270 Central Avenue
P.O. Box 7500 Johnston, RI 02919 USA
www.fmglobal.com
For Immediate Release
December 5, 2011
Media Contact
Steve Zenofsky, APR
Phone: (401) 415-1945
E-mail: steven.zenofsky@fmglobal.com
Supply Chain Risk Study:
Natural Disaster in China Could Impact Global Economy and Pose
Greater Threat than Japan Earthquake and Tsunami
JOHNSTON, R.I., USA—A study commissioned by FM Global, one of the world’s largest business
property insurers, reveals that a natural catastrophe in China on the scale of the 2011 Japan earthquake
and tsunami would have an even more severe impact on supply chains, given China’s critical role in
global manufacturing.
The FM Global Supply Chain Risk Study, released today, surveyed 100 financial executives at large
multinational corporations. It shows there is significant concern among companies for the potential of
natural disaster-related supply chain disruptions in China, along with a growing acceptance that firms
must be more diligent in addressing their exposures in the region.
“A secure and resilient supply chain creates a competitive advantage,” says Ken Davey, senior vice
president, FM Global. “Delivering products and services when others can’t results in satisfied customers
and opportunities to secure new ones. A fragile supply chain is clearly a competitive disadvantage if a
disruption occurs.”
China is exposed to significant natural threats, including earthquakes, windstorms, floods and tsunamis.
The FM Global study underscores the fact that supply chains in the region are more likely to face
business disruption by a natural disaster, particularly because China has not yet fully embraced many of
the risk management practices followed in Europe and the United States.
The research uncovered the following:




Twice as many companies surveyed (86 percent versus 43 percent) say they are more reliant on
China as part of their supply chain for their key product lines than they are on Japan (see chart).
Eighty-three percent of companies surveyed consider supply chain disruption a moderate to
great risk (see chart).
Ninety-five percent of companies reliant on China for their supply chain are concerned about
natural disaster-related disruptions (see chart).
Sixty-five percent of companies surveyed are considering “increasing collaboration with
suppliers on mitigating risk at their locations (see chart).”
“The findings of the FM Global Supply Chain Risk Study should be a wake-up call for companies that
have substantial investment and dependency on supply chains in China,” says Vinod Singhal, Brady
Family Professor of Operations Management at the Georgia Institute of Technology’s College of
Management. “A natural disaster-related supply chain disruption in China would have far-reaching and
long-lasting negative economic impact. It would slow down the global economy because China is not
only a major exporter of goods, but also a major importer of goods. It would cause shortages in many
consumer and industrial products that could lead to inflation and devastate the share price of
companies.”
Dr. Howard Kunreuther, the James G. Dinan Professor of Decision Sciences and Public Policy at The
Wharton School of the University of Pennsylvania, adds “The findings in this report point to how
interdependent risks can have severe financial consequences in global supply chains. Firms need to
undertake proactive measures, such as finding several sources of supply so that they are not dependent
on one company that may be adversely affected by a natural disaster. There needs to be a realization that
the process of developing a resilient supply chain takes time.”
FM Global recommends businesses ask four simple, but often overlooked, questions when looking
at their organization’s resiliency, especially when it has, or could have, a critical reliance in
emerging markets such as China:
1. Does your senior management view resiliency as a competitive advantage and has it made the
necessary commitment to addressing supply chain risk?
2. Has your organization examined how it can mitigate risk within its product design and
manufacturing processes?
3. How well does your company collaborate with its suppliers to assess and mitigate risk?
4. Does your corporation have appropriate business continuity and disaster recovery plans in place
for supply chain disruptions in emerging markets, such as China?
FM Global commissioned TNS, a global market research firm, to conduct the study. One hundred
financial executives (chief financial officers, treasurers and senior vice presidents of finance or financial
officers at higher levels) from large global corporations (more than US$1 billion in sales) headquartered
in North America were interviewed by phone between July and September 2011.
For an executive summary of the study findings, visit www.fmglobal.com/riskstudy.
About FM Global
For more than 175 years, many of the world’s largest organizations have turned to FM Global
(www.fmglobal.com) to develop cost-effective property insurance and engineering solutions to protect
their business operations from fire, natural disasters and other types of property risk. With clients in
more than 130 countries, FM Global ranks #570 among FORTUNE magazine’s largest companies in
America and is rated A+ (Superior) by A.M. Best and AA (Very Strong) by Fitch Ratings. The company
has been named “Best Property Insurer in the World” by Euromoney magazine, “Best Global Property
Insurer” by Global Finance magazine and was voted “Best Commercial Property Insurer” in Business
Insurance’s 2010 annual Readers Choice Awards.
###