Brexit

Are Japanese companies leaving the UK because of Brexit?

I’m afraid the answer to this question is yes, and no. Bits of Japanese companies are leaving. What will be left in the long run is some kind of UK-based training ground for Japanese companies’ star recruits to learn global management, with a local sales workforce attached.

I’ve come back from a recent trip to Japan clutching the brand new Toyo Keizai directory of Japanese companies overseas, which provides the data to dig into this question more deeply. It provides some clues as to whether, for example, Honda ending production in Europe is in part due to the EU-Japan Economic Partnership Agreement reducing tariffs to zero on cars and car parts imported from Japan. If that was the case, there might be a general shift of automotive production away from the EU.

Asia is far more important to Japan than Europe

The number of Japanese companies overseas has increased 58% from 2008 to 2018, according to the Toyo Keizai data, to 31,574. The true number will be bigger, as I know from my researches into the UK, there are many Japanese companies that Toyo Keizai has not managed to track down, or who maybe just don’t respond to their surveys. 62% of Japanese companies overseas are in Asia (excluding Japan obviously), 15% in Europe, 14% in North America, 5% in Latin America, 2% in Oceania, 1% in Africa and 1% in the Middle East.

If you look at it by employee number, the proportion is roughly the same – 68% in Asia, 11% in Europe, 11.8% in North America, 6.6% in Latin America, 1.5% in Oceania, 0.7% in Africa, 0.4% in the Middle East. An obvious factor in why there are proportionately more employees to number of companies in Asia and Latin America is the greater number of manufacturing operations in those regions.

So already we see Europe represents 11-15% of the business of Japanese multinationals, and those companies are relatively less likely to be manufacturing operations than in Asia or Latin America.

The number of Japanese companies in Europe has increased 35% in ten years

Japanese companies have not been pulling out of Europe, however. There was a 35% increase in the number of companies in Europe 2008-2018, so not far off the average global increase of 37%. The biggest growth was in Latin America – 47%, then the Middle East (45%) and Africa (43%) – but from a small base. The number of companies in Asia grew 38% and only 30% in North America.

Growth in the number of Japanese companies overseas has been more muted in the past 4 years – a 7.9% increase 2015-2018. But the increase in the number of Japanese companies in Europe was above average – at 12.5%. The increases in companies in Asia (7.6%) and Latin America (5.6%) were below average – so there was a boom in Japanese investment in developing countries during the 2008-2014 period, but this died down in the past 4 years.

Japanese automotive manufacturers are not pulling out of Europe – quite the reverse

So how about investment in automotive manufacturing – the sector that has made the most noise in Brexit UK? The number of Japanese companies overseas in the “transportation machinery manufacturing” category that Toyo Keizai uses (which presumably corresponds to automotive manufacturing) rose 6% 2015-2018, so significantly slower growth than overall. Again, Europe showed above average growth of 13%, but only represents 10% of transportation machinery manufacturers overseas operations. Over 64% of automotive manufacturer sites are in ex-Japan Asia. So although Japanese automotive companies are not pulling out of Europe – rather the reverse – the major part of Japanese automotive investment is and continues to be in Asia. So no surprises really that Honda and others are choosing to focus on Asia for electric vehicle development – that is where the largest ecosystems and supply chains are based.

UK is still has the most automotive manufacturers in Europe, but is not getting any new investment

How about the UK in all of this? The UK had and continues to have the largest number of automotive related manufacturers in Europe, according to Toyo Keizai – 32 in 2015 (out of 192 in Europe) and 30 in 2018 (out of 217). I haven’t been able to identify both of the companies that have withdrawn from the UK, but one is almost certainly Keihin, 41% owned by Honda, who shut down production of vehicle engine management systems and climate control systems in the UK in 2014-5 and shifted production to the Czech Republic. The other might be more to do with renaming and consolidation rather than withdrawal of manufacturing.

