How a Flood in One Country Slows Factories in Another
In late 2011, heavy floods covered large industrial areas near Bangkok, Thailand. Within weeks, people in America and Europe were paying more for computers, and car factories in other countries slowed down. How can water in one country stop machines in another?
Factories do not work alone
Very few products are made in one place. A car or a laptop is put together from thousands of parts, and those parts come from many different factories, often in different countries. Economists call this a supply chain: a line of businesses where each one depends on the one before it.
Thailand was one of the world's biggest makers of computer hard drives and also made many car parts. When the floods hit, those factories shut down.
The damage travels down the chain
Once the parts stopped coming, the next factories in line had nothing to build with. Computer makers could not get enough hard drives, so hard drive prices jumped sharply. Japanese car makers such as Honda and Toyota had to cut production, including at plants outside Thailand, because key parts were missing.
The flood did not touch those other factories. The problem reached them through the chain.
Key idea: In a connected world, a disaster's cost is not only the damage where it happens. It also includes the lost work and higher prices everywhere the supply chain reaches.
Why this matters more for developing countries
Many developing countries make the parts and basic materials that other factories need. That makes them an important link, but also a vulnerable one:
- More exposure. Many of these countries face more floods, storms and heat waves.
- Fewer backups. Smaller firms often cannot afford extra stock or a second factory.
- Lost buyers. If deliveries stop, foreign buyers may move their orders to another country, and they do not always come back.
As climate change brings more extreme weather, these chain reactions are likely to happen more often. Understanding them helps governments and firms prepare: by building flood protection around industrial zones, keeping spare stock, and buying from more than one supplier.
This post is based on ThinkLab research on climate shocks and manufacturing in developing countries. See our research →