Japanese Automotive Investment in Europe

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Some thoughts on the post-1990 history of Japanese automotive investment in Europe.

Some thoughts on the post-1990 history of Japanese automotive investment in Europe.

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  • 1. Louis Turner, Asia-Pacific Technology Network T to Centre for International Business at Leeds alk University 12 Nov 2008
  • 2. Probably not your typical lecture Relatively impressionistic Few statistics Political economy as well as strategy Long-time Japan watcher Researching a history of recent (1990+) Japanese investment in the UK Today, Reflecting on the Japanese penetration of European auto market Using it as a Rorschach Blob: what patterns do I take away?
  • 3. Centrality of Japanese Autos With imminent bankruptcy/ restructuring of GM, Ford, Chrysler It s fair to argue centre of gravity moving from Detroit to Tokyo T oyota taking over as #1, leading a Japanese Automotive Complex Supported by range companies Supported by range of of companies OEMs + suppliers All technically savvy, pretty lean, and financially reasonably sound As latecomers, they have had the freedom to invest where they choose And have resources and momentum to exploit emerging opportunities Japanese Autos as the Canaries in the Globalisation Mine They can respond to the logic of globalisation with the least financial and historic baggage
  • 4. Bremen Workshop Corporate S trategies in the New Asia Peter gave paper on The Global Factory Global network of companies bound into a controlling system, described as a Global Factory Factory Faith Hatani did paper on Toyota s relations with its affiliated suppliers Message was that Toyota was strengthening its influence over them Workshop participants were puzzled puzzled Did Toyota actually fit into this emerging model of a global network of firms, the Component activities of which are controlled by an impersonal system described as a Global Factory? described as a Global Factory? In Autos, wasn t Toyota still very much the guiding force behind a set of industry relationships only marginally more de-integrated than the American- dominated system of recent decades? Watching the Japanese penetrating the European Auto scene might allow allow some insights into what s at work
  • 5. Nice start point Bubble economy was to burst during the year Mrs Thatcher was forced to resign T Japanese regret o Berlin Wall was breached in late 1989 EU s 1992 market opening just round the corner MIT study, The Machine that Changed the World (Womack et al) coincidentally published
  • 6. UK first main beneficiary of Japan s auto investment Nissan had plant from 1986 (plus one in Spain) T post NMMUK went to a Brit (Ian Gibson) op Honda had alliance with Rover Planned a plant in 1992 Toyota also planned to open its first European plant in the UK in 1992
  • 7. Auto trade and investment still politicised VER (Voluntary Export Restraint) diplomacy would continue through the mid-1990s British, Germans and Dutch had reputation of being relaxed Italy and France led the anti-Japanese camp Japanese slightly worried by Germany Unwilling to antagonise VW by penetrating East Germany too aggressively Would the world accept a renewed Japan-Germany axis? Daimler-Benz talks with Mitsubishi Heavy in 1990 Electronics, autos, aerospace All aware of Europe s 1992 process Completion of single market
  • 8. Toyota Toyota moving into Turkey through a joint venture (to produce in 1993) Mitsui Bank set this up Negotiating a jv in Czechoslovakia (to use US-sourced components) C.Itoh set this up Suzuki moving into Hungary Pioneering investment involving IFC Negotiations started 1985 started 1985 Mitsubishi Motors enters jv with Volvo Mazda Ford agreement Re 1992 joint production in a Ford German plant Component Suppliers just starting to come in as well In logistics, NYK (shipping) did deals in Norway (car carrier) and Netherlands (distribution company) Steel producers investigating deals with European producers Heavily political Fanuc to open plant in Luxembourg (1991)
