Profitability of Japanese companies in the UK lags rest of EU, pessimistic about 2018

The lag between the UK’s growth rate and the rest of the world noted by Christine Lagarde today has also been felt by Japanese companies in the UK.  According to the recently published JETRO survey on business conditions of Japanese companies in Europe, whereas the percentage of Japanese companies in the EU reporting profitability has increased year on year, reaching 75% overall this year, this breaks down into 71.6% for UK companies and 76.6% for other EU countries.  This might only be a 5% gap, but business sentiment is also taking a hit – with the UK coming second from bottom amongst EU countries in terms of expectations of profit growth for 2017-8, beaten only by the Czech Republic.

As for Brexit contengency plans, of the 952 responses received, 245 were from UK based companies. Around 25% of these said they were currently reviewing or considering a review of their location in the UK.  Of these, 60% are reviewing the relocation of their sales functions, and 50% looking to review the location of their regional headquarters functions and 20% are looking to relocate manufacturing.  Over 80% said they were preparing or considering preparing to partly relocate to another EU country, and 20% were looking to completely relocate.  The top 2 countries cited as potential relocation destinations were Germany (23 responses) and the Netherlands (6 responses).

Nearly half of UK based Japanese companies were expecting a negative impact on their business from Brexit, citing customs tariffs, securing human resources and changes to regulations and legislation as their main areas of concern.

On a more positive note, the new Economic Partnership Agreement between Japan and the EU is seen as being a major advantage for their business by over half the respondents, particularly for companies based in Central and Eastern Europe.  Even UK based Japanese companies did not see as much merit in a UK-Japan EPA however. The most selected reason for welcoming the EU-Japan EPA was “tariff reduction or abolition for imports from Japan” – which is mostly in the automotive sector, so I guess this means more imports to Central and Eastern Europe of Japanese cars and automotive components can be expected.

The biggest operational challenge was seen as securing human resources – for more than half of the companies based in Germany, the UK, the Netherlands and Central and Eastern Europe, again echoing recent news about labour shortages in the UK – both in terms of skills and incoming EU migration. Labour shortages outstripped last year’s biggest operational challenge of “European political and social conditions” – but the latter challenge did not fade away and in fact concerns strengthened slightly, thanks to worries in Spain regarding Catalonian independence, and in the UK regarding Brexit negotiations.

Over half of respondents expected to expand their  business, over 70% in the case of Japanese companies in Italy and Poland.  So, happy days if you’re an automotive sector worker in Poland.

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