I have been visiting Ireland about once a year recently for business, but also for family reasons. The business side is to provide training for companies there that have been acquired by a Japanese company, or in one case, had acquired a company in Japan via its US parent.

My parents also now live in Ireland. After 25 years’ working in Japan, they initially retired to France but never felt completely at home there.  My stepfather’s father was Irish, so he has family in Ireland. It was also easy for my stepfather to get an Irish passport, as an insurance against Brexit so that he can continue to receive free healthcare and a state pension.  My mother has become Danish for the same reason – and was able to do so because her father was Danish.

They now live close to my cousins, near the city of Cork, which has become a hotspot for technology companies, particularly American ones.  Trend Micro and Alps have factories there, with the latter employing around 850 people making electronic components.

Cork also has a pharmaceuticals and biotech cluster, as does the capital of Ireland, Dublin, which is where Astellas and Takeda* have plants.  Astellas employs over 400 people manufacturing raw materials and immunosuppressants and Takeda employs around 300 people making cancer therapies and active ingredients for various drugs. Ireland is the biggest net exporter of pharmaceuticals to the EU.

Multinationals are attracted to Ireland because of the young, well-educated, English speaking workforce, and also the very low corporate tax rate of 12.5%.  

Aircraft leasing in particular has benefitted from Ireland’s low tax policies. Nine out of the ten top aircraft lessors are based in Ireland, and over half the world’s airplanes are owned and managed there.  Japanese companies such as Orix Aviation and SMBC Aviation Capital have substantial operations in Dublin.

Locating operations in Ireland purely for tax reasons may turn out to be unsustainable in the long term however, as the EU, the OECD and Japan are all taking steps towards international tax cooperation and clamping down on tax avoidance.

The other risk to consider is of course Brexit.  The UK forms a “land bridge” to the EU for Ireland. Around 85% of Ireland’s freight trade goes to British ports, and about 40% (around 190,000 freight containers a year) of that is re-exported to elsewhere in the EU.

Pharmaceuticals and electronic components are often shipped by air and various EU shipping companies have started up new routes connecting Ireland to the EU recently. So the main concern is any friction caused to trade that is only between the UK and Ireland.

This is partly why the land border between Northern Ireland and the Republic of Ireland has become the key issue for resolving Brexit.  But the most important concern has nothing to do with business – there are many more families like mine, living in both countries, who do not want to lose the peaceful coexistence that the open border has brought with it.

This article by Pernille Rudlin was originally published in Japanese in the Teikoku Databank News on November 13 2019

*Takeda acquired Shire for $62bn in 2019, who relocated their HQ from the UK to Ireland in 2008 for tax reason. Takeda is now liquidating Shire Holdings in Ireland and transferring the assets to Takeda Ireland, to make repatriation of dividends to Japan easier – presumably avoiding Japan’s tax haven laws.

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I occasionally buy objects in local antiques shops which are a hybrid of Japanese and British design and manufacturing. Most of these date from the late 19^th or early 20^th century when Japonaiserie was at its peak in Europe.

Last year I bought a milk jug decorated with a picture of Mount Fuji, junk boats and thatched houses on it. It’s a very simple traditional British shape and most of the decoration apart from the gold highlights are transfer printed rather than hand decorated.

What caught my eye most of all was that the jug had an unusual metal hinged lid. Inside the lid is stamped “Clarke’s Patented”. It seems the lid had a design patented in the UK by a Mr Clarke, to allow the jug to pour or be filled, while keeping the lid on.

It shows that even in the 19^th century, trade between Japan and the UK wasn’t just a bilateral shipping of objects entirely made and designed in one country. Maybe the mould for the jug was exported to Japan. Was the transfer print made and designed in Japan or the UK? Was the gold highlighting applied in Japan or the UK? Was the metal lid added after the jugs arrived in the UK? It’s possible the entire jug was designed and manufactured in the UK – but was heavily influenced by Japanese export ceramics.

This long history of interaction is why the Free Trade Agreement being negotiated between Japan and the UK is likely to be fairly basic and without much additional positive impact. A deal also needs to be reached quickly to ensure there are no new tariffs after January 1^st 2021 when the Brexit transition period ends. The sector likely to produce the most gains in terms of reducing tariffs is food and agriculture, which usually causes the most difficulties and prolongs trade negotiations – so it seems likely this part will not roll over from the EU Japan EPA for the time being.

The UK proposal reflects this, emphasising British small and medium enterprises exporting to Japan, access to Japanese government procurement and the free flow of data.

Government procurement can also be very controversial. Many people in the UK are nervous about a trade agreement with the USA resulting in American healthcare companies being able to push for the privatisation of the UK’s national health service. There is also plenty of concern about data flows and Chinese investment in UK ICT infrastructure.

