“The UK referendum to leave EU is similar to Republican party in that it was a decision on emotional grounds”,says Atsushi Osanai, Professor at Waseda University, formerly of Sony, in a column for Diamond Online. The Republican party’s nomination shows how American society has become deformed, now superseded by Brexit. Other than self respect as the Great British Empire, it is hard to see how the decision has any merit, and instead beckons a world financial crisis, and destabilising the global economy.
Although most of the Japanese media has focused on what the effect on the Japanese economy might be, what is the real impact on Japanese companies? In Osanai’s opinion, although there will be short term impacts in terms of a high yen and weakening share prices, as it will take at least 2 years for the UK to leave the EU, the chaos will not last in the long term.
“In the immediate future, there will be a reduction in profits for Japanese exporters because of the higher yen and a reduction in in-bound tourism to Japan. On the other hand, Japanese outbound tourism will become cheaper, and it will be easier to afford Burberry. So long as it is only the UK that leaves the EU.”
One further possibility, is that unexpectedly drastic changes in the exchange rate and share prices might put the spotlight on Abenomics leading up to an election, but Osanai expects that the Japanese people will be reasonably objective in their assessment of this.
“Another not inconsiderable impact of Brexit is that the EU will lose around 10% of its funding and also that the UK may well cease to be a financial centre for the EU. There is also a possibility that Japanese car manufacturers and companies like Hitachi which have been expanding their rail business may find that their export hub to the rest of the European Union has been undermined.”
“This will depend on whether the UK and the EU can come to an agreement on tariffs. Of course for Japanese companies the ideal would be for export tariffs to be as low as possible. But Osanai thinks that in the long term, the EU should impose penalisingly high tariffs. As the world economy is stagnating, major countries are becoming more cautious and putting their own needs first, and it is of concern that a huge economic region like the EU might fragment, producing a situation like the eve of another world war.”
“So for Japanese companies, it’s not just a UK shock, but whether the EU as whole will be stable in the future. It’s not just about investment in one country, but whether to expand in the whole region.”
A benefit from the EU that the British themselves do not recognise
Osanai asks whether for Japanese companies the UK itself is that attractive, and replies “no”
“Europe itself is a large market, however there are several unaligned small-medium scale countries and at a country level, they are not that strong economically. The merit of the EU is that through a strong currency in the EU (which the UK is not part of), goods can flow freely and people can move freely, which stimulates regional trade and mobility of the labour force.”
“For 20th century UK, which had a stronger economy and manufacturing sector than even major European countries such as Germany and France, there might have been a reason for keeping the country more closed in terms of tariffs and immigration. If the UK as market was attractive, it would still be worth Japanese and other multinationals investing there.”
“However present day UK is not so attractive. Because it was in the EU, it had attraction as a gateway into the EU. And thanks to the free movement of people, it meant cheap labour could still be hired. Post Brexit, there will be high tariffs and high labour costs.”
“There are other countries in the EU who are starting to put their own country first and movements which want to leave. Because of this it is unlikely the EU will give the UK favourable terms to leave. Frankfurt could easily take over from London as the financial centre of the EU.”
“Non EU multinationals such as Japanese companies may find themselves being approached by France or Germany. In the second half of the 20th century, the UK was a leader in the EU, and as the English language was the world’s common tongue, it was an obvious place to have a subsidiary. However, Sony has recently moved its TV production from the UK to Spain and the Czech Republic.”
“Furthermore, the fact that the only countries that welcomed Brexit were Russia and China is very disturbing, says Osanai. China is increasing its investment in the UK, so perhaps it is hoping that after leaving the EU, the UK will come begging to it, increasing China’s sphere of influence.”
“And the UK itself may disintegrate into Scotland and Wales and Ireland.”
“The world needs to show the UK how little merit there is in leaving the EU, and the need to avoid the disintegration of the EU. For that reason, Japan should dump the UK.”
“Although we shouldn’t ignore China’s investment in the UK, the main rivals to Japan’s manufacturers are not in the UK but in Germany and France. So Japan’s manufacturers need to get over their UK shock and build a foundation for competing with EU countries for market share. There are two years of breathing space at least. Electronics and automotive manufacturers should start looking at the continent.”
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