Millions of dollars worth of private and public property have been destroyed in the 2011 Tohoku Earthquake and Tsunami that affected North Eastern Japan and other parts of the country. Not just Japan, but the whole world was confounded by the earthquake that struck with so much force, at about 9.0 magnitude. Lives and livelihoods have been destroyed in this deadly disaster. Almost all industrial sectors have been affected, including Banking, Automobile, Finance, and importantly IT, as Japan offers various points of supply.
Chipping away at the Chip industry
Almost one-fifth of the international semiconductor industry is dominated by Japan. The sector contributed billions of dollars to the nation’s economy last year, and has been doing so for years. The most important component of the semiconductor industry is, of course, the chip.
Japanis one the world’s leading suppliers of flash memories, DRAM parts, computer and telecom chips, and hence, business managers and experts are anxious about the impact of the Tohuku disaster on global chip supply and the IT industry.
While offering general reassurance about Japan’s impact on the global economy, the chairman and CEO of Ernst and Young, James. S .Turley, didn’t have similar reassurances to offer the IT and Auto industry. He said that the disaster would seriously harm Japan’s trade in auto parts and computer chips, while also affecting global supply.
The impact on the industries is also linked to the location of the companies. North Eastern Japan was primarily hit by the quake, of course, although other regions were not unscathed, businesses there are relatively safe. Luckily, the bigger providers like Toshiba and SanDisk are in Southern Japan, so supply from these companies wouldn’t be severely affected. But in the aftermath, they suffer from electricity and transport issues.
Companies like Intel and Qualcomm that are leaders in computer and telecom chip manufacturing said their businesses would not be affected by the disaster inJapan. While speaking to Bloomberg News, Chuck Molloy, a spokesperson for Intel, said that they were well-equipped to handle production, as they had suppliers in other areas of the world. Qualcomm, echoed Intel’s confidence, saying that they weren’t affected by the earthquake. Unfortunately, ON Semiconductor, the Arizonabased Chip company suffered damages in a number of manufacturing units in the archipelago nation.
The NAND flash market has also taken a severe hit due to the earthquake and related disasters. The race to provide NAND flash for Apple’s iPods and iPads was pretty hot a while ago, and Toshiba Corp. was among its providers. Toshiba, along with other Japanese NAND companies accounted for about 35% of the global production. Microcontroller manufacturers like Freescale semiconductors Inc. and Renesas Electornics Inc are located at the heart of the disaster and are yet to resume production activities, partly affecting the global supply.
Outsourcing Software hubs takes a hard hit
Japan’s influence on the global software industry was considerably less, compared to other areas like semiconductor or automotive. In fact, in the 90s,Japan’s software sector was defined as a ‘failure of institutions’.
With Japan stumbling along in the field of Software, the United States turned into a dominant player. The roots for this, as identified by a Stanford study, can be found in the threat of antitrust action against IBM in the late 60s, which led to the separation of hardware and software sales. This paved the way for a thriving software sector and innovation in the field. Where as Japan continued to bundle both software and hardware together, stalling growth considerably.
The US, continues to be independent of Japan’s software market failure, even in the face of the earthquake. However, the emerging Asian software hubs, China and India will face a crunch, as Japan outsources its software needs to the two countries. Although, India, by dint of its global outsourcing clients is less affected, Japan accounts for 60% of Chinese IT companies’ software business, which might seriously hurt China’s software outsourcing areas. Companies like Dalian Hi-Think Computer Technology Corporation, which is among the top outsourcing companies in China have reported zero-activity in their Chinese offices, due to the Japan crisis. Another Chinese IT giant, Neusoft Group Ltd, reports a similar situation. However, experts say, that these very software companies will be enlisted in helping with Japan’s rebuilding efforts, thus making up for immediate losses.
Japan hold’s about 2% of India’s software business and Indian companies with offices in Japan have evacuated their offices there, stalling most of their services in the region.
Overall impact of the quake
By and large, the IT industry has suffered an impact due to the triple natural disaster inJapan. Because IT is so intrinsically linked to industries like Banking, Automotive and Manufacturing, the overall impact of the Japan earthquake on the global business world can be deemed severe.
The challenges facing Japan and the global powers are to help revive electricity and transportation through the country, especially, in the areas that are badly affected in the North East. Given Japan’s track record of bouncing back from disasters of all kind, the IT industry can hope for a quick recovery.