Brexit

Is the UK losing out to the Netherlands as the core of Europe in pharmaceuticals?

The new commissioner of the Netherlands Foreign Investment Agency, Hilde van der Meer, was interviewed in the Nikkei newspaper during her visit to Japan in March 2023. The headline was “becoming the core of Europe with pharmaceuticals” and she outlines in the interview how multinational pharmaceutical companies have opened offices in the Netherlands since the European Medicines Agency moved to Amsterdam after Brexit.

We took a look at our database and can see that one Japanese pharmaceuticals company, JCR, has recently opened an office in the Netherlands. The other, larger, Japanese pharmaceuticals companies were already in the Netherlands long before the EMA move – such as Astellas, Takeda, Eisai, and Daiichi Sankyo. Chugai does not have operations there – its European HQ is still in the UK – but its parent company, Swiss pharmaceuticals company Roche, does have a subsidiary there. Otsuka opened a company in the Netherlands in 2018, which acts as a Marketing Authorization Holder for the EU and in the same year closed its Otsuka Europe Development and Commercialization operation in the UK. Shionogi also opened a subsidiary in the Netherlands in 2018, and the UK subsidiary became a branch of it at the same time, so this may also have been a result of the EMA move. Takeda UK also became a branch in 2018 – but more as a result of the acquisition of Shire, and a subsequent global reorganisation.

This does not seem to have had much impact on the 46 or so Japanese pharmaceuticals and healthcare companies in the UK, however, in terms of numbers employed. We estimate they were employing around 5,000 people in 2022, and this number has grown rather than shrunk since 2016, despite the closure of some smaller companies – Taisho, Anges, Kosei and Summit. Companies which have grown in the UK include Fujifilm Diosynth, now employing over 1,000 people and Eisai, compensating for those which have shrunk their UK presence.

The UK may have lost some influence, but in terms of scale, it is still substantial.

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Japanese automotive supplier Nitto Denko to stop production in UK

Japanese automotive supplier Nitto Denko is to stop production in UK and will turn its UK operation into a satellite office. According to their annual report this is due to the global decline in automotive markets, the pandemic, the semi conductor shortage and Brexit.

Nitto Denko UK employed 138 people at a 2017/8 peak. This is now down to 50 in 2021/2.

Nitto Denko’s EMEA headquarters in Belgium, with a turnover of 360 million euro in fiscal year 2019-2020 employing around 1,725 across Europe.

Nitto Denko has manufacturing and converting operations in Belgium, Czechia, Hungary and Turkey and sales offices elsewhere, manufacturing and selling films, foam, fabric, sealing materials, reinforcing and damping materials and various kinds of industrial adhesive tapes which are used in worldwide markets such as automotive, electronics, furniture, paper production, aerospace and metal processing.

Koyo Bearings Europe changes name to JTEKT Automotive England

Koyo Bearings Europe in the UK has changed its name to JTEKT Automotive England. It decided in 2021/2 to stop serving European market and transfer some production to continental Europe. UK employees at Koyo Bearings Europe have fallen to 205 from 279 in 2016. Koyo UK has become JTEKT Sales UK and has 20 employees.

JTEKT ‘s European headquarters is in the Netherlands, coordinating 28 subsidiaries across the region, employing 6,699 people in 2022 – of whom 365 are in the UK, across 4 subsidiaries.

Koyo was the bearings brand name of JTEKT since Toyoda Machine Works and Koyo Seiko merged in 2006 to form JTEKT. Now all businesses and brands are being rebranded to JTEKT globally.

The value of reconnecting

Looking back over 2022, I realise this has been a year of reconnecting, both personally and for work, as no doubt it has been for people all over the world. It has made me realise that while I enjoy my own company, I need to be able to connect face to face to others, to feel self-worth and vitality.

My family and friends live all around the world, and I had kept in touch with them, through Facebook and email, even before the pandemic. This year, visiting them in person for the first time in several years, I saw a big difference in wellbeing between those who are living near family, and have made friends in their community and those who moved away from friends and did not make any new friends. For the latter, now their family has grown up and moved away, they told me they feel not only lonely, but that they are living a worthless, selfish life.

In my work, too, there is no doubt that face to face training is preferable to online. It is hard, even if participants keep their webcam on, to gauge whether what I am saying is helping them and also to gain insights from them.

