Nov 25, 2020 in Economics

Korean Car Investment in Britain

Korean Car Investment in Britain

The British automobile industry is one of the most lucrative businesses in the world. The industry contributes a significant stake towards the British GDP and is also responsible for the creation of major jobs in the UK. Several Car manufacturing companies such as Toyota, BMW, and Nissan have so far been the major players in the automobile industry in Britain. These companies were primarily motivated to invest in Britain since it is known as the center of the worlds financial markets. When these companies opened their branches in Britain therefore, what they had in mind, is to use Britain as the Centre for the supply of their products to the European countries and not only Britain. It is this reason that has made the automobile companies to rethink their further investments following the Exit of Britain from the European Union; Popularly referred to as Brexit. Automobile Companies have therefore been seen to lead the support for Britain to remain in the European Union. The paper seeks to evaluate why Toyota, Nissan, and Mini, decided to invest in Britain and Give an opinion as to whether the Investment of a car manufacturing company from Korea can invest in Britain amidst the Concerns about Brexit.

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Why Toyota Car Manufacturing Company Invested in Britain

The European market has always been the target market for the Car manufacturing industry owing to its location at the center of the worlds financial market. Toyota, for example, made its entry into the European market in the year 1963 with its first destination being Denmark. As at the year 2003, Toyota had already made 12 million sales in Europe. The Company believes in the localization policy where the vehicles are made to suit the needs of the people in the particular communities. Later on, the decision by the Toyota Company like other automobile companies was largely motivated by the need to tap the already large market for the purchase of the vehicles by the local people. A strong culture and tradition of vehicle manufacturing also exist in the UK. Further, from the UK to other destinations, there were already well-established transport links which made it possible for the car manufacturing companies to supply their products to other nations. Besides, the work standards and practices were favorable as well as the availability of a good and skilled workforce. The government of Britain also always remained very supportive to both the local and foreign companies in Britain a reason that makes the economic atmosphere conducive. For the Toyota Company whose base is in Japan also, being from a country where the English Language was the second language, found it more convenient investing in Britain since communication was not going to be a barrier. Many Car manufacturing companies therefore also decided to follow this route in the establishment of their plants in Europe.

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Reasons for the Entry of Nissan to the European Market

Nissan ventured into the UK car manufacturing industry in the year 1986. The company which is currently the best car manufacturing company in Britain never contemplated how great it was to become one day. The plant at the time was located in the North East of Britain in a wasteland. The branch was its first one outside of Japan. While the company was still novice, however, it counted on the availability of the skilled workforce in Britain for its works. Further, the communication with the people in the UK was also made necessary by the fact that English is the second language in Japan. Majorly, however, the company never intended just to be a local company in Britain, but its main supplies were to be in both Britain and target the huge European market. While the company started with the production of 5000 vehicles in its first year, today, the company makes about 10, 000 vehicles in a week which are all supplied to the European and the UK markets. The growth shows indeed the market demand for vehicles in Britain and Europe is quite high. For the past three years, the Nissan Company has made 500,000 vehicles a year consecutively which makes it the most successful plant in Great Britain.

Reasons Why Mini Decided to Venture the British Market

Like Toyota and Nissan, the Mini Company ventured in the UK because of the availability of the market for cars in Britain. Also, the company wanted to tap the availability of the workforce and resources in the UK. The main reason, however, is the availability of the market in both Britain and the United Kingdom. For example, the largest market for the Mini Company which now operates under the BMW Company is the United States of America followed by the United Kingdom. The target market for the company was, therefore, the European Union. In the year 2012 for example, the Mini Company managed to distribute about 60,000 vehicles in the United States of America while a total of 50,000 vehicles were circulated in the United Kingdom.

The Worries about Brexit and My Advice to the Korean Car Manufacturing Firm

With Britain Voting to quit the European Union over what is referred to as the Brexit, the Automobile companies such as Toyota and Nissan have already hailed their concerns over the impact of the move to the industry. The major concern is that the European Union is the major market for the automobiles. The financial experts have already tapped in to argue that the industry expects a rise in the costs of both production and sale of the cars as well as a fall in the overall sales towards the European Union. The Reason being, the Exit from the European Union, has created a bad image of Britain to its allies in the region. The need to stay independent is a show that the Country can survive on its own and therefore affects the trade agreements it had signed with other nations. Most countries like the US, therefore, may plan to block the products from the UK.

Other concerns threatening the fall of the automobile market is the fact that the Brexit may affect the mobility of the people across the countries and thus hindering trade, disruption of the motor vehicle trade and the change in the regulations and thus walloping the market. There is already a fall of the British pound as against the Euro and therefore, with the value of the Euro being outshined, it predicts a negative outcome for the trade. Analysts further warn that the move by Britain may trigger the increase in Tariffs and therefore making the purchase of the British manufactured vehicles more expensive in the European Union states. They further argue that currently, the yen has risen as against the Euro and the dollar and therefore predicting hard times for the Japanese automobile companies especially Toyota and Mazda. The effect will further be felt by especially the Japanese plants operating in Britain.

Currently, the Analysts argue that the companies are still surviving because a permanent decision is yet to be made as to whether Britain would exit the market or not. As much as the market may appear a bit shaky, it may trample upon the decision to Exit the European Union. The reason for such a prediction is the fact that the supply chain from Britain to the European Union may be entirely cut off. Some lawyers have however argued that the market in the United Kingdom is quite small to get affected. Lawyer Dan Sharkey, for example, argues that the automobile company will only get affected if the deals that had been previously negotiated are dropped. As per now, therefore, he argues that it is early enough to start speculating the fall of the market. However, what is killing the market is the anxiety and uncertainty over what may happen should Britain permanently exit from the European Union.

My Advice to the Korean Company

Based on the discussion above, the idea of the Korean Company investing in the Automobile industry in the United Kingdom is a good one, but it has come at the wrong time. My advice is that the idea is put on hold until Britain finally decides on whether it wants to exit from the European Union or not. Starting the company next year amidst the current anxiety and uncertainty may ruin the company as it may end up investing in a failing idea. However, I wish to advise the company that Britain has a very high market for the automobiles and should the Brexit worry be solved then it may go ahead and invest. Companies such as Mini, Toyota and Nissan started humbly but have now been able to make it great in the market. There is also the availability of skilled labor in Britain, and there will be no language barrier as the Korea uses English as a second language.

The things that make me reach a conclusion as to refraining from investing as at next year is because there is worry that the formerly negotiated trade deals may be altered and thus throwing the company into a mess. Secondly, the Pound is worsening as against the Euro and therefore the cost of the vehicles may rise and thus killing the market. Likewise, the sales of the other automobile companies are also going down. Lastly, the exit of Britain may have devastating effects as it may lead to the destruction of the supply chain within the European Union. The investment should, therefore, be postponed till the worry is over after Britain making kits final decision.

Conclusion

In conclusion, the Britain has one of the best markets for the automobile Industry which any car manufacturing company may wish to invest. Companies like Toyota, Nissan, and Mini, have tapped the potential in the past and any company may do so. The European market, in particular, is very wide and Britain being the financial markets hub makes the Business Lucrative. However, with the uncertainty caused by Britains exit from the European Market, it will not be advisable for the Korean company to invest as it may suffer losses since Britain is losing the European Market.

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