  • 9. Politics now out of the Euro-Japan auto debates JAMA now making voluntary commitments about average CO2 emissions UK barely mentioned in Japanese press Though Nissan and Toyota both announce new models for UK Nippon Sheet Glass acquires Pilkington (2006) In some areas, UK looks weak Location of T oyota and Honda plants ...... But Nissan s location looking strong
  • 10. 3) Sunderland Plant Today NMUK Main European Export Destinations & Routes Russia UK Vessels to Hanko (Finland) Port of Tyne is main port of Trucked to Moscow / St. loading for NMUK export Petersburg Hanko Gothenburg vehicles Nissan Nordic (NNE) Vessels to Gothenburg Newcastle Onward delivery to Denmark, Norway, Finland and Sweden. Emden France Vessels to Le Havre Amsterdam Germany Two points of entry for German units Emden Le Havre Amsterdam Ukraine: Vessels to Emden Carimate Spain Rail to Malaszewicze (Poland) Two points of entry Trucked to Ukraine. Santander Santander Livorno Barcelona Other Major Destinations Cyprus Other main export markets Turkey Gulf Coast Countries include Gulf countries, Australia, Barcelona French Overseas territories South Africa, New Zealand Australia Mexico New Zealand Total 45 markets worldwide Chile South Africa Greece
  • 11. Belgium: European HQ (1990) Belgium: European HQ (1990) 1645 people (mostly European) UK Burnaston (1992) Avensis (Upper Medium): 156,137 Corolla hatchback (Lower Medium): 108,195 (Corolla is the World s leading auto model) UK - Deeside (engines/transmissions) (1992) 186,000 fully assembled engines and 159,000 engine sets for export and local assembly at plants around the world (2008 figures) Turkey (1993) (1993) Corolla sedan, station wagon and Verso (Medium mini-van): 158,567
  • 12. France Valenciennes (2001) Yaris (small car): 180,595 + Design Centre (Sofia Antipolis) 24 hour per day operation (~2008) Czech Republic (2005) Jv with PSA Toyota Aygo (mini-car) 34,598 + Citroen C1 and Peugeot 107 minicars Poland 2005 Engines (diesel) Engines (diesel) Russia St Petersburg (2007) Initially 20,000
  • 13. Statement that they now have enough European plants for needs Statement that they now have enough European plants for their their needs (2007) ideal mix of production (2007 statement) 75% (locally produced) 25% (imports) Imports Lexus, Prius, SUVs, light commercial vans Global Link philosophy aim is to keep plants in Canada, Europe and the US at stable production levels, absorbing eventual changes of production volume by transferring workers eventual changes of production volume by transferring workers between three T oyota plants in Japan Mother Plant system Toyota designates a mother plant in Japan for every overseas plant. Toyota designates a mother plant in Japan for every overseas plant. UsuallyUsually the mother plant builds vehicles on the same platform as the overseas factory, allowing the overseas plants to turn to the Mother Plant experts for advice and guidance during their launch and when problems arise later. their launch and when problems arise later.
  • 14. Building serious positions in the BRICs India of most relevance to Europe? 2nd plant due in Bangalore (2010) Also, emphasis on low carbon, small cars Europe seen as a policy leader in terms of auto policy Emphasis on small cars perhaps playing on strengths of the French subsidiary
  • 15. The Transplant issue seems to have gone away Initial British policy of welcoming, but insisting on 60% local content seems to have worked European Trade Commissioner in mid-1990s (Leon Brittan) was sensitive No fixed targets, but both sides to work on the barriers set up by the Keiretsu system recognising the cultural issues Around 2000, the British ran into Japanese flak for not entering the Euro Honda particularly vocal Honda particularly vocal Slowly defused: official advice on currency hedging + Sterling/ Euro balance became more bearable But this strengthening of Sterling probably fuelled growing interest in strengthening of Sterling probably fuelled growing interest in Central and Eastern Europe (CEE) Some serious electronic relocation during this period involving plant closures in UK (and elsewhere?) elsewhere?) Automotive response was more measured?
