Building Resilience to Natural Disasters and Major Economic Crises
CHAPTER 6
Strengthening supply chains Supply of many goods now takes place through complex global supply chains connecting production and distribution centres in multiple countries. While these systems can be very efficient, they are also vulnerable to external shocks, particularly natural disasters. If just one node is damaged, the whole chain can be broken. In future, enterprises and governments will need to find ways of making supply chains more resilient to shocks.
146
Asia and the Pacific has seen a rapid expansion of global supply chains – using offshore activities and outsourcing to supply, manufacture and distribute goods across national boundaries. These enable firms to allocate scarce resources more efficiently and gain better access to foreign markets.1 Such arrangements are now widespread in various industries such as automobiles, electronics, office equipment and apparel.2 Toyota, for example, conducts its business in 26 countries with 50 overseas manufacturing operations, which supply vehicles to more than 170 countries and regions (Figure VI-1).3 Agriculture too, is increasingly reliant on imports of inputs and multi-tiered supply chain management.
the effects can soon ripple across the whole network, both within and across national borders (Box VI-1). It is important, therefore, that global supply chains become more disaster resilient – with greater ‘buffer capacity’ that enables them to absorb such perturbations.4 This Chapter explores the potential for this, drawing lessons from the response to Japan’s earthquake and tsunami in 2011, Thailand’s floods in 2011-2012, and Australia’s floods in 2010-2011.
These supply chains have made it possible for many Asia-Pacific businesses, including small and medium enterprises, to establish strong manufacturing bases – and also enable developing countries to benefit from foreign direct investment and increase their exports. But these chains also embody risks. If a natural disaster, such as an earthquake, flood or fire, damage a production or distribution node in the chain,
Manufacturing
Asia-Pacific supply chains Since the 1990s, global supply chains have created a new division of labour among Asia-Pacific economies, especially in NorthEast and South-East Asia.
In the 1970s, Japanese Transnational Corporations (TNCs) in particular responded to high tariff protection in South-East Asia by investing in