Keihin’s move is clearly “pre-Brexit” but what is obvious is that the UK is not getting any new investment in the automotive sector since Brexit. Of the 29 new automotive manufacturing operations started in Europe in 2015-2018, 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. Germany, France and the Czech Republic are now not far behind the UK in the number of automotive production sites that they host.

So the idea that the zero tariffs on cars and car part imports from Japan which would eventually arise from the EU-Japan Economic Partnership has meant that it is no longer attractive to manufacture cars and car parts in the UK or the rest of the EU also does not seem to hold – yet. In fact I was surprised to see that Western Europe has held up well against the cheaper Eastern European countries.

UK employees of Japanese companies up 20% on 2015, mainly due to acquisitions

Generally, the number of Japanese companies in the UK is still rising – 972 in 2018 according to Toyo Keizai, 11.1% up on 2015. The other countries in the top 5 – Germany, Netherlands, France and Italy are all hosting more Japanese companies too, and the numbers have grown slightly faster than in the UK, by between 11.8% to 13.5% over the past 4 years.

Many of the new Japanese in companies in the UK over the past few years have been acquisitions in biotech/pharma, high tech, outsourcing/staffing, automotive services and new arrivals have been in fintech, or investment/holding companies.

So what about the companies that have said they are leaving the UK because of Brexit, such as Panasonic and Sony? Well, rather like Keihin, they are not actually leaving the UK, just moving some functions, in this case the regional headquarters functions rather than manufacturing, to the Netherlands or Germany. This kind of “leaving” – turning what were incorporated subsidiaries into branches, has emerged in other Japanese companies too, as one reaction to Brexit. Invoicing, tax on sales, royalties etc will all be taken care of by the regional headquarters, and the UK branch will be funded by management fees.

So although the numbers employed by Japanese companies in the UK continue to rise (by 20% since 2015), this is more the result of acquisition of existing staff, rather than the creation of large numbers of new jobs that greenfield manufacturing investment brings.

During my trip to Japan last week I met with Leo Lewis, Financial Times Tokyo Correspondent, and it is to him that I owe the insight that Japanese companies will never leave the UK completely, as it is too attractive an incentive to their highflyers, to be able to promise a couple of years early in their career to learn the ropes of global business in the UK. But bits will nonetheless leave, as the recent news about Nomura’s restructuring shows.

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The fourth industrial revolution should not be mercantilized

UK is the birthplace of innovation and will not sink, despite Brexit, says Toru Sugawara, the deputy editor of the Nikkei Business magazine – Japan’s equivalent of The Economist (only with more business, less economy).

He acknowledges that Brexit is casting a shadow on the world economy, and that the problems will not end just with an extension, as the negotiations will drag on, unless the result of the referendum is reversed.

He points to how employment remains buoyant in the UK, despite GDP growth being the lowest in 6 years, and says that this could be because immigration from the EU is decreasing – which was one of the reasons people voted to leave. He does not mention that net immigration has not dropped, as more people are coming from non-EU countries. So unless you believe that EU immigrants only have jobs which UK natives could do, and non-EU immigrants only do jobs that UK natives couldn’t do…

He believes the UK’s resilience derives from an inner strength which helped it to lead the industrial revolution as the “birthplace of innovation.” Because the UK has worldclass universities “UK research levels are extremely high. Even if they leave the EU, there are researchers who want to learn from the UK” – according to an engineer from a major Japanese electronics company.

The UK is similar to Japan, Sugawara notes, in that neither was able to match Silicon Valley in terms of being able to turn innovations into world changing businesses. He thinks the UK is changing, however, dating from when the British Business Bank launched in 2014, bringing together various funds for startups and small businesses and also the introduction of the regulatory sandbox, to allow new kinds of financial services to test their products.

Venture capital funding in the UK in 2018 was $7.9bn, double that of Germany or France (although what he doesn’t say is that this was down from a high of $8.1bn the previous year, and that Germany and France seem to be catching up) . Dr Yuri Okina of the Japan Research Institute points out that the UK’s strength is that as well as having the world’s financial centre, there is a rich source of accountants, lawyers, consultants and other specialists who support an ecosystem for new business.

