It was October 14, and Foamtec International Vice President Alan Lim had just begun his morning meeting at the Singapore main office when the phone rang. It was his company’s factory in Thailand. The message: “The waters are coming in.”
Foamtec makes specialty insulation for hard disk drives and other electronics products at a plant north of Bangkok. Following the worrisome call, Lim dispatched a manager to survey the damage. Two hours later he received confirmation: There was 6 feet of water inside the building, and the Hi-Tech Industrial Estate, where the factory sits, was being evacuated.
Lim was dismayed by the news, but not all that surprised. For weeks he had been monitoring Thailand’s battle to contain the flood waters from monsoon rains draining into the country’s central river valley. Hi-Tech is one of four factory estates in Ayutthaya, a rice-growing flood plain turned industrial suburb. After nearby Rojana Industrial Park was inundated, despite last-ditch efforts by Thai troops to reinforce flood defenses, it seemed only a matter of time. Says Lim: “We knew that if Rojana flooded then we wouldn’t be spared.”
Nearly 500 people have died in what has been the worst flooding in Thailand in 70 years. The financial toll will be severe as well: The Thai economy will contract in the fourth quarter, trimming full-year GDP growth by three percentage points or more, according to Barclays Capital. The floods forced the closure of nearly 900 factories in seven industrial parks with a combined workforce of 460,000 people, dealing a serious blow to Thailand’s reputation as an export manufacturing hub. Auto production in Thailand, the largest car manufacturer in Southeast Asia, is expected to fall to 1.5 million units in 2011, compared with a preflood forecast of 1.8 million.
“It’s a wake-up call for investors that Thailand is no longer safe from these kinds of disasters,” says Santitarn Sathirathai, an economist for Credit Suisse in Singapore.
The flood had the biggest disruption on the PC industry, whose fragile supply chain is yet again revealed to be over-reliant on a few parts suppliers. Factories in Thailand spit out a third or more of global drive production, centred on a handful of factory zones outside Bangkok, where skilled labour, affordable land and tax incentives have attracted the biggest drivemakers, names such as Western Digital and Toshiba, along with their key component producers. One of them, NIDEC, makes 80 percent of the spindle motors used in disk drives. NIDEC suffered flooding at six of its seven plants in the area.
Western Digital warned in October that the flooding had shut down several of its plants in Thailand. Its shipments will fall from 58 million drives in the September quarter to somewhere between 22 million and 26 million in the December quarter.
Rival Seagate has been luckier — its own plants in Thailand are still dry — but its component manufacturers have not been spared. Due to the resulting parts shortages, Seagate now sees its own drive production for this quarter in the 40 million to 45 million units range; Chief Executive Steve Luczo says the company otherwise would likely have shipped 55 million drives.
(This story appears in the 20 January, 2012 issue of Forbes India. To visit our Archives, click here.)