This need to collaborate to add value at work is apparent from research that has been done on executives in top global companies, by the IT Services Marketing Association. It shows that over 70% of executives are more interested than before the pandemic in collaborating with their IT suppliers to innovate and digitally transform their companies. The Japanese executives stood out as having an even higher interest in supplier collaboration than the global average.

This is presumably a legacy of Japan’s more group-oriented culture, and the ecosystems that have built up in Japan’s supply chains over the years. In more individualistic cultures such as Britain and the USA, suppliers and customers have been less collaborative and are more antagonistic towards each other.

One of the friends I reconnected with this year, a German film director I had not seen in 20 years, has made a film about a seaside community near where I live in the UK, during the 2019 Brexit negotiations. The film followed a group of dancers, comedians, singers and magicians who put on a variety show throughout the summer, and also a crab fisherman.

Although the performers were all British, they lived an internationally connected life and two of them moved to Spain as a consequence of Brexit. The crab fisherman worked by himself. His son did not want to follow him into the business. He said he had voted to leave the EU, because he felt the UK should not integrate with Europe on social or political issues.

My German friend is convinced that Britain has begun to realise that going it alone is not good for our wellbeing and is predicting that Britain will want to re-join the EU soon. I am not so sure, but I hope he is right.

This article by Pernille Rudlin first appeared in Japanese in the Teikoku Databank News in December 2022

Top 30 Japanese companies in the UK – what’s changed over five years

The total number of UK employees of the top 30 Japanese company groups fell 2.6% from 2019/20 to 2020/2021 – a strengthening of the downward trend in employee numbers since 2018/9. The peak of employment by the 30 largest Japanese company groupings in the UK was 97,827 in 2018/9 and this has now fallen by 5,000 to 92,851 employees. The top 30 represent around two thirds of the 137,000 people employed by 1,200+ Japanese companies in the UK.

It’s taken longer than usual to compile the top 30 Japanese companies in the UK for FY 2020, because some of the biggest employers have been very late in filing their accounts at Companies House. Like their Japanese parents, most Japanese companies in the UK run their financial year from April to March. We are defining the financial year as the year in which the majority of trading took place. So if FY2020 ended in the first half of 2021, companies then have nine months to file with Companies House, which would mean filing at the beginning of 2022. Some companies (we are looking at you NEC) did not file until the beginning of 2023, however. In most cases this seem to have been due to a mixture of the impact of the pandemic, coinciding with major acquisitions and restructuring.

2020/21 was the first year after the UK left the EU, on January 31 2020, so it may seem too early to assess the impact of Brexit. But as has been noted in this blog many times before, Japanese companies are risk averse, long term planners, so actually many of the plans were already in place and in progress, largely based on worst case scenarios. There is also a longer term trend of a shift from manufacturing (particularly automotive manufacturing) to services, in terms of who is in or out, or up or down the top 30.

Who’s shrinking

The company groups with above average decreases in employee numbers were MUFG (-21.91%), Konica Minolta (-20.13%) and Denso (-18.8%). MUFG Bank is a branch of MUFG Bank Europe NV, however, so there is no official figure for the number of employees in London. The decrease is largely based on the reports that MUFG offered 500 managers of its 1500 staff redundancy in 2019 and that this would have fed through by FY2020. It’s perfectly possible, however, that MUFG were simultaneously hiring more staff in other areas. There are another 670 or so employees at MUFG Securities, which is incorporated in the UK and shares an office with MUFG Bank. There are a further 250 so in a separate London office housing Mitsubishi UFJ Trust, Trust and Banking and Asset Management. MUFG usually says it has “around 2000” employees in London.

Konica Minolta acquired various UK companies before Brexit, but since Brexit has shrunk down and consolidated its operations in the UK and is focusing more on their European HQ in Germany and also the Czech Republic. The longer term trend of shifting away from manufacturing in the UK, to manufacturing elsewhere in Europe is seen at Denso, the Toyota group automotive parts manufacturer – UK employee numbers peaked in FY2018, and have been falling since, and are now 27.5% below the FY2014 level, whereas employment in the rest of the region is up 4.3% and global employee numbers, excluding UK, have risen 16% since FY2014.

Who’s growing

Company groups with the strongest growth over FY2019/20 to FY2020/21 were SoftBank, Mitsubishi Electric and Panasonic. SoftBank was fulfilling its promise to the Takeover Panel to double its UK workforce to 3,500 people in the UK after acquiring ARM in 2016, but it has recently become clear that it has since lost 40% of those it hired and there are now around 2,800 people at ARM in the UK. This will not be reflected until the 2021/22 reports.