The chief of the UN has said the world is facing the biggest crisis since World War II. For Japan and the UK the post-war period was one of austerity but also innovation. Companies such as Sony and Honda were founded in Japan and the UK established the welfare state – the nationalisation of the health service, transport and energy.

So let us hope this crisis will bring about mutually beneficial new Japan-UK partnerships in social infrastructure and services, as well as in technology start-ups.

This article was originally published in Japanese in the Teikoku News, on 8th July 2020.

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The wave of Japanese investment into UK after NSK’s first step in 1974, feared by many in the UK, did not happen immediately. Under the Labour government of 1974-79, there was double digit inflation, unemployment of over 1 million, the IMF bail out in 1976 and the Winter of Discontent, which may have been something of a disincentive to invest in the British economy. Although NSK did prove correct about a weak sterling, which at least ensured their British made exports were cheap.

Japanese concerns over Britain’s economic, political and social stability did not end with the advent of a Conservative government in 1979, however.  It took nearly 3 years of feasibility studies, Mrs Thatcher visiting Tokyo and a visit by Nissan to NSK in Peterlee for reassurance, from the first announcement in January 1981 to when agreement was reached that Nissan could go ahead with building its UK factory in Washington, Sunderland in 1983. There were also predictions by unions and other car manufacturers of “devastation” if Nissan in the UK was just an assembly operation using cheap Japanese components.

“Better for the British people to buy Japanese cars made by British workers than to buy German cars assembled by Turks”

The argument made by Norman Tebbitt, then Secretary of State for Employment in April 1981 that “surely it is better for the British people to buy Japanese cars made by British workers than to buy German cars assembled by Turks” had finally won through domestically, but Nissan had also had its own misgivings which caused the delay – both from its experience in Europe and pressures in Japan from its union.

Nissan had already dipped several toes into manufacturing in Europe. It took a stake in Moto Iberica, Spain‘s largest commercial vehicle manufacturer in 1980. The tractor division was spun off to form a new company, with Kubota taking a 55% stake and assuming managerial control. Nissan took a 67.67% stake in the rest of Motor Iberica, renaming it Nissan Motor Iberica in 1987. Manufacturing of vans and commercial vehicles continued at the plant through to the present – but not always profitably – and finally Nissan announced that it will be shut down in December 2021.

Nissan had also in 1980 started a joint venture with Alfa-Romeo, building a plant in Italy which started production in 1982, marketed as the Alfa Romeo Arna in Italy and Germany, and the Nissan Cherry Europe in the UK. However, this venture was not a success and production was suspended in 1986.

Nissan concluded an agreement with Volkswagen in 1987 to produce and market the Volkswagen Santana in Japan, hoping to counter criticism that the Japanese market was difficult to penetrate. Santana production was terminated in 1989, to be replaced by the Passat. Sales of imported Passats in Japan were so poor, however, Nissan cancelled the assembly agreement.

The 1984 Nissan deal

The Nissan union in Japan had been concerned that the size of the investment in the UK plant meant that funds would be diverted from investment in Japan, and there was no guarantee that the project would be successful. If it failed, it might even affect the security of employment within Japanese factories. Consequently, the scale of the investment was reduced from the initial announcement of a £200-£300 million investment to a two phase project, starting with a pilot plan of a £50 million investment to assemble 24,000 Bluebird cars from knockdown kits imported from Japan. This was justified as being needed to gain first-hand knowledge of operating and marketing in the UK and obtain information on local sourcing of components.

The second phase was to be a build up from 60% local sourcing to 80% by 1991, expanding to a 100,000 units per year capacity, 30-40% of which was to be exported to Continental Europe. The total cost was put at £350 million with the British governement expected to provide selective financial assistance up to 10% of the total investment.

Keeping to the deal in a Single Market

Production of the Bluebird began on schedule in 1986, and the second phase began in 1987. Initially the plant made low value added models with high value-added quality cars exported from Japan, but from 1990 the Primera hatchback was manufactured in Sunderland as the sole global production source, exported back to Japan and into Taiwan. The cost of the Nissan project had risen to about £900 million by the beginning of the 1990s and output rose to 124,000 units per year in 1991.

Whereas around 80% of the components of UK made cars were sourced in the UK when the 1984 Nissan deal was struck, by the 1990s and early 2000s the proportion had dropped to around 30-40%. Even UK components in turn contained components from elsewhere, as this comment from a supplier in the comments section of the Financial Times explains:

“We manufacture part of one component for the Nissan Qashqai. We purchase raw materials from Taiwan, we manufacture in the UK in a Japanese owned factory. Our customer is in Germany, where our product is bonded together with products from other countries. Our customer’s customer is in France, where the bonded component is integrated into a car component. The component is shipped to Sunderland and becomes a part of a “British” car.

How Mrs May and her merry band are going to sort this mess out is beyond me, and I suspect beyond them.

