June 25 2016
Early morning on the 24th June, we woke up with a shocking referendum result: – the UK will leave EU. After a day passed, the country hasn’t digested the result yet and is still in shock. British media have called in various experts, politicians and economists to get their views all day long. Based on the information I obtained over the last 24 hours, I would like to mention my personal view on the influence on the UK – Japanese businesses and what we can do for the future.
First of all, from the viewpoint of British business and trade, the following scenarios seem to have been suggested: –
BEST CASE SCENARIO
The UK will be free from EU regulations and can set her own trade agreements with other countries, which opens possibilities of FTA (Free Trade Agreement) with various countries in the world
Possibility of FTA between the UK and EU (Because of the trade surplus of EU against the UK, the EU can’t ignore the importance of the UK)
Possibility of joining NAFTA (North American Free Trade Agreement)
Worst case scenario
EU will treat the UK severely (to stop other countries leaving EU) and the UK will be isolated and face with high rates of customs.
US will prioritise negotiation with EU and put the UK at the bottom of the list
Many multinational companies will leave the UK, which will raise unemployment rates and will be a big blow for the UK economy
ATTRACTIONS OF THE UK FOR MULTINATIONAL COMPANIES
Before the referendum, I have spoken with multinational companies who have set their European headquarters in the UK. They shared the view that the UK’s attraction is as an entry point to the EU, therefore, the UK should remain in the EU. Now that the UK is leaving the EU, multinational companies (including Japanese companies) will have to make a very difficult decision, particularly when they have manufacturing facilities in the UK and export mainly to EU.
I also started reviewing business direction and strategy for our clients, as well as our own company.
THE UK’S ATTRACTIONS AFTER BREXIT & STRATEGIES FOR JAPANESE COMPANIES
Even if the UK was not the entry point to the EU anymore, what are the attractions of the UK for Japan?
First of all, we should not forget about value of the UK market itself. Within the industries that we have been involved, in areas such as Clean Tech, Energy, AI (Artificial Intelligence), Life-Science, and Automotive industries, the UK has led the world with innovative and novel technologies and products, including legislation and standardization. In the process to commercialise novel technologies, Japanese companies’ world-class technologies and product development capabilities have been needed.
Furthermore, there is a solid trend where the UK companies try to develop such innovative products and services with Japanese companies and universities, then expand their market presence to other Asian countries.
How about the positioning of the UK in the world?
The UK is a small island. Although its GDP ranks the 5th largest in the world, both populations and GDP value are merely half of those of Japan (Population in 2015 (UN): Japan – 126,818,019 / UK – 63,843,856. GDP in 2015 (IMF): – Japan US$4,123 Billion / UK US$2,849 Billion). However, the UK’s strength lies in close ties with 52 Commonwealth countries. For instance, I have heard that in the Commonwealth countries in South East Asia, people watch closely what is popular in the UK market and they try to follow the trend. In fact, I have met with some companies (including Japanese companies) who try to obtain credential in the UK market before bringing their products to the Asian market.
I presume that the mainstream strategy for the Japanese companies has been “Japan – the UK – Europe” but this might be a good opportunity to consider “Japan – the UK – Commonwealth’ relationship.
Through the referendum, people’s identity and regionalism have also been highlighted. This is not new and similar trends have emerged in other countries and regions. For Japanese companies, it will be important to consider “micro” strategies focusing more on specialties and trends in a country / region, in addition to the “macro” strategies such as “global” and “Europe”.
For the time being, turmoil will continue. Now that Prime Minister Cameron has resigned, the destiny of the UK will be largely dependent on the new Prime Minister and his/ her government.
My personal view is that in the long run, the UK will establish a strong position in the world economy, making the most of her diplomatic and negotiation powers.