How a No-deal Brexit Would Affect the Operations of Nissan Uk

Introduction

Throughout history, majority of the uncertainty shocks, for example, the 9/11 attacks and the assassination of President John F. Kennedy create uncertainty surges which tend to subside reasonably quickly. It is worth noting that Brexit has been quite different. Immediately the UK voted to leave the European Union back in 2016, there was a sharp jump in uncertainty that with time continued to persist (Bloom et al., 2019). The persistence of the uncertainty was a result of the absence of a deal on the terms of the withdrawal of the UK. There has been uncertainty across most of the organisations in the UK on whether a deal was on the offing and what the deals terms would look like and even whether there was a possibility of a second referendum. Brexit was largely unexpected and was more of a political shock in comparison to an economic shock. Weeks to the Brexit vote, as suggested by betting odds, the probability of Brexit only averaged around 30% and at no point was it ever higher than 40%.

This paper seeks to establish how a No-Deal Brexit would affect the operations of Nissan in the United Kingdom.

Background of the study

In 1986, Margaret Thatcher opened Nissans plant off the A19 at Washington near Sunderland. Nissan`s operations have since then expanded to cover a 800 acre site that runs two production lines where annually, up to 519,000 cars are produced. Exports to other EU countries sum up to more than 55%. Nissan`s annual reports for UK operations in the 2016-2017 financial year showed that £6.4 billion was generated from sales while seven thousand, seven hundred and fifty five individuals were employed. Up to £427 million was paid to these employees in wages (Conn, 2018). Additionally, there are companies that supply Nissan`s spare parts that employ up to 30,000 people in the entire Britain.

Withdrawal of Britain from the EU without a secured agreement for continued seamless trade would lead to the regulation of the trading relations of Britain by the rules of the World Trade Organisation that do not allow for agreed product standards (Campbell, 2019). These would see the imposition of agreed product standards and consequent custom checks at the European borders. That would with no doubt go a long way in bringing about additional costs as a result of the border delays and the impacts of tariffs.

Carlos Ghosn the chairman of Nissan has since the vote to leave the EU been emphasising with consistence, two main points. He has emphasised that Nissan will not be making any additional investments as a result of the uncertainty of the future trading agreements of the UK (Halliday, 2019). Additionally, he has also emphasised that Nissan would consider reducing its operations in British in the event the Brexit increases trade barriers and costs significantly.

Estimations from experts point out that approximately half of the 5,000 components in British made cars are domestically manufactured (Automotive News Europe, 2019). The withdrawal of the UK from the EU would see the imposition of import tariffs that would have dramatic effects on final costs. Additionally, Nissan would also need to deal with the possibilities of declined profit margins as a result of increased tariffs on 55% of the vehicles produced in the UK that are exported to Europe. The future uncertainty that engulfs Brexit saw the shares of Nissan fall more than 12% in the days that followed the Brexit referendum (Bailey and De Propris, 2017).

The establishment of a free trade agreement that is tariffless between the EU and the UK is another possible outcome of Brexit negotiations (Blagden, 2017). While that would have the effect of minimising import tariff`s negative impacts, there is a requirement by free trade agreements that the majority of the components in vehicles originate from the exporting country. What that implies is that up to 50% of the components of UK built vehicles would need to be manufactured in the UK (Reid, 2019). That would qualify them for tariff-free export to the European Union under a future trade agreement that is hypothetical. If Nissan was to meet this requirement, it would need to reduce its vehicles foreign component makeup by half. In the event that Nissan was not able to achieve that, it could face a 10% tariff on all EU imports.