The development time lines for the most basic of automotive components is two to three years, which means that we are already “post Brexit” for new business development. How do I persuade customers to invest in new product development with us when nobody has a clue on what basis I might sell eventually sell my product to them, and given rules of origin, in some cases on what basis they might sell their product to their customer. We have good relationships with our customers, but at the end of the day they are running their business for their benefit and may well decide its just not worth the uncertainty and risk.”

Even if Nissan did not keep to the local sourcing part of the 1984 deal (presumably superseded by the European Single Market, so that local meant EU wide), they did expand production way beyond the 100,000 promised, peaking at 519,000 units produced in 2016/7. The 470 strong 1986 workforce grew to around  7,000 people by 2019, around 10% of whom were designers and engineers working in a design facility in Cranfield.

Nissan also exceeded its promise of exporting 30-40% of production to Continental Europe. By 2016 nearly 1/3 of UK car production was made by Nissan, 80% exported, 55% to the EU.

Nissan has tried to increase the proportion of locally made parts to 40% and even to 80%, to avoid tariffs and delays in the supply chain after Brexit, supported by a British government policy to reach 50%. It has encouraged suppliers to set up in a new industrial park in the North East  in order to do so, but our data does not show any move by Japanese suppliers to increase their UK presence.

In fact the shift seems to be more towards setting up additional factories in Continental Europe. Of the 29 new automotive manufacturing operations started in Europe in 2015-2018, according to the Teikoku Databank and our researches, 8 were in Germany, 4 in France, 4 in Slovakia, 3 in Spain, 3 in Italy, 3 in Hungary and 2 in the Czech Republic but none in the UK. For the first time there are now more Japanese automotive manufacturers in Germany than in the UK.

The 2016 Nissan deal – to Infiniti and beyond

Even if the long term solution to a hard Brexit is to increase the number of automotive suppliers in the UK, some short term shoring up had to be done to ensure that manufacturers didn’t conclude that the safest bet was to shift all supply chains and manufacturing to continental Europe.

Greg Clark, the former Business Secretary, revealed in 2019 that the content of  his letter to former Nissan CEO Carlos Ghosn in October 2016 included “a package of support in areas such as skills, R&D and innovation” which “could amount to additional support of up to £80m”. This was modified to £61m by 2018 due to reduced production costs. It was conditional upon Nissan continuing with plans to manufacture the new X-Trail and a new model Qashqai in the UK. Clark revealed the terms of the letter after Nissan announced that it had decided to manufacture the X-Trail in Japan in 2019, thus invalidating the deal.

There were rumours that the government would therefore pull the aid package, but Business Minister Richard Harrington said in 2019 that the deal would still stand, and be tied to electric vehicle development, which in Nissan’s case would be the LEAF, which only represents around 10% of its production in Sunderland.

Nissan announced in 2019 that it would no longer produce the Infiniti in Sunderland for Western Europe. It was supposed to start production of both the new Qashqai and X-Trail in Sunderland in 2019, then it said it would start the Qashqai production in October 2020, and then announced it will delay the start to mid 2021, due to the uncertainty caused by COVID-19, and – although it did not say this – by what kind of EU-UK deal there might be.  Nissan has already spent £400m readying Sunderland for the new Qashqai, supported by £11m from the UK government.

Nissan Next and the alliance

In May 2020 President Uchida Makoto announced Nissan Next, a a four year medium term plan, aiming to downsize and close plants such as Spain and Indonesia.  Nissan will focus on “our highly competitive midsize segment, electrification and driver assistance technology” and increase the ratio of common electric parts across the alliance of Mitsubishi, Renault and Nissan. Nissan is seeing the Ariya as its new big hope for electric vehicles after the Leaf. The Leaf was manufactured in Sunderland, whereas the Ariya is being manufactured in Japan.

The three companies also announced the plan for the alliance in May 2020, where each will take the lead in their main sales regions, the models and technologies under development.  Nissan is to take the lead as the “reference” for China, North America and Japan. Renault will be the reference for Europe, Russia, South America and North Africa and Mitsubishi in ASEAN and Oceania. Renault has already said it would be willing to manufacture Nissan cars in its European factories if needs be, and presumably if there is a no deal Brexit and/or lack of diagonal cumulation whereby Japanese parts are not accepted as “British” by the EU, then Renault can help out Nissan in terms of sourcing EU parts.

Clark’s 2016 letter promised to Ghosn it would “be a critical priority of our negotiation to support UK car manufacturers and ensure that their ability to export to and from the EU is not adversely affected by the UK’s future relationship with the EU”. Clark and Ghosn are both gone, so it’s unsurprising, 4 years’ on, Nissan feels the need for more reassurance that the UK government will keep to their side of the deal, whatever that turns out to be this time. If not, Renault is waiting in the wings.

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