Odds of a Hard Brexit Have These Asian Companies Fretting
(Bloomberg) -- The growing alarm after U.K. Prime Minister Theresa May’s Brexit deal suffered a defeat in Parliament isn’t just unsettling for British politics. Global 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. 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 U.K. is due to leave the European Union, companies are bracing for a potential hard exit.
“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, told reporters in Tokyo Wednesday.
Here’s what Asian companies are saying about Brexit:
The Japanese automaker said 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 U.K. 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 percent of Honda Motor Co.’s sales come from Europe, and it has one factory in the U.K. with manufacturing capacity of about 150,000 units annually.
Asia’s biggest carmaker has said it would temporarily halt its production in the U.K. if Britain storms out of the EU without a trade agreement, disrupting weekly revenue of 60 million pounds ($77 million) generated there, the company’s Europe President, Johan van Zyl, said in October. 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 wagons -- Toyota built in 2017 in the U.K. at its factory in Burnaston, England, about 87 percent 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 pounds in the facilities, employing about 3,000 people.
Sony Corp., grappling with questions over its employees and distribution and sales channels, said Wednesday it is closely monitoring the Brexit news. Its European head office is located southwest of London in the town of Weybridge. The Japanese technology giant has a sales office and a factory in the U.K.
Panasonic Corp. said 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 Oct. 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 U.K., won’t move its factory, a spokeswoman said in October.
The CK Group has one of the highest exposures to the U.K. 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.
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 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 U.K., has reduced its exposure to the U.K. since the 2016 shock referendum but the country remains the group’s biggest profit and revenue generator. At the CK Hutchison Holdings Ltd. flagship, 19 percent of total sales and 30 percent of earnings before interest and taxes came from the U.K. in the first half of 2018, the company’s most recent financial report. That’s down from 21 percent and 39 percent, respectively, two years earlier.
Japan Tobacco Inc. said Wednesday it’s assuming a “negative impact” on exports and imports. “We’re always looking at how to improve efficiency in our global supply chain by taking into consideration cost, taxes and other regulations,” a spokeswoman said. The company sells Camel and Winston cigarettes in the U.K. and had about 41 percent of the country’s tobacco market as of September. The sticks sold in the U.K. are made and imported from the EU region, according to the company.
Asahi Group Holdings Ltd., Japan’s largest brewer, owns and sells European beer brands Peroni and Grolsch in the U.K. -- picked up from Anheuser-Busch InBev NV in a deal worth $2.9 billion in 2016. In the event of a hard Brexit, its Peroni brand would likely be impacted due to its large presence in the British market -- the beer is brewed in Italy and exported to the U.K. Asahi’s flagship Super Dry is also made in Italy and exported to the U.K., but it still has only a fledgling presence in the beer market there. A company spokesman said Asahi is focused on strengthening its name as a premium beer brand in the U.K. market, and said it was too early to comment on any potential business impact.
Hitachi Construction Machinery Co., which makes equipment like excavators, has said earlier 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 U.K., where it owns a sales unit.
Jaguar Land Rover
The maker of the iconic British brands said this month it plans to slash 4,500 jobs worldwide, about 10 percent 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 U.K.’s biggest auto maker in 2018. Chief Executive Officer Ralf Speth warned in September that a no-deal Brexit would wipe out the luxury carmaker’s profit and a bad one could cost the automaker more than $1.2 billion 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 Ltd., employs more than 40,000 in the U.K. and has four plants in the country that produce 3,000 vehicles a day.
Nomura Holdings Inc., Japan’s biggest securities firm, plans to ask fewer than 100 of its London-based staff to move to Europe in preparation for Brexit. The firm said Wednesday it’s “making arrangements to ensure that all current client and counter-party relationships, and access to Nomura’s services, will continue without disruption after the U.K. leaves the EU,’’ it said. It’s proceeding on the assumption that U.K.-based financial services firms will lose so-called passporting rights to operate in the bloc. Nomura, which chose Frankfurt as an EU base after Brexit, has about 3,000 employees in the region and most work in London.
Mitsubishi UFJ Financial Group Inc., 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 U.K. leaves the union. The company is closely monitoring Brexit developments, spokeswoman Kana Nagamitsu said on Wednesday.
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