Research questions

1. To what extent would Brexit affect Nissan UK?

2. Are there any benefits of Brexit on Nissan?

3. What could be done to shield Nissan from the negative effects of Brexit?

Strengths and Weaknesses of Nissan UK

Nissan has a successful alliance with Renault that was formed back then in 1999 that sees Renault holding a 43.4% stake in Nissan and Nissan holding a 15% stake in the operations of Renault (Bailey, 2017). A joint owned Nissan-Renault BV company manages the alliance between these two companies and always strives to ensure that the strategies it pursues are beneficial. Over the years, as a result of the alliance, both companies have been able to; engage in expansive and expensive research and development activities, invest in new projects globally, negotiate even better contracts, explore new markets and even share the costs of design, procurement and manufacturing. As a result of the alliance, synergies that would have otherwise never existed have been created.

The operations of Nissan have also been under good management with Carlos Ghosn being the CEO of Nissan worldwide. The style of management adopted by Ghosn together with most of the reforms he has successfully initiated have been featured in a number of business cases. Since 2013, the revenues of Nissan have been observed to grow annually by 8%. The company’s net incomes have been growing at a 16% annual rate while its operating profits have been growing at an average of 26.4% (Bloom et al., 2019). That, to a large extent, proves that the operations of the company are properly lined and the company is well run.

Over the years, Nissan has also managed to maintain a strong brand equity which has been a result of their consistent focus on technological innovations, experiences of customers, investment in the community, employees and other stakeholders. The company has further developed strategic plans to further grow their brand equity that have been part of their plans to grow their investments, sustainability, electric vehicles and the maximisation of stakeholder satisfaction. Nissan`s brand image has further stronger as a result of the company`s focus on CSR. Nissan has however had to deal with very many vehicle recalls that are meant to ensure the safety of passengers. Such recalls, however, affect the reputation and image of the brand. Additionally, Nissan has also had to maintain and fix different parts free of cost which adds to the company`s operating costs. In 2018, Nissan recalled up to 215,000 cars as a result of fire risks. Among the recalled cars were Infiniti QX60 vehicles, 2017 Nissan Maxima, Nissan Murano and the 2018 Nissan Pathfinder (Bloom et al., 2019).

Opportunities

There has been a global rise in the sale of electrical vehicles in the last few years. While, in general, there was a reduction in car sales in 2019, there was a notable increase in the sale of electric cars. That points out to the growing demand of electric cars. Nissan would need to continuously extend its electric cars portfolio.

Threats

In the UK, with no doubt, a no deal Brexit tops Nissan`s threats. Competition is another threat. In the automobile industry, the competition is quite intense. In the UK market, there are other car brands present that also have a global presence. These include Toyota, Ford and Honda among others. All these are companies that invest heavily in research and development and even marketing with goals of growing their market shares. Nissan would with no doubt, need to invest heavily in the strengthening of its competitive position so as to retain its market share.

PESTEL Analysis of the UK Automotive industry

This provides a discussion of the Political, Economic, Sociocultural, Technological, Legal and Environmental factors that have an effect on the United Kingdom`s automotive industry with the intentions of gaining insights on what the future holds for the industry.

Political

There are many dangers posed by the driving of motor vehicles. As such, the government of the UK has put in place safety regulations that are quite strict that govern the manufacture of motor vehicles, providing specific build requirements like seatbelts. These seatbelts are meant to ensure the safety of the driver and also passengers. These regulations are not favourable for new entrants and that goes a long way in helping the brands that are already in existence to maintain their places.

Under the laws of the European Union, currently, UK has legislation that sets vans and cars maximum emissions standards. The aim of these emissions standards is to achieve a drop in car emissions this year to 95g of CO2. Recently, there are other new standards that have been agreed upon by the EU that require additional reductions on 2021 levels of 15%n come 2015 and 37.5% by 2030 (Uyarra, Shapira and Harding, 2016). It is however, worth noting that with the scheduled Brexit, will not be incorporated automatically into the laws of the UK. The government of the UK has issued a statement that moving forward, it will pursue future approaches to regulation of vehicle emissions that will be as ambitious as those of the EU. It however, remains unclear whether these commitments will be applicable to those agreements that have already been agreed upon by the EU.

