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

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

16. 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?

17. 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

18. 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

19. 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

20. 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?'

21. 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

22. 3) Sunderland Plant Today
S Plan
ite HASHIMOTO
R-TEK
GESTAMP
Johnson
NMUK
Control
CALSONIC
TI
MKL
Sunderland
MKL
FAURECIA
Washington
= Suppliers

23. 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.

24. 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

25. 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

26. Toyota v Nissan

27. 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