If this network could be boosted further, then the UK could lead the 4th wave of the industrial revolution, asserts Sugawara. He warns that Japan, who puts its funds into propping up zombie companies, with regulatory systems that impede new industries from growing, will get left behind. “That’s the bigger worry” he concludes.

So he seems to be turning an encouraging pat on the back for the UK into a kick up the backside for Japan. What he says is not going to be news to many Japanese companies, who have reacted to the difficulties they face in Japan by investing in the UK (and elsewhere in Europe). Sugawara mentions SoftBank‘s acquisition of the UK’s ARM, but there have been plenty of other less spectacular investments. Much of it has to do with CASE (Connected, Autonomous, Shared, Electric) in the automotive industry – Sony Innovation has invested in What3Words (a geocoding system) – also invested in by Daimler. Itochu has invested in Hiyacar and I realise now that its acquisition of UK car repair chain KwikFit probably also fits into this automotive services play. Similarly Sumitomo Corporation has invested in the Nordic parking company Q-Park and Sweden’s car sharing service Aimo. Japan’s Park24 acquiring National Car Parks in the UK is probably also looking to a CASE future. Panasonic acquired Spanish automotive systems and parts company Ficosa in 2017.

So really, it’s not about any one country leading the fourth industrial revolution – it will be collaborative and global by its very nature. Both Japan and the UK need to keep their doors as wide open as possible to let everyone get on the ride.

Five elements of building trust between Japanese and European business cultures

If I were to capture what I try to do in my work in one phrase, it would be “build trust between Japanese and European business cultures.” This of course leads to questions of how trust is defined, and therefore how it is built.

The title of my new book, Shinrai, is the Japanese word for “trust”. It is composed of two characters, shin, meaning “believe”, and rai, which means “to request”. In other words, if you trust someone, you believe they will do what you request. The character for shin can be broken down further into components which mean “person” and “word” and the character for rai can be broken down into “bundle” and “leaves or pages”. It implies communication between people is a fundamental part of building trust, but also getting things done and pulling together.

Analysing the work I have done with clients over the past fifteen years, I would say there are five components of building trust in multinational companies. In sequential order they are communication, mutual interests, processes and regulations, reliability and accountability and vision and values – and then back to communication again in a virtuous circle.

1. Communication

Having a common language is critical – this is why any initiative to help immigrants integrate into a society usually starts with language lessons. The problem for Japan is that for native speakers of European languages, Japanese is one of the most difficult languages to learn and Japanese feel similarly about English. Japanese companies can do more to help Westerners learn Japanese – an intensive course in Japan is one of the most effective ways to do this. Japanese companies can also communicate better than they do in English – it’s not enough to make English the common language or force a minimum English level on employees, management needs to communicate vision, strategy and plans in English more effectively than it currently does.

2. Mutual interests

The Economic Partnership Agreement between Japan and the EU is a classic example of common interests helping to build trust. People have differing degrees of interests, but finding mutual interests means that there is a stable basis for negotiation. Japan wants to sell more cars in Europe, European consumers are happy to have cheaper, good quality Japanese cars. Europe wants to sell more food and drink to Japan, Japanese consumers are happy to have cheaper, good quality European wine and cheese. On a micro level, this is why I always encourage Japanese expatriates in Europe to engage in small talk with their European colleagues – it’s a way of discovering mutual interests, which means mutual understanding, compromises and agreements are more easily gained.

3. Processes and regulations

Once you have discovered your mutual interests, you can come to an agreement, but it needs mutually recognised standards to work well. What are the quality and safety standards expected of a car, or a cheese in your respective countries?