Mitsubishi Electric is also, like MUFG, a branch of a European HQ in the Netherlands, so the employee total is an estimate, but it employs nearly 1,500 people at its air conditioning company and factory in Scotland, which is a UK incorporated company. Air conditioning has been a high growth area for several Japanese manufacturers in Europe.

Panasonic‘s growth is due to the acquisition of American software company Blue Yonder, which has around 300 employees in the UK. The bulk of Panasonic’s employees are in Panasonic UK and Panasonic Business Support Europe, which are both branches of Panasonic Marketing Europe in Germany – in Panasonic UK’s case since 2011. The European HQ was moved from the UK to the Netherlands in 2018 and it has not been disclosed what the trends in employment in these UK operations has been since then. The website says it employs over 400 people in its Bracknell offices, which is considerably lower than the 1,389 employees it had in 2018/9. If these figures can be regarded as comparable, then Panasonic has actually shrunk in the UK over the past few years, despite the Blue Yonder acquisition.

The top 3

Less significant changes in employee totals have resulted in a reshuffle of the top 3. The Hitachi group was the largest employer in the UK in FY2020, taking over from Nissan, which dropped to #3. Itochu moved up from #3 to #2. In Hitachi’s case, the growth was at Hitachi Energy (the recently acquired ABB power grids business), Hitachi Solutions and what was Hitachi Capital. The latter may have to be dropped from the total in future years as Hitachi now only owns 27% of it, and it has been renamed Mitsubishi HC Capital. Similarly 51% of Hitachi Construction Machinery is being sold to Itochu and Japan Industrial Partners, so it will leave the Hitachi group.

Itochu has considerable presence in the UK thanks to its acquisition of Kwik-Fit, with over 5,000 employees in FY2020 and Stapleton’s Tyres, with over 1,000 employees. There were rumours that Itochu was considering the sale of Stapleton’s and Kwik-Fit in 2020, but nothing seems to have developed since.

Key changes compared to FY2015

Five years’ ago, Fujitsu was the largest Japanese corporate group in the UK, with 9,892 people. It has lost 3,000 employees since, and was the fourth largest Japanese group in the UK in FY2020. As of FY2021, Fujitsu has 6,348 employees in the UK, 45% down on FY2016, compared to a 21% decrease globally, excluding the UK. Growth at Fujitsu has been in India (and Fujitsu’s CTO is Indian) and in its global delivery centres in countries such as Poland and the Philippines.

Honda was at #3 in FY2015 and had already fallen to #5 by FY2020 – before Swindon closed in July 2021. The closure of the Swindon plant will mean that Honda drop out of the top 30.

Companies that have dropped out of the top 30 since FY2015 include Calsonic Kansei, which is now Marelli, since merging with Italy’s Magneti Marelli, with KKR as the main shareholder. KKR is American, but it is KKR Japan that has the stake. Marelli has over 1,700 employees in the UK, so maybe we should keep it in the top 30. The Marelli website indicates the global headquarters is in Japan – but the management team has plenty of non-Japanese on it. It’s another example of how it has become increasingly complex to define what a Japanese company is.

Another automotive company to drop out of the top 30 is Yazaki. It had 1,345 employees in the UK in FY2015, and now has 890. Olympus has just dropped out of the top 30, not due to shrinkage so much (it had 1,362 employees in FY2015 and now has 1,389) as other companies growing more. JTI (Japan Tobacco International) has also dropped out of the top 30, since the closure of its Gallaher factory in Northern Ireland in 2017.

Newcomers to the top 30 over the past five years are:

NTT following their acquisition and consolidation of many IT services companies including Dimension Data, itelligence, Everis and Keane
Outsourcing, who have acquired various recruitment and outsourcing companies in the UK
NEC, who acquired Northgate Public Services
Mizuho – who expanded organically – but total employees are an estimate, as Mizuho Bank is a branch of Japan

Predictions for 2021/2

Around two-thirds of the 1200+ Japanese companies in the UK have filed their annual reports for 2021/2. The data from these reports suggests a further 10,000 drop (-7.6%) in employment numbers, from 137,000 to 126,000. 4,000 of this will be due to the closure of Honda’s Swindon plant, and a further 750 or so due to the closure of related automotive companies. For the top 30, there looks to be an overall decline in employee numbers, apart from Toyota.

There have been no major acquisitions in the past couple of years so we do not expect there to be any new entrants to the Top 30. The shift to services will continue, as will the increasing lack of transparency as to how many people are actually employed in the UK by Japanese companies, thanks to many of the UK operations becoming branches, with the shift of the regional headquarter functions to the EU.

