Brexit worries put Asian companies under stress

Asian businesses whose operations and investments stretch far into Britain and the European continent have a lot at stake as they face higher tariffs and costs

Toyota factory in Derby, central England. Brexit is causing many Asian firms with UK operations increasing anxiety. Reuters

The growing alarm after UK Prime Minister Theresa May’s Brexit deal suffered a defeat in Parliament isn’t just unsettling for British politics and companies - Asian businesses are on edge as well.

Asian companies whose operations and investments stretch far into Britain and the European continent have a lot at stake as they face higher tariffs and costs. Tuesday’s setback will do little to cure the anxiety.

And for UK firms, concern is growing also. A six-year run of marketing spending growth at British companies ended in the final quarter of 2018 as uncertainty over Britain's impending exit from the European Union led companies to clamp down on costs, a survey showed on Wednesday.

The IPA Bellwether survey, conducted by IHS Markit, showed that 16.4 per cent of marketing executives raised their budgets during the fourth quarter but the same percentage of executives who took part in the survey cut their marketing budgets, according to Reuters.

Political and economic uncertainty caused by a drawn-out Brexit negotiation process has dampened both business and consumer confidence, driving belt-tightening and restricting resources available to marketing executives, the survey showed.

For Asian companies, Chancellor of the Exchequer Philip Hammond has sought to assure business leaders that their no-deal nightmare scenario could still be avoided, but with only 10 weeks left before the UK is due to leave the European Union, many are bracing for a potential hard exit, Bloomberg said.

“Japanese companies should have been making preparations for the possibility of a hard Brexit, but now the reality of carrying out those measures is getting closer,” Hiroaki Nakanishi, chairman of the country’s largest business lobby Keidanren, said in Tokyo on Wednesday.

Here’s what Asian companies are saying about Brexit:

Honda

The Japanese car maker said on Wednesday that a hard Brexit would seriously impact its European operations, even though it is implementing countermeasures. New checks at the border could disrupt its logistics systems, while tariffs on goods moving between the EU and UK would hurt its competitiveness, it said. “We now look to the government to deliver a clear, legally certain path forward to avoiding no deal and to delivering the conditions that support the continued competitiveness and productivity of our sales and manufacturing operations,” it said.

About 4.5 per cent of Honda's sales come from Europe, and it has one factory in the UK with manufacturing capacity of about 150,000 units annually.

Toyota

Asia’s biggest car maker has said it would temporarily halt its production in the UK if Britain storms out of the EU without a trade agreement, disrupting weekly revenue of £60 million (Dh283.7m) generated there, the company’s Europe President, Johan van Zyl, said in October. The Japanese firm wants tariff-free trading after Brexit, he has said.

Toyota declined to comment on the vote Wednesday.

Of the 144,000 vehicles - Auris hatchbacks and estates - Toyota built in 2017 in the UK at its factory in Burnaston, England, about 87 per cent was shipped to the EU. It also has another plant for engines at Deeside, Wales. Both were established in 1989 and started production in 1992. They have made more than 4 million cars and 5 million engines. The company has invested about £2.5 billion in the facilities, employing about 3,000 people.

Jaguar Land Rover

The maker of the iconic British brands said this month it plans to slash 4,500 jobs worldwide, about 10 per cent of its workforce, in response to the sales slowdown caused by Brexit, a downturn in China and flagging demand for diesel-powered vehicles. The cuts come on top of the 1,500 people who left the UK’s biggest car maker in 2018. Chief executive Ralf Speth warned in September that a no-deal Brexit would wipe out the luxury car maker’s profit and a bad one could cost the automaker more than $1.2bn pounds a year and put tens of thousands of jobs at risk. Free access to Europe’s single market is “as important a part to our business as wheels are to our cars”, he said. The company, owned by India’s Tata Motors, employs more than 40,000 in the UK and has four plants in the country that produce 3,000 vehicles a day.

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Sony

Sony, grappling with questions over its employees and distribution and sales channels, said on Wednesday it is closely monitoring the Brexit news. Its European head office is located south-west of London in the town of Weybridge. The Japanese technology giant has a sales office and a factory in the UK.

Panasonic

Panasonic said on Wednesday that it’s preparing for different scenarios to limit the impact on its operations. It shifted its Europe head office from near London to Amsterdam on October 1, and transferred about 10 people from the facility as well. The move was made partly to ward off potential negative effects of Brexit and also because the electronic maker’s holding company was already based in the Dutch city, it said in August. The company, which produces televisions, digital cameras and tablets in the UK, won’t move its factory, a spokeswoman said in October.

CK Group

The CK Group has one of the highest exposures to the UK among Asian business empires, with operations there ranging from ports to infrastructure, telecommunications and retail. Its billionaire founder, former chairman Li Ka-shing, has warned that Brexit would bring considerable challenges to the U.K. and Europe for years.

Mr Li’s son, Victor, who took over as chairman of the group last year, has echoed the cautious view. In a speech to employees in January, the younger Mr Li cited Brexit as one the big political and economic challenges that CK will need to weather through this year.

CK, which operates the Three mobile network and Superdrug stores in the UK, has reduced its exposure to Britain since the 2016 shock referendum but the country remains the group’s biggest profit and revenue generator. At the CK Hutchison Holdings flagship, 19 per cent of total sales and 30 per cent of earnings before interest and taxes came from the UK in the first half of 2018, the company’s most recent financial report. That’s down from 21 per cent and 39 per cent, respectively, two years earlier.

Hitachi Construction

Hitachi Construction Machinery, which makes equipment such as excavators, has said if high tariff rates were to be imposed on after-sales service parts sourced from its Dutch manufacturing base, it would consider shipping them from Japan instead. Although the impact is minor, there are concerns over supply chains, foreign exchange, duties and regulatory changes, a spokesman said Wednesday. The company said in October it isn’t planning to cut its operations in the UK, where it owns a sales unit.

On Thursday, the BBC reported that Hitachi announced it will suspend work on the £20bn Horizon nuclear facility because of concerns over rising construction costs.

The Japanese firm had been in talks with the UK government about funding since June. The decision puts thousands of jobs at risk if the Wylfa Newydd plant in Wales is scrapped entirely. About 9,000 workers had been expected to be involved in building two nuclear reactors, which were due to be operational by the mid-2020s.

In November, plans to build a nuclear power station at Moorside in Cumbria were halted after Toshiba announced it was winding up its NuGeneration subsidiary, which was behind the project.

Nomura

Nomura, Japan’s biggest securities firm whose 3,000 European employees are mainly in London, is planning to shift between 50 and 100 to Frankfurt and elsewhere on the continent, wholesale and global markets head Steve Ashley said in November. Brexit threatens to create “two centres” for financial products in the region, adding to banks’ costs and complexity of operations, he said in an interview. Nomura picked Frankfurt in 2017 as the headquarters for its EU operations after the UK leaves.

Mitsubishi UFJ

Mitsubishi UFJ Financial Group, which has about 2,000 staff in London according its website, has been preparing for Brexit by setting up some operations to Amsterdam. Japan’s biggest bank already does commercial banking in the Dutch city and got a securities license there in December, calling it a “major step” to continue providing services to clients in Europe after the UK leaves the union. The company is closely monitoring Brexit developments but doesn’t anticipate any impact from it, spokeswoman Kana Nagamitsu said on Wednesday.