The manufacturing sector plays and an important role for most economies in the different sectors that directly and indirectly impacts the economic activities of any country or region at large. Domestically, the sector has created millions of job opportunities for its people that offer their labor in such manufacturing firms and, thus, help address the economic issues related to unemployment which is a major macroeconomic issue addressed by government and authorities in many societies. The manufacturing sector, also, contributes to paying taxes that a country earns enabling governments and responsible authorities to get revenue and funds that they can launch additional development programs in their countries and regions at large. Furthermore, goods manufactured for export have earned countries foreign exchange that has continued to support the financial positions and requirements of any country or region at large as a result of the manufacturing and exportation of goods and services to foreign countries. It, thus, has helped address the economic aspects of the balance of trade for countries or regional bodies and, thus, determine the policies developed in the incident that there exists either trade deficit or surpluses in a country or region at large (Great Britain & Great Britain, 2011). The manufacturing and exportation department for countries contribution to the economy is broad and taken as very critical sectors as far as the economy, and economic activities are concerned for most countries. This paper presents an analysis of British car manufacturing in the recent times that has posted a record high in the first half of 2016. It further provides advice to a client interested in venturing into the market in consideration of the Britain’s action to leave the European Union, noting the impact that the step has to the Britain’s manufacturing and exporting sector.
The Toyota, Nissan, and Mini automobile companies have continued to increase their output with over 80% of the production meant for export in the European Union (EU) countries as well as other countries outside the EU. The exports have contributed significantly to the outstanding growth and continued profitability hitting a record high. It is important to note that the stated automobile companies are foreign owned but have chosen to operate their business in Britain. The scenario raises a uniqe question as to why Toyota, Nissan, and Mini chose Britain for manufacturing and not any other country. There have to be good investment conditions in a country or region that would attract foreign investors (British Chambers of Commerce, 2011). Britain through its British chamber of commerce notes the relevance of such good conditions that attract investors specifically manufacturing for exports. Britain’s foreign policy has attracted investors that encourage them to establish business and invest in their country. They have policies that encourage tax incentives to foreign investors among other policies geared towards attracting foreign investment in the manufacturing for the export sector that was developed with the intention to boost and revive the manufacturing sector that had experienced a great decline in the recent past, contributing less to the economic growth of Britain. Economic experts, therefore, came up with measures that can encourage and revive the sector that led to the creation of the policy and reforms that attracted foreign investors such as the well-known automobile companies (Sagrera, 2014). Britain is also a critical player in the European market, and an influential member of the European Union and, therefore, manufacturing in Britain gives companies a competitive advantage in the business regarding an assurance of venturing into the larger European market that creates more business and market for exports products from Britain. Britain also has a political stability a factor that encourages investors as the mentioned automobiles and also a strong British economy. Therefore, would mean that the manufacturing companies that operate in Britain and particularly manufacturing or exports would transact business in the British currency that would give more profits and value in their businesses as opposed to their local currency, for instance, such as the Japanese Yen. It is for this reason among others that the three automobile companies of Toyota, Nissan and Mini chose Britain other than any other country in Europe or EU union members at large. It provides a favorable environment for manufacturing business and in particular for export as noted by the British Chamber of Commerce (Sharman & Tighe, 2016). Britain realized that manufacturing firms owned by foreign companies that export had little impact on their domestic economies regarding competition because it does not create so much domestic competition as many Britain’s companies have a stronger competitive position in the domestic market. Encouraging such foreign companies, hence, would create more jobs for British citizens and earn the country foreign exchange as well as revenue in the form of tax. Such companies, thus, bring more economic advantage to Britain, prompting policy reviews that encouraged such companies established in Britain (Great Britain, 2007).