Click the link below for a pdf of the Top 30 Japanese employers in the UK:

DOWNLOAD OF TOP 30 JAPANESE EMPLOYERS IN UK

Top issues for Japanese companies in Europe, Middle East and Africa for 2022/3

The annual survey by JETRO of Japanese multinationals shows that many are struggling to return to pre-COVID levels of profitability. 65% of the 7,000 companies surveyed expect to be profitable by the end of FY 2022 (March 31 2023) but the automotive parts sector is forecasting widening losses.

Expectations for profitability are slightly higher in Europe than the global average and within the region, on a country by country basis, business prospects are overall more positive for Japanese companies in the Netherlands and Germany than for those in France or the UK. On the other hand, due to logistics, procurement and energy costs, 35% of Japanese manufacturers in Eastern Europe are expecting their business prospects to worsen, only just balanced out by the 36% who expect their business prospects to improve. Increasing labour costs and hiring and retention even outweigh the impact of the Ukraine war for Japanese companies in Europe as the key challenge. This is also seen as a challenge in Western Europe, but with more focus on white collar, managerial workers, particularly in Germany and the Netherlands.

More than 70% of Japanese companies in the Netherlands, UK, Germany and UAE are expecting to achieve profitability in FY2022. However only 37.9% of companies in the region expect profits to improve, 11.8% lower than 2020/21. More than half of the Japanese companies based in Finland, Ireland, Italy, Sweden, Czech Republic and Portugal are expecting profits to improve – compared to 46.7% of Japanese companies in the Netherlands, 44.4% in the UK, 38.1% in France, 36.4% in Germany, 35.3% in UAE and 31.1% in South Africa. Manufacturers in the UK, having not recovered as quickly as in the rest of Europe from the pandemic, are now more optimistic about profitability for 2022/23 than other manufacturers in the region.

45% of Japanese companies are expecting to expand their business in their region over the next 1-2 years, but do not expect to return to full pre-COVID levels because of rising costs. One bright spot is increasing investment in the human resources and hospitality sectors, thanks to the lifting of coronavirus restrictions.

Within EMEA, more than 50% are expecting to expand their business in Denmark, Portugal, Switzerland, Italy, Spain, Ireland and Romania. When asked about expanding “functions”, Germany, UK and the Netherlands were the top 3 for expanding sales functions, Germany, Netherlands and Czech Republic for expanding manufacturing and Germany, France, Spain, UK and Belgium were top for R&D. Overall, particularly for the UK, the mood seems to be “keeping things as they are”

Trade

Over 50% of Japanese companies in the UK say that Brexit has had a negative impact on their business, mainly due to (in rank order) increased customs clearance processes, delays and costs of logistics, imposition of tariffs, responding to new UK regulations (eg the CE vs UKCA mark), customers leaving the UK and difficulties in hiring. 40% of Japanese manufacturers in the UK say they are experiencing problems in exporting to the EU.

37.9% of UK based companies say they are using the EU-UK Trade and Cooperation Agreement for their exports to the EU, 12.9% up on the previous year. The main reason given for not using it was that their exports were already tariff free, or did not fall within the agreement. The main challenges in using the TCA were setting up their own internal systems, getting the cooperation of EU based suppliers or customers and interacting with customs. Securing human resources was cited by 50% of the Japanese companies in the UK as a negative impact of Brexit (61.5% for manufacturers), compared to only 9.8% of Japanese companies in the EU saying they were concerned about this as a result of Brexit.

49% of Japanese companies in the EU are using the EU Japan Economic Partnership Agreement for importing from Japan to the EU and 34% are using the agreement to export from the EU to Japan. More than half of Japanese companies in Austria, Italy, Czech Republic, France and Spain are using the EPA to import to the EU. The sectors with the highest use of the EPA are chemicals, wholesale, foods, plastic products and transportation equipment.

Localization of supply chains and staff

60% of Japanese manufacturers globally are expecting to review their supply chains in the future months. Localization of procurement, production and sales is accelerating due to rising raw material and transportation costs and the emergence of supply chain disruption risks. Within Europe, 48.2% of all companies have reviewed their supply chains and 55.5% expect to review them in the coming year.