  • 16. Honda Rover 1979 broad alliance with (then) British Leyland 1983 Joint Development Project Honda Legend/Rover 800 series Honda Legend/Rover 800 series Honda picks up 20% equity stake in Rover 1992 - Honda of the U.K. Mfg. Ltd. (HUM) Swindon Factory Rover has 20% stake 1994 British Aerospace sells its 80% of Rover to BMW Honda s position on the Rover sale? Anger Anger Did not respond to Bae s offer Perhaps financial constraints (Honda sales were dropping at this point) Perhaps unwilling to take a complex decision at the necessary Anglo-American speed Turned down BMW s offer of a continued relationship Took full control of Swindon plant
  • 17. DaimlerChrysler & Mitsubishi Motors Chrysler had stake in MM since 1971 DaimlerChrysler ended with 37.3% stake in MM Some mis-matched goals, exacerbated by crass European handling DCunilaterally tried to cut MM s traditional links with Hyundai MM s German COO has to deny giving detailed interviews along these lines to the trade press (when clearly had) the trade press (when hehe clearly had) MM went into freefall (bad scandal etc) ~ 2004 Renault Nissan (1999) Mr Louis S chweitzer, the Chairman of Renault S saw the opportunity A, Carlos Ghosn seized it Currently, very active, functional collaboration Currently, very active, functional collaboration Like Toyota, implementing an aggressive BRIC strategy Nissan currently in better financial position than Renault
  • 18. Nippon Sheet Glass Pilkington (2006) NS clearly pressured (by T G oyota? By Nissan?) to develop a genuine global spread Acquired the bigger, more geographically diverse Pilkington Decide to stick with the Pilkington brand Pilkington CEO Stuart Chambers ends up as President & Chief Executive of NSG (Spring 2008) A rational decision haven t seen an analysis of the internal politics Volvo acquires Nissan Diesel (2006-2007) Friendly acquisition: Friendly acquisition: Volvo gets a truck maker with a strong position in Asia Nissan Diesel to be kept as the formal entity, to spearhead Volvo s penetration of Asia
  • 19. Toshiba s Vertical Keiretsu seems to be alive and kicking (but testable) Not impossible for qualified western companies to break Not impossible for qualified western companies to break into into But relations with Tier 1 Japanese suppliers seem as close as ever Denso pledges loyalty to T Toyota oyota quot;Honestly speaking, it's Toyota first. Fukaya said here last week at company headquarters. quot;Toyota is our biggest shareholder and originally like our father.'' (President Fukaya: 2007) Toyota holds a 21 percent stake in Denso and accounts for half of the accounts for half of the auto supplier's sales. 2002 row when Denso did some serious development work for a Mazda project `Why are you selling this world-first technology to others?'
  • 20. Conclusions from some consulting work Japanese OEMs putting pressure on Tier 1 (and other level) suppliers to diversify client base To build scale and lower price scale and lower price Toyota (and Nissan, to some extent) are technically capable of producing most components in-house So price negotiations are informed and very tough negotiations are informed and very tough Toyota seems paranoid that outsiders might start bidding for their Tier 1 suppliers Hence increase in equity stakes etc But Toyota has a reputation for accepting highly qualified non- Japanese suppliers My gut feel is that Tier 1 relationships are now about serious Joint Development (almost extension of Continuous Improvement tradition?) Nissan allegedly has gone further in dismantling traditional keiretsu
  • 21. 3) Sunderland Plant Today S Plan ite HASHIMOTO R-TEK GESTAMP Johnson NMUK Control CALSONIC TI MKL Sunderland MKL FAURECIA Washington = Suppliers
  • 22. Centre of Gravity in Auto industry is moving to Japan Eleven overseas auto-related companies opened businesses in Japan during the first 10 months of 2007, one in all of 2003, three in 2004, six in 2005 and eight in 2006 (JETRO) German companies account for 12 of the 29 new entries over the last five years, UScompanies rank second with seven Britain added three India two.
  • 23. Any discussion of de-integration needs to have a health warning Not all industries will produce equivalents to Taiwan s Silicon Foundries The Auto industry s technical keiretsus (defined widely) are evolving, but in no way disappearing The T Level Vehicle Manufacturers are very visibly in op control of their supply chain to several Levels down E when costs must be drastically pared, emerging ven auto component centres (such as in Thailand) are still heavily influenced by investment flows from the ultimate Vehicle Manufacturers
  • 24. Thinking back to the European history, one clearly sees persistent investment in countries which were early hosts Am not aware of any serious production transfers from West to East Europe leading to serious plant closures Unlike consumer electronics
  • 25. Toyota v Nissan
  • 26. The two slides on Nissan come from Trevor Mann s talk on Nissan in the NorthEast at Northumbria University (North East of England and Japan: Economic Past, Present and ymposium) 22nd S 2008 Futures S ept