Toyota‘s warnings at Davos that it was having to consider how to survive in the UK after Brexit were preceded by a very under-the-radar announcement that it would be making some redundancies at its Burnaston plant. It is a sign of what is to come for Japanese companies in the UK and our research (see below) shows that a rebalancing is already being undertaken by many. Whereas Japanese companies increased their employment across Europe, Middle East & Africa by nearly 10% from 2015 to 2016, UK employment levels remained unchanged.*
Toyota said that a reduction was necessary as the initial burst of production needed for new models introduced in 2015 is now stabilising. Indeed, Toyota’s total workforce in the UK had already fallen by 3.6% in 2015/6 and by 9% across Europe.
Now it is clear that the UK really will leave the Single Market and the Customs Union, where there are long term trends in place already, such as automation or phasing in and out of models, Brexit will provide the impetus to rebalance resources across Europe and beyond, to maintain integration in the Single Market or ease of serving other growth markets if Europe disintegrates further and/or growth slows. Hardline Brexiters, Trump and Putin may welcome the disintegration of regional arrangements, but multinationals are moving in the opposite direction, integrating their operations regionally and globally both in terms of supply chains and people.
Fujitsu already made similar move in announcing 1800 redundancies in the UK in October 2016 – part of 3300 job losses across Europe. It stated it was not related to the Brexit referendum result, but part of a longer term transformation programme – mainly to do with moving more of its IT services support to lower cost bases.
Our latest compilation of the Top 30 Japanese companies in Europe and the UK – now most annual reports for year ending March 2016 have been published – shows that this process had indeed started before the referendum. Fujitsu has reduced its workforce in the region it calls EMEIA (Europe, Middle East, India and Africa) by 3% from 2015/2016 and in the UK (in which it was possibly overweight anyway, thanks to the legacy of having acquired ICL) by far more – 15%.
Fujitsu is still the biggest Japanese employer in the UK, with over 10,000 employees, but if it dips much below 8000 as a result of the latest round of redundancies, then Nissan, currently with 7,657 employees, might well overtake it. Nissan’s UK workforce grew 2.9% in 2015/6 and actually shrank across Europe by 2% in the same period. Calsonic Kansei, one of Nissan’s key suppliers, also grew its workforce by 10% in the UK to 1,729. Presumably this will hold until the new Nissan models will come online in 2019 giving a year or two of high production and sales, until, well, see Toyota above. As previously posted, car manufacturers operate on the basis that a factory needs to serve a market of at least 100 million consumers in order to be sustainable. The EU qualifies, as does Russia – but the UK on its own does not.
Other big increases in the UK workforce were due to acquisitions – Mitsui Sumitomo & Aioi Nissay Dowa group acquiring Lloyds underwriters Amlin and Insure The Box, Softbank acquiring ARM and Dentsu Aegis acquiring various agencies in Europe and the US, absorbing their UK workforce with it. Organic growth highlights were Hitachi (18.8% up) – building on its Hitachi Rail acquisitions – soon to be employing 900 at its Newton Aycliffe plant, Ricoh (up 11% in the UK but only 1% in Europe) and Fast Retailing, expanding their Uniqlo and Comptoir des Cotonniers retail business, with 1100 employees, up from 700 the previous year.
However Hitachi expanded 70% across Europe, presumably due to the acquisition of Ansaldo rail businesses in Italy and NTT Data also expanded across Europe by 20% to 18,000 employees (NTT Data’s UK workforce is surprisingly small compared to Fujitsu, at around 450 as of 2015). Automotive supplier Yazaki grew by almost a quarter, to reach 45,200 – a large part of this being its manufacturing in Eastern Europe and North Africa – similar locations to the largest Japanese employer in Europe, Sumitomo Electric Wiring, whose workforce shrank slightly to 56,273.
What next for the UK and Japanese companies in Europe?
I would give up any hope of expanding automotive manufacturing in the UK. As outlined above, the shift eastwards in Europe, to Turkey and also to north Africa has already taken place. Which would seem to negate the need for suppliers to be in the Single Market, but note that the EU already has free trade deals with Egypt, Tunisia, Morocco and Algeria and Turkey is in a customs union with the EU. Yazaki (headquartered in Germany) and Sumitomo Electric Wiring (tripartite headquarters across Italy, UK and Germany) used to have manufacturing in the UK but are now largely focused on pre-sales engineering. Calsonic Kansei still has manufacturing in the UK, but has recently invested in plants in Spain and Russia where – not at all coincidentally – Nissan has factories.
The UK still has strength in the design side of the automotive engineering, and I wonder whether the UK government deal with Nissan didn’t have some kind of grant or tax break for supporting this, to cushion the blow to the manufacturing side from any tariffs. Although Nissan’s European headquarters are in Switzerland, there is a large design centre in the UK. Similarly Honda has an R&D operation as well as a Formula 1 team based in the UK.
80% of the UK economy is services, and we are a net exporter of services. Delivery of services requires you to be close to the customer. So what the UK needs to ensure is that the customers with the biggest budgets – the regional headquarters of multinationals, Japanese or otherwise – stay in the UK. Our professional services – not just finance but R&D, design, IT, consulting, accounting, legal, marketing – all thrive because they are supporting these regional headquarters. Lower taxes and deregulation might keep some headquarters happy, but ultimately they have to worry about their proximity to customers too. By leaving the European Union, the UK will be perceived as less close to EU customers (and also the regulatory environment). We have to hope that the positive, proactive “global” UK that Theresa May outlined in her recent speech really does come together, and deals are quickly negotiated with African and Middle Eastern countries, so that the UK can position itself as the EMEA (Europe, Middle East & Africa) regional headquarters of choice.
The UK is currently the regional base for over half of the top 30 Japanese companies in Europe or EMEA. Keeping it that way will also, as the Japanese government itself pointed out, need a free movement of people in the region and a liberal immigration policy. If this becomes an issue, which it already has of course, the other trend I have highlighted elsewhere, of an increasingly virtual structure, where regional management and functions are scattered around a region, will intensify and will be increasingly difficult to service from one location, particularly if that location is not part of the Single Market or immigration has become a sticking point in free trade agreements.
If this happens, then UK services companies are going to have to open more offices across the EMEA region and relocate their personnel accordingly – as various banks have already announced.
(*Percentages calculated only for those companies where annual report figures for the EMEA or Europe region and the UK were available.)
The Top 30 Japanese employers in Europe (showing changes 2014/5 to 2015/6 in total global employees, Japan based employees, EMEA based employees) and the Top 30 Japanese employers in the UK (showing changes 2014/5 to 2015/6 in total UK employees, regional HQ location, region covered, percentage UK of Europe and of global) are available to download, if you sign up for our free monthly newsletter:
Reports, profiles and other research on the Top 30 largest Japanese companies in Europe, Middle East and Africa are available to subscribers to our premium, paid newsletter – subscriptions are available here.
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