Prior to the actual withdrawal from the EU, it would be prudent for the UK Government to adopt regulations for transport emissions that are similar to the future and current regulations by the EU on transport emissions. Ideally, that would involve legislation related to requirements for reduction of emissions for heavy duty vehicles. This should be with zero regard to the terms of the departure of the UK from the EU.

For Nissan to have its self-driving cars on the European roads, it will have to receive final approvals from undisclosed UK local authorities before they can commence the testing of their new vehicle in London borough, a modified Leaf electric car that was updated with a special suite of camera, laser and radar systems known as Nissan Intelligent Mobility. Nissan is only expected to proceed with its secret tests once they receive the clearance from local authorities.

Economic

Globally, there is a general trend that individuals earn more and more money with each passing year. What that implies is that they have even more money to spend on different luxurious items like electronics and even automobiles. That has led to an increase in the demand of motor vehicles. Brexit is however expected to lead to reductions in the disposable incomes of British households as the knock-off effects of the deal lead to rocketing of inflation and further weaken the British economies outlook. The National Institute of Economic and Social Research (NIESR) also forecasted that the freeze by the government on tax credit payments would play a part in the dragging down of disposable incomes (Cooke, n.d.). A think tank commissioned by NIESR warned that the wider economy would eventually be hurt by any reversals in the household disposable incomes.

A rise in inflation would see the dwarfing of average incomes which would be dragged down by caps on public sector wages, freezes on in-work benefits and rises in lacklustre private sector wages. Ultimately, the reduced disposable incomes will result to reduced numbers of car sales and that will go a long way in reducing the profitability of the automotive industry in the UK until such a time that the country stabilises.

Sociocultural

From a sociocultural perspective, the popularity of driving in the UK has been growing over the years. The owning of vehicles has become common for families around the world. This has seen an increase in the number of vehicle owners in the UK and also the number of vehicles on the UK roads.

Technological

The advancement of self-driving vehicles is with no doubt the largest technological shift that has impacted on the automotive industry. While this development is neither necessarily a bad or good thing, it implies that it is necessary for conventional car manufacturers who wish to stay relevant to change their business strategies. Amelia Heathman wrote a paper back in 2017 that predicted that Nissan was set to be the first company to have self-driving cars on Europe`s public roads (Heathman, 2017).

In addition to the advent of cars that are self-driving, the safety of motor vehicles is another big advancement technologically in the automotive industry. The wearing of seatbelts became a requirement back in the 1980s and it was only until the early 2000s that lower-end automotive brands began the rolling out of airbags across their models. These safety standards together with their underlying technologies have been improving and advancing in the automotive industry. In the recent past, manufacturers of automotive`s have been working on the introduction of emergency break assist systems that are likely to reduce to a great extend the probabilities of front end collisions.

Legal

It is quite interesting that even in the automotive industry, the issue of copyright exists. Patent laws, trademarks and copyrights are used in the protection of certain features of cars from their branding to even their shapes (Madslien, 2012). While legal showdowns in the automotive space are not that common, from time to time, they happen. The issue of automobile manufacturers from China stealing the designs of their counterparts from the west has been rising in the recent decades. So far, Nissan is yet to be involved in any copyright, patent and trademark tussles. However, Geely a Chinese brand was reported as having created some oddly similar copies of the Rolls Royce Phantom which brought about conflicts. While the copying is present in the automotive industry, it still is not clear what the copying`s net effect will be.

Environmental

With no doubt, one of the most serious environmental pollutants that have been produced by the automotive industry is carbon dioxide. By means of the greenhouse effect, carbon dioxide plays some big roles in the global climate change. The issue of carbon emissions has over the years been gaining global attention with most governments putting in place measures and policies that are meant at reducing and cutting carbon emissions. People all over the world continue driving motor vehicles day in day out but it is still not clear whether governments would end up being forced to take increased actions to prevent and completely stop global warming. Probably, that would involve a complete ban on the production and subsequent usage of motor vehicles or the switch to vehicles that are electric.