In Europe, however, there is more interest in localising procurement within the EU than within the country of location. 21.4% of Japanese companies in Western Europe, 32.1% of Japanese companies in Central and Eastern Europe and only 9.5% of Japanese companies in the UK are expecting to increase domestic procurement, whereas 34.3% of Japanese companies in Western Europe and 45.8% of companies in Eastern Europe are expecting to increase their procurement within the EU. No UK companies are expecting to increase their procurement from the EU and no Eastern European Japanese companies are expecting to increase their procurement from the UK either.

Around 20% of European companies are expecting to increase procurement from Japan, but significantly more (around 35%) are expecting to increase procurement from ASEAN countries.

Japanese companies are also planning to reduce the number of expatriate staff sent from Japan, and increase the number of locally hired staff, particularly in Asia. The pandemic has accelerated the ability to manage the business remotely, from Japan. Within EMEA, 28.9% are expecting to increase their Japanese expats to the Netherlands, compared to a 22.1% increase to UAE, 19.3% increase to Germany, 18.1% to the UK and 13.3% to France and 6.6% to South Africa. 13.3% are expecting to reduce the number of Japanese expats in the Netherlands, 12.4% in Germany, 6.4% to the UK, 16.7% to France.

In terms of hiring more local employees, Japanese companies in Germany came top with 44.3% wishing to do so, then South Africa with 39.5%, Netherlands with 38.9%, France with 37.7%, UK with 36.1%, UAE with 35.9%. 10% of Japanese companies in Germany and the Netherlands were planning to reduce local staff numbers, compared to 11.3% in the UK, 9.8% in France, 9.3% in South Africa, and 4.9% in the UAE.

Whereas automation and reduction of the workforce had been a top priority for manufacturers before 2020, while this is still at number 2, the top priority for the next few years is investment in new equipment and new projects. The third highest priority is revising manufacturing location. The reasons underpinning these priorities are the need to optimise production costs, the high cost of labour and the high cost of raw materials.

CSR and supply chains

A third of Japanese multinationals are doing due diligence on human rights in their supply chains, particularly in Europe, where regulations are being introduced. 46.2% of Japanese companies in the UK are already doing due diligence – compared to 42.9% in France, 30.3% in Germany and 23.2% in the Netherlands. Sectors which are particularly concerned with human rights are mining and minerals, plastic products, non ferrous metals, textiles, construction and foods.

42.4% of Japanese multinationals have started taking steps to reduce their carbon emissions, 9% up on the previous year. 20% of Japanese companies are proceeding with “green procurement” for their suppliers. Portugal, Switzerland, Ireland, Austria, Spain and France score particularly highly in terms of taking steps to reduce carbon emission with over 70% of companies in those countries already having done so, compared to 63.6% in South Africa, 58.3% in the UK, 55.2% in the Netherlands, 51.5% in UAE and 50% in Germany.

Actions taken include reducing energy usage, using more electric power, using more renewable or new energy sources, with solar being the most popular. Other actions have included developing new environmentally friendly products, green procurement and revising procurement and logistics. The interest in green investments is at a record high, greater than digital investments or eco friendly transportation or tourism.

Sales

The most promising sales destination for Japanese companies in Europe continues to be Poland, for the fourth year running. Turkey has overtaken Germany for the first time in 7 years and the UK is back in the top 10. Other Eastern European countries in the top 10 are Hungary, Czech Republic and Romania – mainly for their economic growth prospects. The other Western European countries in the top 10 are France, Italy and Spain.

Japanese companies in the UK are showing an increasing focus on the UK domestic market for their sales, with an average of 49.4% of sales to the UK market, 2.4% up on 2021/2, compared to a European average of domestic sales of 37.7%. UK companies are selling on average 16.5% of sales to EU countries, compared to 37.6% of sales to other EU countries (excluding their own country) for Japanese companies located in the EU. Unsurprisingly, Japanese companies in the UK have become more UK oriented since Brexit, as many of the EU sales and coordination functions have shifted from the UK to the EU – and is now potentially stabilising after the sharp decline over 2019/20 to 2021/2

Although the proportion of sales to non-EU Europe (presumably Norway, Switzerland, maybe Turkey) is higher for the UK (16.3%) than for Europe overall (4.4%), there is not much evidence that the UK is being used as a base for sales outside Europe – the proportion of sales to North America (1.7%) or China (1.3%) is actually slightly lower than for the whole of Europe. Sales to Japan have been falling steadily since 2019 (possibly related to Honda Civic sales to Japan). The proportion of sales to “other” countries is higher – 8.5% compared to 6.5%, perhaps showing that some Japanese companies in the UK are indeed Europe, Middle East and Africa headquarters, with sales focused more on the latter regions. ASEAN only accounted for 1% of the 7% of sales to other countries in 2019/20.