When there is a low level of trust, laws, regulations and processes are needed as a fall back. However, both Japanese companies and the European Union are sometimes guilty of becoming bogged down in bureaucracy and process. You have to show you are obeying regulations and following processes in order to be trusted, but ultimately, this is not sufficient. How you do something in terms of your intentions and behaviour towards others is as important as carrying out the process correctly and obeying the law.

4. Reliability & accountability

When you trust someone, it is not only because you believe they will obey the law, but also that they will do what they say they will do. For Japanese companies, this can be hard to define, as the culture is often a family style one, where everyone’s roles are vague, with no job descriptions and rely on a seniority-based hierarchy. It’s assumed everyone will do whatever necessary, in the best interests of the family. Rules can be bent for family members but this vagueness does not work well in more diverse organisations.

The current fight between Carlos Ghosn and Nissan is focused on processes and regulations. Nissan will try to prove Ghosn flouted Japanese law, but will have to answer questions about its own internal rules. Ghosn will try to prove that he followed both internal and external regulations. But what really seems to be at stake is a loss of mutual trust between Saikawa and other Japanese executives and Ghosn. If you are an insider in a Japanese company, you are trusted as a family member to act in the best interests of the family, and rules can be bent accordingly. But once you are seen as an outsider and acting in your own interests, possibly harming the company, then the rules are applied rigidly – just as the UK is finding out as it negotiates to leave the EU.

5. Vision & Values

This is why you need a clear vision of where the company is going and how you want it to be seen. The vision and values have to be discussed with and shared with employees so they feel they belong. The values will guide them as to how they should behave in order to achieve that vision. If the vision is simply to hit various targets, within the boundaries of rigid rules and processes, without employees engaged with the company values, then the kinds of corporate scandals we have seen in both Japanese and European companies will continue, with catastrophic consequences for trust across societies and cultures.

This article is in the introduction of “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” by Pernille Rudlin, available on Amazon as a paperback and ebook.

Forth Bridge Brexit

The British have a saying for when a job is never finished – “painting the Forth Bridge”. The Forth Bridge is a nineteenth century railway bridge, nearly 2.5km long, near Edinburgh. It has a very distinctive cantilevered design, painted in red. Supposedly when you have finished repainting it, it is time to start again at the other end.

Brexit looks like a Forth Bridge for UK based businesses – just when you think you have made preparations for whatever deal is done, a fresh round of negotiations and possible outcomes appear.

My database of all the Japanese companies in the UK is another Forth Bridge. Every time I think I have the definitive picture, I find more data to add. There is a free online government database, Companies House, to which all companies incorporated in the UK must submit their annual reports. If they are above a certain size, they must also give an account of the risks they face and what they are doing to mitigate them.

By reading these reports, I can cross check other records of employee numbers, turnover and capital. I can therefore say with some confidence that there are over 1000 Japan originated entities in the UK (including branches) and they employ over 160,000 people, with total turnover of around £100bn. I can also see what steps Japanese companies have taken to prepare for Brexit.

Much of this has been in the news already. Those companies who are physically moving products – whether in the automotive supply chain, or pharmaceuticals or electronics – have stockpiled, expanded their warehousing and reviewed their logistics. Those companies who are in regulated sectors such as finance or pharmaceuticals have strengthened their EU bases and made the necessary applications to EU authorities for approval for their services or products.

There have also been structural changes. Plenty of the larger Japanese companies were already in a holding company structure across Europe, with holding companies mostly in the UK, Netherlands or Germany. Electronics and trading companies are turning their UK companies into branches of EU holding companies, or turning their UK companies into “commission agents” so that the principal in a sales contract is in the EU. Some have reduced the capital they have in the UK.

This has not caused an immediate or dramatic negative impact on jobs, but in the long run I worry about the loss of influence and budget that this may have for UK business.

The mood at the Japanese Chamber of Commerce & Industry in the UK’s New Year party was very positive, however. The message of the speeches was that Japan and the UK have so many common interests, they need to stick together. Membership of the Chamber is at a record high as new Japanese companies continue to invest in the UK, largely in domestic oriented businesses such as food, retail or public sector outsourcing, symbolised by the stunning flower arrangement provided by Aoyama Flower Market, who opened their first UK branch in London in 2018.