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The Britain’s decision to leave the EU has a great concern to the manufacturing and exporting sector not only to Britain companies, but also other companies that are members of the European Union. However, it impacts Britain’s more negatively when compared to other member countries of the EU. Britain leaving the EU means much to the manufacturing and export sector in the economy as it directly impacts on almost all decisions made by such companies. It is important to note that the manufacturing sector in Britain has saturated most of the domestic markets and, thus, the UE membership provided a growing and expansive market that products manufactured in Britain can be exported. Leaving, thus, ultimately, mean reducing the market share for manufactured products meant for export (Bird & Sindreu, 2016). For instance, in this case over 80% of manufactured products from the automobile industry are exported to EU and other destination in the world. However, the majority of the exports goes to EU member countries. Many countries have come together to form regional economic blocs that intend to help the region economically and ensure that they realize their economic ambitions, especially in the current times that the concept of globalization has led to the liberalization of markets that has resulted in intense competition for business entities. Such economic blocs try to shield member countries from economic challenges and encourage growth. For that reason, the foreign automobile countries could easily access such markets as EU by manufacturing from Britain. By Britain leaving the EU thus means they would experience a great challenge in accessing such markets even when they relocate to other EU member countries as Britain gave them a competitive advantage due to its reputation and economic environment that encouraged investments. It also would deny the manufacturing and exporting firms as the automobile an opportunity to more earnings as they traded in British pound currency and Euro that had a strong global position and reputation resulting in more profits for such companies involved in the manufacturing and exportation in Britain (Gee, Rubini & Trybus, 2016). Such companies also would lose the competitive advantage they had as a result of manufacturing and exporting from Britain and, thus, experience challenges in the business as far as manufacturing and exportation are concerned. The Britain decisions to leave the EU, hence, would impact manufacturing and exportation negatively in many ways that are already experienced or felt in the short duration after that decision was reached through the referendum. The value of the British currency has lost value drastically reaching lowest records that have impacted the sector of manufacturing an export negatively as noted internationally where business have opted to trade with the US dollar and Euro among other recognized and stable international currency other than the British pound.
Recommendation on whether or not the Korean Car manufactured should start manufacturing from Britain and whether to go through with the plans or halt.
The Korean manufacturer should halt her plan and delay the project while studying the developments in Europe after British exit. The impact that the British action of leaving the EU has had so far to the manufacturing and exportation sector is negative and continues to tear the sector apart as far as economic benefits are concerned. The other members of the European Union have also reacted to the decision of Britain to leave. They have taken actions such as blocking and limiting trade with the country that means that even when the Korean firm establishes the firm in Britain, it will not experience the good conditions that would favor the growth and expansion of its business as experienced earlier by the other automobile firms. The reality is that the conditions have changed and the competitive advantage has shifted. The Korean firm, thus, should halt her plans and study the developments. There is a high likelihood that the three automobile firms will start posting losses in their business as their markets have been reduced drastically losing the competitive advantage as well as the market share. Since the internal market in Britain is saturated and not expanding, establishing the firm there have no promising economic returns. The British pound, for instance, has lost value when compared to a major international currency such as the US dollar reaching record low that is an indicator of possible negative economic consequences that such decisions have on Britain as a whole in particular to those involved in the manufacturing and export sector in that country. Since over 80% of the automobile products were exported to EU countries and the world as a whole, it indicates that the internal domestic market in Britain is not growing and is saturated and only less than 20% of the products made by the automobile companies, for instance, are consumed domestically. Alternatively, the Korean firm should look at another country in Europe that is a member of the EU with good conditions that encourage investment to establish their firm there and enable it to access the EU market. It would provide it the opportunity to venture into the same market that it had targeted and interested in at Europe. It would also enable it to rapidly gain market share as other competitors that were initially stationed in Britain try to re-adjust and probably relocate their firms to another EU country. The Korean firm should halt the plans and try to look at alternative options as presented above.
References
Bird, M., & Sindreu, J. (2016, May 27). Investors Shrug Off Possibility of Britain Leaving the EU. Wall Street Journal . Retrieved from http://www.wsj.com/articles/investors-shrug-off-possibility-of-britains-leaving-the-eu-1464274604
British Chambers of Commerce (2011). Manufacturing For Export: Make Or Break For The British Economy. Retrieved from http://www.britishchambers.org.uk/assets/downloads/policy_reports_2011/10-12-09%20Manufacturing%20for%20Export%20(JL)%5B1%5D.pdf
Gee, G., Rubini, L., & Trybus, M. (2016). Leaving the EU? The Legal Impact of 'Brexit' on the United Kingdom. European Public Law , 22(1): 51-56.
Great Britain. (2007). Success and Failure in the UK Car Manufacturing Industry . London: The Stationery Office.
Great Britain., & Great Britain. (2011). Rebalancing the Economy: Trade and Investment: Seventh Report of Session 2010-12. London: Stationery Office.
Sagrera, R. I. (2014). Exporting EU integrated border management beyond EU borders: modernization and institutional transformation in exchange for more mobility?. Cambridge Review of International Affairs , 27(1): 167-183. doi:10.1080/09557571.2012.734784
Sharman, A. & Tighe, C. (2016, Jan 21). Record exports for UK carmakers as demand from Europe grows. Financial Times . Retrieved from https://www.ft.com/content/b2445b02-bec9-11e5-846f-79b0e3d20eaf