Hybrid working and pay rises

European employees of Japanese companies are not returning to the workplace at anything like the rate they are in South West Asia, North West Asia or ASEAN. During 2021, 14.6% of Japanese companies in Europe said that 90% or more of their employees were working at their office or factory and only 29.6% were expecting this to happen in 2022/3 in Europe. In Asia, around 30% of companies said their over 90% of employees were working at the office or factory in 2021 and this is expected to be near to 70% in 2023. This may reflect that there are proportionately more manufacturing companies in Asia than in Europe.

In terms of reviewing management and personnel policies and structure, by far the most popular choice for review was human resource development and training – chosen by 61.6% of Japanese multinationals. Second was reviewing working from home policies, at 35.3%, closely followed by reviewing staff remuneration at 32.3%. The next three topics were all chosen by around 27% of Japanese companies – digitization of workflows, reviewing the expat staff structure and localising management.

Pay rises are highest in emerging markets such as Brazil, India, Mexico, Vietnam and South Africa and in Europe – Hungary, Poland, Romania and Czech Republic – at around 6 to 9% over the past two quarters, whereas despite the high inflation rates, pay is only expected to rise by 2.7% to 4.6% in the Netherlands, Germany, UK, France and UAE.

Update – this article has been added to since the publication of a European focused version of the survey by JETRO in December 2022.

Continued fall in UK employment by Japanese companies

Around a half of the 1,100 or so Japanese companies in the UK have filed their annual reports for the financial year 2021/2. Most paint a positive picture of recovery from the pandemic and resilience to any impact from Brexit. However, the employee totals show a more worrying trend emerging.

Overall, the total number employed by those Japanese companies in the UK who have reported their results has fallen by 8% over the past year. This is an acceleration of a decline which started three years ago – employee numbers had fallen 3% the previous year, and 2% the year before that. This was preceded by a couple of years of growth from 2016/7 to 2018/9. Projected, this suggests that the number of people employed by Japanese companies in the UK will fall to 158,000 by the end of the financial year 2021/2, below the 161,000 that were employed by Japanese companies in 2016/7 and a 14,000 drop on the numbers employed in 2020/1.

A number of factors might be behind this rise to 2018/9, followed by a fall, and more recently a sharp fall. It could be that Japanese companies continued to invest in growing their UK businesses, until the likely Brexit deal became clearer towards the end of 2019, and then the impact of Brexit played out after 31 January 2020 through to when the transition arrangements ended on December 31 2020.

It could also be that Japanese companies laid off people during the pandemic (although the decline in employment started before early 2020 in some sectors) and then were hit further by the Great Resignation in the past year.

It is certainly partly due to the impact of Honda closing its Swindon factory in July 2021. That meant the loss of nearly 3,000 jobs and it looks likely a further 5,000 jobs will have been lost in the automotive sector over the past year – many of which were dependent on Honda. The decline in employment in the automotive sector began in 2018/9, a year or two before other sectors began to lose jobs.

So what about the 6,000 jobs that look to be disappearing in other sectors? Finance seems to have stayed steady, even growing slightly, employing around 14,000 people, but non-financial services, after years of high growth, are beginning to show a decline, maybe by 1,000 or so to around 55,000.

Wholesale (not including automotive), having grown strongly to 2019 has dropped around 5,000 or so jobs in the past couple of years, employing around 38,000 people. This could be reflection of the change in structure of Japanese wholesalers in Europe, who have moved their EU logistics and warehousing to the continent. There are also another 1,000 or so jobs likely to be lost in non-automotive manufacturing sectors.

We have not been able to publish a final Top 30 UK for 2020/2021 of the largest Japanese corporate groups, as there are still outstanding annual reports due to be filed at Companies House for NTT and NEC. Taking both of those groups out, it seems the biggest employers are cutting back, deliberately or through passivity, on their employee numbers in the UK. The decline represents around 5,000 jobs, 5% of the 97,000 who were employed by the big corporate groups in 2019/20, and it seems likely the total will fall further in 2021/2022. This is not just because of the Honda Swindon closure feeding through, but also from factoring in the 700 or so fewer staff at SoftBank-owned ARM, down from the 3,700 peak a year or so ago, when it fulfilled its 2016 promise to double its workforce in the UK.

