The Impact of the Disaster in Japan on Korean Global Business--A Commentary

By Don Southerton, Editor

Few have not been shocked at the devastation from the earthquake and tsunami in Japan. Concerns over partial meltdowns and explosions at the crippled nuclear power plants only add to the situation. 


How will this disaster impact Japan and Korea-- strong competitive rivals in automotive and electronics sectors? 


Media reports out of Japan (see below) note that auto production has been halted.  The electronic industry also is seeing similar issues. 


That said, I feel we'll see a push by Korean global business groups to capitalize on the opportunity. Some Korean securities firms have noted with the disruption in Japanese brands' supply chain, production, and logistics Korean firms will move aggressively. 


One also cannot discount some bitterness towards Japan by Koreans who suffered under Japanese colonial rule from the early 1900s to 1945.


I see 2 immediate Japanese auto industry concerns surfacing.  
1. Meeting the electrical needs of the Japanese plants. i.e. rolling black outs.
2. With global oil prices rising the Japanese plants will not be able to shift production to meet needs for more fuel efficient models and hybrids.


BTW Logistics will also be a concern---not only for shipping cars out of Japan, but ensuring parts arrive at the manufacturing plants with suppliers hit hard, too. 


Media Updates

The Mainichi Daily News website reported that Toyota officials had announced the continued suspension of work on Monday at its five domestic plants, including those operated by its subsidiaries and 12 auto parts plants.

Toyota subsidiary Central Motor Co. makes Toyota vehicles at its plant in Miyagi Prefecture and Kanto Auto Works Ltd, also a Toyota unit, produces Toyota cars at its plant in Iwate Prefecture. Both prefectures were severely affected by the 8.9-magnitude quake.

A Toyota official said the suspension is partly to check whether workers at the factories are safe.

Meanwhile, Nissan will also suspend production at its three domestic plants on Monday as two of them were damaged in the earthquake. 

Others to follow suit included Honda, Toyo and Sumitomo while Mitsubishi and NEC said they will check lines at their plants to determine whether to resume production on Monday.

Source: Autoblog UK

New York Times notes:
Most Japanese auto assembly plants will remain closed on Monday, even though the factories are outside the hardest-hit regions and did not experience significant damage from the devastating earthquake and tsunami that struck on Friday.

Automakers scrambled on Sunday to determine whether they would be able to build and export cars in light of the rolling power blackouts (meant to conserve electricity) and the damage to Japan’s infrastructure.

“There is no way to get our products out, even if we make them, with the roads and distribution system damaged,” a spokeswoman for the Honda Motor Company, Natsuno Asanuma, told The Associated Press.

The three major automakers — Toyota, Nissan and Honda — have American plants that produce most of the models they sell in the United States. But many luxury cars, like the Lexus, or the smaller, fuel-efficient cars, like the Toyota Prius and Honda Fit, are built in Japan, and disruptions in exports could cost the companies sales at a time when rising gasoline prices have increased demand in the United States.

For Toyota, the disaster comes as it is trying to recover after the recall of more than 14 million vehicles since 2009. Toyota built 3.3 million vehicles in Japan last year, about 43 percent of its global output, with more than half sent overseas.

A Toyota spokeswoman in New York, Mira Sleilati, said all of its plants in Japan would be closed Monday but that no information was available about supplies of the Prius or other Japanese-built models. Besides the nearly 141,000 Priuses exported and sold in the United States last year, Toyota sold more than 229,000 Lexuses, which were mostly built in Japan.

Earl Stewart, the owner of Earl Stewart Toyota in North Palm Beach, Fla., said demand for the Prius had surged so much that he recently sold out. He worries that Toyota might not be able to get many more to his dealership any time soon.

“I put used Priuses on my showroom floor because we don’t have any new ones,” Mr. Stewart said. “The timing could not be worse. I don’t know how long it will take to get the roads and ports cleaned up and get Priuses back on the ships.”

Toyota had planned to start building the Prius in the United States starting in 2010 but canceled those plans during the recession; instead it is readying a plant in Mississippi to assemble the Corolla, a compact sedan.

Other affected models are the Toyota Yaris, a subcompact, and the Scion xB and xD, which are small hatchbacks sold at Toyota dealerships.

Two plants that build the Yaris and Scion models are among four operated by Toyota subsidiaries that were damaged and had to be shut down. The plant that builds the Yaris was opened less than a month ago in Miyagi, an area north of Tokyo that suffered substantial damage.

Nissan built 1.13 million vehicles in Japan last year and Honda made fewer than a million, slightly more than a quarter of the vehicles they sell worldwide.

Honda said some plants would remain closed at least through Monday. Its dealers in the United States get more than 80 percent of their cars and trucks from North American plants. Several Honda hybrid models, including the Insight and CR-Z, and the Acura RLand TSX are made in Japan.

A Honda research and development center in Tochigi was damaged, causing the death of an employee, and it had to be closed.

Reuters reported that operations at the five assembly and parts plants for Subaru vehicles had also been halted.

Nissan said all of its plants in Japan would remain closed on Monday but that most appeared to have avoided major damage. Officials were evaluating the facilities and had not made a decision about when they would reopen. Nissan dealers are not expected to experience any immediate effects, but there could be supply problems for Infiniti, Nissan’s luxury brand, which is built in Japan.

The tsunami destroyed 1,300 Nissan vehicles at the Port of Hitachi awaiting export to American dealers as well as 1,000 vehicles at a service center in Miyagi, said a spokeswoman in the United States, Katherine Zachary.

Cordy Cerami, the general manager at Infiniti of Montclair, a dealership outside Los Angeles, said: “We were assured that the plants were intact, but the suppliers were unsure. We should know something Monday or Tuesday.”

Despite the uncertainty for his dealership, Mr. Cerami said, “Our concern is for the people of Japan first and foremost. "
 Source: NYT