This article was originally published in Japanese in the Teikoku Databank News. It can also be found in “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

Service sector dominates Japanese investments in the UK

Although most people think of car manufacturers such as Nissan, Honda and Toyota when they think of Japanese investment in the UK, our Top 30 Japanese employers in the UK very much reflects the way the UK economy itself has shifted from manufacturing to services.

The three car groups are still in the Top 30 – in the Top 10 in fact – employing over 18,000 people – although many hundreds of them are not actually working on the factory floor, and are design engineers or in sales and marketing.

There are over 200 companies in the Top 30 employers (each consolidated group is counted as one employer) and 15-20% are manufacturers. They employ over 33,000 (36%) of the 92,000 or so people employed by the Top 30. This reflects why countries want to retain manufacturing – manufacturers are relatively larger employers, providing decent jobs in often deprived areas, creating a ripple effect of suppliers and further jobs.

Comparing these numbers with Roger Strange’s 1991 figures given in his “Japanese Manufacturing Investment in Europe” shows that while Nissan has grown from 2,500 employees to over 8,000, Honda from 400 to over 7,000 and Toyota from 1,900 to over 3,000, some have shrunk. Sony used to employ 1,800 in Pencoed, making TVs – it is now a technical centre manufacturing high end audio visual products and employing around 500-600 people

Other companies have changed their product mix – Hitachi used to employ around 1,000 people in Aberdare, making TVs, video recorders and microwave ovens and another 500 at Maxell in Telford making audio tapes and floppy disks. Now most of its manufacturing employees are working at Hitachi Rail and there are around 85 employees at Maxell, making plastic moulded products for the food, pharmaceutical and automotive industries and another 100 or so in Horwich making engine control systems.

Some have stayed the same – Ricoh had 650 employees in Telford in 1991 making fax machines and photocopiers, and still has 650 employees there 27 years’ on, making printing devices.

Brother is in the Top 30 not because it grew its manufacturing operations in Wrexham (in fact there are only 164 people there compared to 634 in 1991) but through the other big Japan-UK investment story – acquisition. It now owns Domino Printing Sciences, who develop and manufacture printing systems in Cambridge.

Also growing through acquisition is NEC. A couple of years’ ago it seemed like it was fading out of the UK and focusing on developing markets. It was no longer manufacturing – for obvious reasons – video recorders, car telephones, TVs and faxes in Telford. But in 2018 it acquired Northgate Public Services and through its acquisition of JAE in Japan, their UK operation and now it has over 2000 employees in the UK. Other big acquisitions have been SoftBank acquiring ARM, Dentsu acquiring multiple marketing agencies, Sumitomo Rubber acquiring tyre dealer Micheldever and Outsourcing acquiring various recruitment and debt collection agencies. The reason Fujitsu is still at the top of the ranking – just – dates back to its acquisition of ICL in 1990. All, notably, service sector companies.

A final thought on the current hot Brexit topic of location of regional HQ. It’s becoming increasingly difficult to identify one country location as the sole European headquarters – I’ve left the HQ column in the chart below, largely on the basis of where the historic HQ was and where most of the key regional people are based – but many companies are moving to a more virtual, dispersed structure, with Brexit and Japanese tax haven laws providing added incentive to do so.

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How will Hitachi weather the storms of Brexit and industry turmoil, not just in nuclear energy but also rail?

The Japanese business media is asking the question I’ve been wondering about too – what might the impact be on Hitachi Rail’s global HQ in the UK, now that Hitachi have shown they can take the tough decision to suspend their Wylfa nuclear power project, amid the continuing uncertainty of how Brexit will play out?