The key question, particularly for Brexit watchers, is whether this decline in employment by Japanese companies in the UK is also occurring in the rest of the region. The Top 30 Japanese companies in Europe, Middle East and Africa employed around 577,000 people as of the annual reports for the year ending 2022. The data for Yazaki is yet to come in, but for the remaining 29 companies (which includes Honda), there was a 2% increase in employees in the region. Without the loss of 4,500 jobs at Honda UK companies, this would have been a 3% increase. So while EMEA has seen gradual growth in numbers employed by Japanese companies in the past couple of years, the UK has seen an accelerated decline.

The post-Brexit branchification of the UK for Japanese companies in Europe

The latest Japanese Ministry of Foreign Affairs data reveal that the number of Japanese businesses in the EU rose a further 2% from 2020 to 2021, to 8,464, up 28% on ten years ago. The only EU country to show any decline was Belgium. The picture for the UK is rather different – an 11% decrease on ten years ago, from 1,083 businesses to 960. There has been a slight pick up in the past two years, from a low of 951 in 2019.

The branchification of the UK

Digging further into the detail – and comparing the UK to other major hosts of Japanese companies such as Germany, France and the Netherlands – reveals some possible factors in this divergence. The numbers of businesses started in the UK by Japanese nationals showed the biggest decline. This could be because the businesses were bought out, the founder retired and shut down the company – or perhaps became British.

There is also a confirmation of a trend we noticed previously, that the number of subsidiaries incorporated in the UK has fallen, but at the same time there has been an increase in the number of UK branches of European subsidiaries of Japanese companies. This probably includes those operations which were incorporated subsidiaries but have now become branches of the European HQ in Germany or the Netherlands – such as Sony, Panasonic, Nikon, Bridgestone and Alps Alpine.

Switching to becoming a branch was partly a reaction to Brexit but in the former two cases may also have been a precautionary measure because of the change in Japanese tax haven laws. As we noted previously, the UK’s 2016 “open for global business” announcement that the corporation tax rate would fall to 17% in 2020 (it didn’t) would have meant that revenue from dividends and royalties received in the UK would be considered as tax avoidance by the Japanese tax authorities.

The decline in Japanese businesses in the UK had set in as early as 2012, long before Brexit, but accelerated after Brexit – it precipitated trends that were already there, and prompted Japanese companies to do some long overdue regional consolidation and tidying up.

This branchification of the UK and regional consolidation is reflected in the Ministry of Foreign Affairs data for Germany – the number of branches of Japan HQ in Germany has fallen by 45% and the number of incorporated subsidiaries has risen by 21% over the past 10 years. There has also been a significant decline, as in the UK, of the number of businesses started by Japanese nationals resident in Germany.

As for the Netherlands, there has been a quintupling of the number of business classified as “uncategorised” from 61 in 2015 to 393 in 2021. These may be brass plate type holding companies. All other categories (incorporated subsidiaries, branches of regional subsidiaries and joint ventures/investments) have increased as well, apart from branches of Japan HQ (which may have now become subsidiaries) and those started by Japanese nationals in the Netherlands. There was an overall rise of 86% of Japanese businesses in the Netherlands since 2015.

Cars for cheese?

The number of Japanese companies in France only increased by 3% since 2015, but this conceals significant changes in the composition of those businesses – the number of branches of Japan HQ has dropped 45%, the number of incorporated subsidiaries has also fallen, by 31%, whereas there has been a significant increase in joint ventures and part investments, as well as businesses started by Japanese nationals in France. This is particularly marked since 2019, when the EU-Japan Economic Partnership agreement entered into force. Perhaps the “cars for cheese” deal encouraged Japanese nationals to set up food exporting businesses in France.

* Some notes on the Ministry of Foreign Affairs data: “Companies” include branches of the Japanese parent company, subsidiaries incorporated in Europe, branches of those subsidiaries, companies started overseas by Japanese nationals and joint ventures/investments of 10% or more equity stake. There is no detailed break down by type of organisation for 2018, when MoFA changed their methodology.

Pernille Rudlin gives evidence to the UK Trade and Business Commission on UK-Japan trade and business relationships

Pernille Rudlin gave evidence on the impact of the UK-Japan Comprehensive Economic Partnership agreement to the June 6th session of UK Trade and Business Commission.

It was interesting to discover that the trade statistics tracked by Dr Minako Morita-Jaeger, showing a decline in UK exports to Japan since around 2018, with particularly strong decline since 2020 in financial services match our observation that the number of people employed by Japanese companies in the UK has fallen, as have the numbers of Japanese companies and nationals in the UK from around the same time.

