You cannot compare consequences of earthquakes: Tohoku is not Kobe!


According to a recent article of the Wallstreet Journal Japan in the period since the March 11 to end of April 66 businesses went bankrupt in Japan by factors related to the earthquake and tsunami. This reflects three times the number of companies that went out of business in the immediate aftermath of the 1995 Kobe earthquake (Teikoku Databank). Some observers are quick to point out that the disaster struck “only” rural and coastal areas, which are responsible for about 7 percent of the Japanese GDP, but I strongly believe the effect are found not only in Tohoku. Furthermore Teikoku argues that the fate of about a third of the companies are in part due to consumer self-restraint after the earthquake. Not surprisingly hotels, travel companies, event-planners and other recreation-related businesses are hardest hit. As soon as the survival instinct kicks in, people want to stay with those they care about and traveling or partying seems out-of-place. In some cases tumbling sales and the difficulty in obtaining parts were the reason for bankruptcy.
For example a Hokkaido-based tour-bus company “Excel Bus” declared bankruptcy just one month after the earthquake struck. According to Teikoku nearly 90% of its reservations through June were canceled after the disasters. Another example is Osaka-based accessories retailer Doberman, who had to stop plans to open a new store, when decreased orders from department stores dried up the company’s finances. Only about 15% of the 66 bankrupt companies were actually located in the three most heavily damaged northeastern prefectures. Overall compared to the previous month there is an 18% increase of bankruptcies from the previous month. In spite the fact that the total number of bankruptcies for April are not yet available, I think I am save to day that this trend will continue.
What can we say about all these economical effects felt? Although it might sound very cool and uncaring, some of the bad loans in Japanese business will be cleaned up that were dragging on so far for a while. At the same time business will go under that had the right strategy and intentions, but not the right timing or environment. Damages and unfair consequences will be suffered. I perceive economics/business to function in waves and I believe most important is not take it personal. You might be very successful one day, but most likely it is just luck and not your genius. Just consider Nassim Nicholas Taleb’s Black Swan theory, because with this disaster we are just experiencing the consequences of “the disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology”. At the end there is only one thing we can count on: Life is full of surprises that demand changes. As a final word I see Charles Darwin still very much applicable:

“In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.”

Let’s hope Japan is quick enough to adjust.

Brought to you by Sibylle Ito (シビル伊藤)

2 thoughts on “You cannot compare consequences of earthquakes: Tohoku is not Kobe!

  1. Seems like I got the gist of the article; the disaster attacking the East Jpn did a lot of damage to the economy. But the bad thing won’t last. Eventually things will get better and we don’t have to be so pessimistic, right? Could U give me ur comments if I read U wrong, pls? ThanQ:)

    • Dear Ed Orange,

      thanks for taking time to comment.

      I would not say that the damage to the Japanese economy will not last. I am not that optimistic, as I honestly expect some downturn in the Japanese GDP. How much Japanese business is influencing the rest of the world, we will see in the next few weeks. I am usually an optimist, but considering the damages occured at several plants/factories, plus changes in the purchasing behavior in the short term, I don’t expect things to become better soon, unless everyone increases their efforts in Japan to increase productivity and profitablity rapidly.

      Let me know how you see the situation from your standpoint,

      Sibylle

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