Toyo Keizai’s Naoki Osaka details the history of how Hitachi’s first step into the UK rail market was as a preferred bidder for the UK HS1 in 2004, supplying 174 carriages, which were built in Japan. Hitachi then won the IEP bid in 2012, for 866 carriages and a contract for First Great Western. They then invested £82m in the Newton Aycliffe factory i 2015, which is now making around 40 carriages a month for IEP and Abellio Scotrail. Not all parts are made in the UK. The 700 employees mostly do not have any rail manufacturing experience but are learning fast, according to Osaka. The 25 expatriate Japanese have been reduced to 6. Including the maintenance operations, there are now 7 sites in the UK, expecting to expand to 13 by 2020, employing around 2000 people.

Osaka was told when he visited the factory last December that there were plenty of future projects to bid for, so no worries for the future. However Diamond magazine says their Hitachi contact told them that since Hitachi lost the London deep tube bid last year and also lost their attempt to overturn the decision, they only have an order book through to the end of 2019, and no orders beyond that, as yet. Diamond describes the formerly warm relationship between Hitachi and the UK government as “frosty” as a result of both this and the failure of the government and Hitachi to agree on how to move forward on the finances for the Wylfa nuclear power project.

If there is a no deal Brexit, customs inspections will be significant for carriage manufacturing, says Osaka. 70% of the parts are made within 40 miles of the factory. So although there are fewer logistical concerns, there will be plenty of issues around rules of origin that are likely to cause supply chain problems for suppliers to Hitachi.

Furthermore, the Italian factory which Hitachi acquired in 2015 is improving productivity beyond expectations and will no doubt play an important role in developing Hitachi’s rail business in Continental Europe.

Hitachi is also keeping an eye on the Siemens/Alstom rail business merger. It may well be blocked by the EU, and as Alistair Dormer, CEO of Hitachi Rail predicted, Alstom is offering to sell of some of its businesses to avoid this, for which Hitachi could be a buyer. Hitachi was hoping to become one of the Big Three of the global rail business, with a target of Y1trn turnover – Siemens and Alstom’s merger will produce a Y2trn business. Now it has turned its back on nuclear business, can Hitachi become a global player in the rail business, in the face of storms caused by Brexit and industry restructuring?

The skills shortage in Europe

Seven in ten British employers have been having difficulties in filling vacancies, and 40% say it has become harder over the past year to find the staff they need, according to a 2018 survey of 1000 companies by the Chartered Institute of Personnel Development and Adecco, a staffing company.

The situation has been exacerbated by Brexit. The numbers of workers born abroad in Britain fell by 58,000 year on year, whereas it had increased 263,000 over the previous 12-month period. This was mainly due to a drop in the number of workers coming to the UK from the EU.

It’s not just a UK problem, however. According to a JETRO survey at the end of 2017, “securing human resources” was the number one operational challenge for Japanese companies in Europe. This includes Germany, the Netherlands and even Central and Eastern European countries such as Hungary and the Czech Republic.

So how can Japanese companies compete with local employers chasing the same skilled workforce?

I like to use a model developed by Fons Trompenaars and Charles Hampden-Turner to explain to Japanese companies where they can win as an employee brand.[1] It’s a matrix, based on degree of hierarchy and degree of task versus relationship orientation, resulting in four corporate cultures – the Guided Missile, The Eiffel Tower, the Incubator and the Family.

Guided Missiles are typical American, sales-oriented organisations where the employees are motivated by targets, achievement and reward.

The Eiffel Tower organisation is more hierarchical, focused on structure. People are motivated by their status in the organisational hierarchy and promises of promotion.

Many people in Europe are used to the Eiffel Tower style of company and when they join a Japanese company, they are concerned by the lack of defined paths to progress their career and also an absence of clear, strategic direction.

Other Europeans, particularly in the R&D, creative, IT, design engineering sectors, are more used to the Incubator type of company. Here the main motivation is not money or status, but rather developing and using one’s skills to innovate.

Most Japanese companies belong to the Family style company. Employees want to contribute to the longevity and good reputation of the family, as a respected family member. It is difficult for Family style companies to motivate employees with money or status, as these are dependent on seniority, rather than performance.

