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OM in the News: Using Malaysia to Balance Supply Chain Disruptions

July 21, 2012

Jay and I are just finishing up the next edition of our OM text, and have added a good deal of new material on supply chain disruptions. So The Wall Street Journal (July 19, 2012) article on high-tech manufacturers flooding into Penang, Malaysia caught my eye. The journal writes: “Hangar after hangar at the bustling Penang airport is decked out in the liveries of shipping companies DHL, UPS, and FedEx each dedicated to flying out boxes of LED displays, chip sets and other sophisticated electronics. Following last year’s earthquake in Japan and floods in Thailand, global manufacturers are looking to Penang and elsewhere to broaden their supply chains for everything from car parts to semiconductors to hard-disk drives”.

Last year was a watershed for companies operating global supply chains. At the height of the disasters in Japan and Thailand, companies relying on JIT supply chains were left scrambling for alternative suppliers. The hardware industry was hit especially hard by the months of flooding in Thailand. With China’s labor market overheated, countries like Malaysia are seeing billions of dollars in new investments from techs such as Intel, Bose, Agilent, and National Instruments.

Why locate in Malaysia? The nation does carry political risk, as it is a Muslim country entering a period of political turbulence. But as the Journal adds: “Those tensions are relatively minor compared with those of some of Malaysia’s neighbors. The country sits safely away from the so-called Pacific Ring of Fire, mostly unaffected by the earthquakes and volcanoes that can afflict  Japan and Indonesia. Malaysia also is less likely to fall victim to the kind of flooding that left Thailand’s economy flailing last year. Also helping Penang’s appeal are an international air hub and strong logistics infrastructure, including inexpensive and reliable supplies of electricity and pristine water”.

Discussion questions:

1. What location analysis factors do multinationals consider in deciding where to open a new factory?

2. What is the history of US firms locating in Malaysia?

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Andreas Wieland’s supply chain management blog for academics and managers

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