The complexities of global trade and the risks of forecasts

I met with a Chinese vendor today who just happened to be in Tokyo on a sales trip. We had lunch and he was explaining to me the challenges his industry – medical supplies – faces. His company does a lot of business overseas, it supplies Walgreens/CVS and Wal-Mart and many other big stores in the US and Europe. And his company has a significant presence here in Japan.

As regards his Japan business, the vendor explained to me that following the March 2011 earthquake his company, and other companies like it, saw a big spike in business. Many Japanese companies, medical supply and other, placed big orders for first aid supplies with their vendors in China. The reason is that sales of first aid supplies in Japan rose dramatically after the earthquake, as one would expect. The inserts in the morning papers at that time were full of advertisements from local home centers for first aid supplies and even now if you walk into a home center here in Tokyo you will see a significant section for disaster relief supplies. The problem though is that people have stopped buying these supplies now and companies here are saddled with excess inventory. Chinese vendors seeing a big increase in their orders from Japan two years ago, started to over-produce and now they face the same problem: too much inventory. So the Japanese are not buying and the Chinese cannot get rid of their inventory, causing many companies to go out of business.

I thought this was very interesting because it shows how hard it is to predict consumer behavior and how risky it can be to make assumptions.

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