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Supply Chain Risks and Rewards: Reminder from Thai and Vietnamese unrest

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Supply chains are the lifeblood of every industry yet they come with significant risk requiring strategic options and alternatives to be in place well ahead of the sudden, unexpected (or even the rare expected) disruptions that eventually strike. Over the past three decades that Smith has been part of the semiconductor and electronics supply chain, we've seen a fair amount of disruption caused by social and political unrest, natural disasters, extreme commodity fluctuations, material shortages, and economic disruptions during boom and bust times.

Managing risks

Risk management is the lifeblood of strategy and the first place to focus strategic solutions is on the vulnerability of supply chains. What makes this so challenging is that there is no safe-haven, no perfect solution to manage risk when the greatest threats are the unexpected disruptions that affect business flows from completely outside of the supply chain itself – threats from disasters and unrest that cannot be forecasted, prevented, nor solved within the industry. Risk to the value chain is a constant focus of leading supply chain service providers who can offer flexibility, agility and proven solutions for mitigating risk and safeguarding business flow during disruptions.

This week we are seeing two such events coming to a head in the emerging economic nations of Vietnam and Thailand.

Vietnam

The escalating unrest socially and politically in these important countries to the semiconductor and electronics industry, has been brewing for a while now, it is not a series of sudden events, but the current situation warrants pause and consideration. The rising tension and involvement of military and coast guard maneuvers between China and Vietnam is particularly important because of the potential for wider Asian involvement and ramifications that could lead to unrest in the region and disrupt trade in a number of ways.

While the political chess game is played out, the immediate issue for global supply chains, including the semiconductor and electronics industry, is the growing domestic unrest in Vietnam as protests against China turn violent and destructive. To date a number of EMS facilities have been affected by fire and the growing concern is the indiscriminate nature of protestors who have attacked Taiwanese and Korean facilities alongside of Chinese ones. As Omar Hamid, head of Asia Pacific country risk at IHS summarized in an interview with Bloomberg, "The violence of these protests was likely an embarrassment to the government," noting that there would likely be increasing clamp downs by the government on these attacks domestically.

The burning of factories and attacks on industrial parks have shuttered facilities due to concerns for safety of property and importantly personnel; at least two have been killed to date. This has put Vietnam, a potentially important emerging market economy, in a difficult position, with the government trying to piece together positive investment views for global businesses who have operations in Vietnam – notably among them Foxconn, Samsung, Intel, Jabil, Renesas, Compal, among many others. Vietnam has been seen as a positive regional location for EMS, test-and-assembly, R&D, and manufacturing of components, among other functions.

While the expectations are that the situation could go either way, perhaps leading to some embargoes and tensions, the problem for the global electronics supply chain is the focus on immediate disruptions and solving issues that are currently affecting the industry while the political situation plays out and appropriate supply chain strategies are implemented to lessen distribution problems and shortages that may result. Meanwhile, the political problems extend well beyond Vietnam as the oil rig dispute represents a wider conflict between many nations including China, Taiwan, Japan, and The Philippines.

Thailand

The situation in Thailand has also been brewing for at least the past six months, unlike the situation in Vietnam, in this case we are looking at a domestic situation rooted in long-standing economic problems and concerns. The recent announcement by the Thai military that it was taking over in the wake of the parliament being dissolved in December and failed elections in February, is concerning and poses significant risks given how the last military take-over affected the nation and trade relations.

As Omar Hamid, head of Asia Pacific country risk at IHS offered in the Bloomberg interview, "Thailand is the area of most concern. […] the continuous political instability […] is likely to continue." One immediate problem is the economic forecast of a continued slide towards recession for Thailand, which has still been grappling with rebuilding and infrastructure issues after the devastating flooding in 2011.

Thailand is, of course, home not only to major industrial parks supporting HDDs, optics, and essential subcomponents, it is also a regional hub for the automotive industry which is also a major market for the semiconductor and electronics industry. We experienced the significant impact to the global electronics industry due to the flooding that caused a sudden halt in production and distribution during 2011, the question now is how long will the current unrest continue and what will be the lasting impact on our global supply chain under a military regime.

Navigating risky waters

There are always challenges ahead, that is one of the constants of our industry – whether they are rooted in unexpected economic, manufacturing, distribution, or product events, they are there and they will arise. The reason for outsourcing critical supply chain services is the recognition of core expertise in the global complexities of strategic solutions held by leading companies. Smith & Associates has been part of the growth and development of the semiconductor and electronics supply chain for 30 years now. We have been there with our customers during the most challenging and the best of times and our experience and global network combined with industry leading best practices has ensured smooth sailing despite the enormity of risk and challenges that erupt suddenly or brew in the background – challenges we constantly monitor and account for in our service solutions.


Lisa Ann Cairns, Ph.D.
Written on Friday, 23 May 2014 08:46 by Lisa Ann Cairns, Ph.D.

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