Japanese manufacturing in the UK – resilient, but not growing

Excluding automotive production, Japanese manufacturing operations in the UK have been relatively stable since 2015/6. Out of 200 or so companies, only a handful of companies have closed in the past five years, and much of this was to do with consolidating operations rather than withdrawing entirely from the UK. Many of the Japanese manufacturers date back to the 1970s, and the oldest established, YKK, has been manufacturing in the UK since 1966.

There have not been many new entrants either over the past five years – apart from Mechatronics (owned by JTEKT) and other “new” entrants which are the UK subsidiaries of American or Swiss operations acquired by Japanese companies such as Stolle (acquired by Toyo Seikan), Hitachi Energy (was ABB Power Grids) and Avista (acquired by Kurita)

M&A

Around two-thirds of the companies in this sector are the product of, or have conducted M&A in the UK. Japanese M&A activity across the UK and Europe has dwindled away in recent years, perhaps because of the difficulty of doing due diligence in a pandemic, or Brexit making acquisition of a UK manufacturing operation that may be part of an EU supply chain less attractive. There does not seem to be any particular trend to acquisitions in the UK, other than clusters of purchases in packaging, agrochemicals and food processing.

Notable recent acquisitions of UK companies include:

Hitachi Rail acquiring Perpetuum (2021)
Olympus acquiring medical device maker ARC Medical Design (2020)
Mitsubishi Heavy Industries acquiring the remaining stake in Primetals from Siemens, Hitachi and others (2019)
Sumitomo Heavy Industries acquiring Invertek Drives (2019)
Nippon Suisan acquiring Caistor Seafoods and Flatfish (2017-2019)
Rengo acquiring various packaging companies such as Tri-Wall and Welsh Boxes (2016-2020)
Agrovista (owned by Marubeni) acquiring various British agrochemical companies (2016-2019)
Sanwa acquiring Bolton Gate Services (2018)
Calbee acquiring Seabrook Crisps (2018)
Sansetsu (packaging) acquiring Truckwright (2018)
Sintokogio acquiring Omega (foundry machinery) (2018)
Konica Minolta acquiring Charterhouse and Indicia (printing) (2017-8)
Taiyo Nippon Sanso acquiring US company Praxair’s European gas business (2018)

Employment

Around 39,500 people were employed in the UK by non automotive Japanese manufacturers in 2015/6 and after a few years of growth to around 42,000, this fell to 39,167 in 2020/21. Judging by the results of the 60 or so companies who have reported for 2021/22, this downward trend is continuing. If automotive manufacturing employment is added back in, there were around 60,600 people employed in Japan-owned manufacturing in the UK in 2020/21, almost the same as were employed in 2015/6. As we explained elsewhere, this number is likely to fall in 2021/22 with the closure of Honda Swindon and other suppliers to Honda.

UK and Europe

How this compares with other European countries can be seen in the chart on the left – which shows the numbers of all manufacturing companies in Europe, including automotive. According to Toyo Keizai, the number of Japanese manufacturers in the UK dipped around 2017/8, but recovered, with another more recent fall. But there was growth overall since 2015/6, with 228 companies in 2021/2 compared to 215 in 2015/6 – a 6% increase. This is much lower than the overall 20% growth in Europe, and as a consequence the UK is no longer the largest host of Japanese manufacturers.

The number of Japanese manufacturers in Germany has grown 35%, and growth is continuing, widening the gap with the UK. France is a clear third, and is showing signs of growth tailing off. Netherlands, Turkey, Poland and Nordic countries are showing higher than average growth as hosts.

The growth of the number of Japanese manufacturing operations in Europe of 20% since 2015/6, from 1,147 to 1,381 companies was actually higher than the growth seen in Asia (7% to 9,047) or the USA (13% to 1,563). The number of Japanese manufacturing operations in Africa has grown 25% over the period – but from a much lower base of 57 to 71.

Japanese manufacturing in the UK “despite” Brexit has remained stable thanks to the resilience built up by those companies through being long established in the UK, benefitting from Japan HQ risk aversion and long term planning and having experienced, local management. These factors have not attracted the growth seen in other countries in Europe, however.

A directory of 205 Japan owned companies with production facilities in the UK, giving their full names, parent company, type of business and latest number of employees is available for £20 + VAT. Please contact us for an invoice and payment details via PayPal.

Category: Brexit