The world may be flat, but it is bumpy also!

Every week we hear about globalization and the loss of U.S. jobs to foreign countries where labor is cheaper. But labor is not the only cost of doing business. Good supply and distribution networks are critical. In a "flat world", connected by information technology, the supply networks are in place and the work flows to the cheapest locations -- Mexico, India, Pakistan, China, and others.

But, if labor is cheap, and the network is unreliable, the "flat world" equation no longer computes! All of the above mentioned countries have recently experienced large worker protests, infrastructure attacks, or both. Mexico and Pakistan seem to be at the greatest risk.

A recent report by Reuters...

MEXICO CITY (Reuters) - Up to 1,200 companies in Mexico have stopped production because of problems with the supply of natural gas following a rash of pipeline explosions caused by rebels, an industrial group said on Thursday.

The leftist Popular Revolutionary Army, or EPR, has claimed responsibility for four attacks to state monopoly Pemex's pipelines carrying natural gas, liquefied petroleum gas, crude oil and gasoline over the past week.

"There are more than a thousand, nearly 1,200 companies, that have been greatly hurt because of the lack of (gas) supply," industrial group Canacintra's head Victor Manuel Lopez told Reuters.

Automakers like Honda Motor, Nissan Motor Co. and General Motors are among the companies hurt by the blasts, he said.

How long will Honda, Nissan, GM and Ford put up with unreliable supply networks in Mexico? Not long. Their just-in-time manufacturing processes will just hasten their alarm and planning. When you compare unreliable supplies and increased security costs to UAW wages all of a sudden that unionized Michigan and Ohio auto plant makes more $en$e.

If the auto plants move back north, more jobs will become available in US auto industry. But all will not be well -- the US-Mexico border will feel more pressure as more Mexican workers want to cross. A complex interconnected system is always full of such good news/bad news scenarios -- a pull here results in a push there.

For more on how "global guerrillas" are disrupting globalization follow John Robb's excellent blog or read his book, Brave New War.

UPDATES:
1) On 9/11, another bomb blast in Mexico and another car plant is idled. A "flat world" with craters. What's the true cost of manufacturing in Mexico?
2) The pattern continues...

Originally published July 23, 2007