Japanese companies in Europe have a reputation for good benefits, but only average pay. There is also a sense that there is a limit to how far you can be promoted if you are not Japanese, in other words, a family member.

Japanese companies are appealing to Europeans because they are “different” and “interesting” and also because they are seen as good corporate citizens. But Europeans also need to be made to feel it is possible to become a family member, by helping them understand the company’s vision and values – including through secondments to Japan headquarters – if you want to retain them.

[1]Riding the Waves of Culture: Understanding Cultural Diversity in Business, Fons Trompenaars & Charles Hampden Turner, (Nicholas Brearley: 2003), 159

The original version of this article can be found in “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

Some Japanese companies in the UK see Brexit as a business opportunity

In an article for the Teikoku Databank News in October 2016, I wrote about how Japanese business people in the UK were surprised that many British people’s reaction to Brexit was to try to be positive and seek out new business opportunities – I particularly pointed to Africa and the Middle East, infrastructure projects in the UK and M&A in the UK.

Now Nikkei Business magazine also has an article on Japanese companies in the UK that have indeed seen there are business opportunities in Brexit.

First up is NTT Data, who expect that clients will be looking to introduce new IT systems as a result of Brexit. For example, to cope with any new tariff and customs checks, goods might need IC tags. Also, there will be more need to check the work permits of EU citizens in the UK.

NTT Data has added over 200 IT consultants and digital design specialists in the past year, to its existing 700 staff and expects to add another 100 this year. It also acquired UK software development MagenTys company in May 2018 and opened up a design studio in London aimed at collaboration with start-up companies.

Brexit may also mean that the UK’s distribution system needs to adapt – there will be more need for warehousing and holding zones. The Japanese logistics company Nippon Express is therefore looking at strengthening its warehousing business. “We get a lot of enquiries for warehousing, so we want to be ready for any needs arising from Brexit”, says UK MD Toshinori Sakai.

Japanese security company SECOM is also expecting there to be greater needs for security systems arising from Brexit. Up until now security companies had been able to rely on hiring low wage immigrant security guards but if immigration is cut back then there will be greater need for SECOM’s security cameras and other automation, to replace those guards. SECOM’s UK MD, Minoru Takezawa predicts that the cost of providing security will rise as a consequence of cutting off the supply of cheap labour, so technology-based solutions will become more competitive.

SECOM started a new service in 2017 alerting retail chains when people with criminal records are entering their outlets. They have increased the staffing of their monitoring centre from 40 to 100 and acquired a Northern Ireland headquartered Scan Alarms & Security Systems in March 2017.

Nikkei Business acknowledges that many of Japan’s manufacturers – particularly in the automotive sector – are preparing for the worst, in terms of Brexit related disruption. But many multinationals in the IT sector, such as Google and Apple, have invested further in London, Cambridge and Oxford, in pursuit of a high skilled workforce and overall Japanese investment into the UK continues to increase in 2016 and 2017, and not just because of SoftBank acquiring ARM in 2016.

Law firm Ashurst’s Hiroyuki Iwamura points out that the UK is a pivot to global markets, particularly to the US. Theresa May is showing particular consideration for Japanese businesses – If they worry too much about the negative impact of Brexit, they may miss some good business chances, Nikkei Business London bureau chief Takahiro Onishi concludes.

If you would like to purchase a detailed list (address, company size etc) of acquisitions made by Japanese companies in the UK in 2016 (24 companies), 2017 (21 companies), 2018 (8 so far), please contact Pernille Rudlin (pernillerudlinrudlinconsultingcom)

Brexit brings turning point for Japanese automotive suppliers in the UK

“We don’t have any room to store increased stocks” says Hiroshi Seko, the UK MD of G-TEKT, a Japanese automotive supplier. According to the Nikkei newspaper, BMW have asked the automotive body work supplier stock 3 months’ worth of supplies for the Mini because of concerns about the impact of Brexit on supply chains, when normally they only hold around a week’s worth. G-TEKT imports 60% of the raw materials from France but does not actually have anywhere in their factories’ grounds to store these raw materials.

