What will happen to Japan’s supply chains in Europe post Brexit?

supply chainI found the lack of understanding of how trade actually works – particularly in regard to the complex supply chains – amongst those campaigning for the UK to leave the EU, really worrying.  The idea that you could, for example, say something was a “German car” which the Germans would be desperate to sell to the UK, when it might have been designed, financed and maybe even built with wire harnesses from the UK – and could be a Japanese brand! This worry is confirmed by an article which recently appeared in the Nikkei Online, by Takanori Sakaguchi, a purchasing consultant.

“To be frank, like most of our readers, I was not expecting the UK to vote to leave the EU.  Sterling plummeting, the Yen strengthening, share prices falling, this scenario was just a simulation”

Sakaguchi thought it would be like the Scottish referendum, with 55% voting to stay.  “Economists warned the economic damage would be unavoidable.  Over half of UK’s exports go to the EU.  The majority of multinationals’ European HQ are in the UK, where business can be conducted in English.”

The writer’s contacts who were expatriates in the UK all said that if the UK left the EU, then the reason for being in the UK would be eradicated.  Employment rights were also protected by being in the EU.

“If the UK left the EU, it will take an extraordinary amount of time and effort to reach free trade agreements with each country.  Furthermore, once it has left the EU, it would take 10 or 20 years before it could return.”

“It is unclear what the 2 year negotiation is going to be like, as there is no precedent.  It is likely, in order to discourage others from leaving, that EU countries will take a tough stance. It is unclear if the UK will be able to avoid immigration inflows and if that will lead to a reduction in unemployment for its own people.”

“There is a 100 million theory in the automotive industry – if 1 country has more than 100m population then should be able to sustain a car industry –  acquiring all parts and technology locally.  Japan and the USA can therefore sustain a home-grown car industry. None of the countries in Europe has a population greater than 100 million, so that was a good reason to create the European Union.  For it to work, there needs to be standardization of legislation, systems, policies and engineering methods.  There is no alternative.”

Short term

“In the short term, there will be a cheaper pound, a fall in asset prices and share prices.  There will be those who try to make use of a cheaper pound to “buy UK”.  For retailers, it will be beneficial.”

“However, currently companies are cutting back on investing in UK capital investment, and will become even more cautious about this if the UK leaves the EU.  It’s likely that those who have invested and have not made their money back, will withdraw.”

Medium term

“Although they may benefit short term from a cheap pound, manufacturers will think about shifting to other countries in order to protect their competitiveness, so in the mid term, jobs will shift.  Companies will also be assessing whether to keep factories and suppliers in the UK.”

“Also there will be new UK-only labour laws, which may mean increased costs – another reason to leave the UK.”

“Supply chain costs to the UK are likely to increase as the main labour supporting it is on the continent, particularly if there is a labour shortage in the UK as well.  It will make manufacturing in the UK even less competitive.”

“Supply chains are also likely to become more complex if the UK starts to implement its own rules and regulations.”

“The key thing about supply chains is that they are a way of spreading the risk in case one part is affected  – as per ASEAN economic cooperation and concerns about tsunami or earthquakes.”

“Yet the UK chose independence and control over any negative economic impact.  It is difficult for supply chains to read what is going on, but surely as any country leaves an economic area, they will adjust their strategy.  This is a never-ending fight between sovereignty and free markets.”




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