilometers of discharge channels, reservoirs and dams, were awarded to companies from Thailand, South Korea, China and elsewhere. However, these projects were frozen after the military coup in 2014. A new plan was put together in 2018, but the discharge channels -- the main element of the plan -- will not be completed until 2026 at the earliest.

The deluges of 10 years ago were described as a 100-year flood, but natural disasters are becoming more frequent because of global warming. Many foreign companies have taken steps to restore their factories, such as putting up waterproof walls around them or moving important equipment to upper floors. However, if disaster strikes again, these companies will accelerate the relocation of their production facilities to neighboring countries. The Thai government should be aware of its responsibility for flood control and as much as possible speed up the implementation of its master plan.

The spread of the new coronavirus has also disrupted supply chains in Asia. The advantages of production integration are hard to ignore, but companies should learn from the experiences of the floods and the pandemic and reexamine their supply chains, including the diversification of their suppliers.

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