G-TEKT has just started up its fourth factory in the UK (2 in Gloucester, 2 in Wales), to supply Jaguar Land Rover and Toyota. It has increased employees from 568 to 808 over the past 3 years but is struggling to hire all it needs, particularly from continental EU, because of Brexit.

UK sales represent around 7% of G-TEKT’s global turnover, most of its sales in Europe. It has also just started to build a factory in Slovakia, again to supply JLR, from 2019.

Similarly, Takayuki Furuuchi the UK MD of Japanese automotive supplier Faltec, whose only production in Europe is their factory in Sunderland to supply Nissan, is also wondering if current lead times are sustainable. Faltec imports more than half of its metal materials from outside the UK and is worried that with a no deal Brexit, ithere will be difficulties in the logistics of supply of stainless steel from France and other EU supplier countries. These supply trucks pass through the Channel Tunnel to Dover. The Dover port authority estimates that a two minute inspection time would lead to a 27 mile tail back of traffic.

Faltec currently has a 2 day lead time from when Nissan orders the parts to when they expect delivery. Faltec is wondering whether it needs to adjust its procurement, but it has taken many years to build up a supply chain which meets car manufacturers’ rigorous standards and it will likely take a long time to make any changes to this.

According to a Japanese automotive supplier executive, “if there are logistical hold ups, then suppliers will just have to hold more stock”. Faltec is currently investigating holding stock at its own risk and whether there are any warehouses available nearby.

Nissan is starting production of its next generation SUV Qashqai for the European market from 2020. Expecting that suppliers will be expanding production as a consequence, the local authorities have given the go ahead for a new industrial park near the Nissan factory in Sunderland. But if chaos after Brexit affects the supply chain, there will be an impact on companies’ European strategy. Both Faltec and G-TEKT have been successfully expanding in the UK for over 20 years – Faltec increased employee numbers over the past few years in the UK, from 341 to 396. With UK sales at around 6-7% of turnover for both companies, they are not facing a huge hit on a global scale from Brexit, but as suppliers, they have to accommodate whatever car manufacturers request.

“It has been 40 years since Japan’s automotive industry first set up shop in the UK. The British automotive industry is facing a turning point, not just for car manufacturers but for parts suppliers who have invested so much time and money into the UK”, concludes the Nikkei.

“We will stick with the UK as a global supply base, despite Brexit” says Honda President

“Europe is the heart of global car culture” says Takahiro Hachigo, Honda’s President since 2015. Although Honda has less than 1% market share in Europe, it competes with European car brands in its main markets of the USA and China. The UK factory has been streamlined, and production lines consolidated as a global production centre, exporting Civics to Europe and the USA. Hachigo says that they are therefore committed to the Swindon factory as a global supply base, regardless of Brexit. “If there is a no deal Brexit, there will be temporary disruption, so I am very much hoping that this disruption will be avoided and outstanding issues resolved”, says Hachigo.

However, as the Nikkei points out in their interview with Hachigo, if there is a no deal Brexit, without a transition period to 2020, Honda’s exports to Europe will be affected immediately and supply chain issues may make it difficult to export so easily to the USA too.

Honda has committed to a 30 year plan with a goal of “pursuit of quality” – to develop cars that will still sell at a high price, in an age of car sharing and electric vehicles. Hachigo also seems very keen in the interview to keep participating in Formula 1 (another UK strength). UK has that “luxury car maker” image, with Rolls Royce and Bentley, so it is understandable that Honda still wants to keep a base there, but as the Nikkei says “difficult management decisions will be needed in the future” to realise this strategy. I also wonder whether Honda’s current brand image, in Europe at least, really is convincing as a luxury, higher price positioning.

Category: Brexit