VRIO analysis

Nissan`s VRIO analysis looks at the companies different internal resources with the intention of assessing whether the competitive advantage they provide is substantive. The analysis additionally provides insights on the probability of the resources being improved for provision of increased competitive advantages.

Valuable

The financial resources of Nissan UK are quite valuable as they help with the investments in arising external opportunities. The resources further help Nissan with the combatting of external threats. The employees of Nissan UK are also viewed as resources that are quite valuable for the firm (Madslien, 2012). Significant portions of the company`s workforce have extensive and significant training and that, in the long run makes the organisation even more productive. Their employees are also observed as being very loyal which makes the companies levels of retention rather high.

Rare

The rich financial resources of Nissan together with their loyal employees are rather rare resources. Not very many companies possess strong financial resources like Nissan in the automobile industry.

Imitability

It is quite difficult to imitate Nissan`s patents and that is because the imitation of products that have been patented is not acceptable legally.

Organisation

Nissan`s financial resources are organised in ways that they are capable of capturing value. The resources are strategically used to do investments in the right places combatting threats and further making use of opportunities (Ingram, 2019). The resources, thus, prove to be rather useful sources of competitive advantage for Nissan.

Methodology

The collection, analysis and further utilisation of data is with no doubt one of the most important responsibilities bestowed on researchers. For the examination of the possible effects Brexit would have on the operations of Nissan UK, this study relies on secondary data that is available for the collection of data. Peer-reviewed journals re used together with trustworthy news articles and books. To increase the overall reliability and validity of the outcomes of the research, the study concentrates on the maintenance of ethical guidelines. Secondary research involves the summarisation, collation and synthesis of data that is already in existence (Nash, 2016). It is relatively easy to carry out the collection of data in secondary research and that is because the data is gotten from other sources and most of the work required was already done by other researchers. The possibility of inaccuracy of data is however, one of the problems that could however, come about from the use of secondary data. It is worth noting that in the use of data that had been collected for different research purposes, there is always the possibility that the data could fail to cover samples that were specifically being researched in the new study.

An integrative narrative review of the literature on the topic being considered will be utilised in this study. Summaries of past theoretical and empirical literature for purposes of provision of understanding of a phenomenon are provided by integrative narrative reviews. As such, integrative reviews are well capable of informing both practice and research (Hopia, Latvala and Liimatainen, 2016).

Any sources that will be used in this study will have to be appropriately cited both in the study`s body and also in the reference list. There will be no quoting of materials without the appropriate acknowledgement of original authors.

References

Automotive News Europe. (2019). Nissan warns UK plant will be unviable if Brexit triggers tariffs. [online] Available at: https://europe.autonews.com/automakers/nissan-warns-uk-plant-will-be-unviable-if-brexit-triggers-tariffs [Accessed 24 Dec. 2019].

Bailey, D. and De Propris, L., (2017). Brexit and the UK automotive industry. National Institute Economic Review, 242(1), pp.R51-R59.

Bailey, D., (2017). Brexit, the UK Auto Industry and Industrial Policy. Regions Magazine, 306(1), pp.4-5.

Bloom, N., Bunn, P., Chen, S., Mizen, P. and Thwaites, G. (2019). Brexit Is Already Affecting UK Businesses — Here’s How. [online] Harvard Business Review. Available at: https://hbr.org/2019/03/brexit-is-already-affecting-uk-businesses-heres-how [Accessed 24 Dec. 2019].

Campbell, P. (2019). Brexit tariffs jeopardise entire Nissan Europe business model. [online] FINANCIAL TIMES. Available at: https://www.ft.com/content/6809c570-eb68-11e9-85f4-d00e5018f061 [Accessed 24 Dec. 2019].

Conn, D. (2018). Will Nissan stay once Britain leaves? How one factory explains the Brexit business dilemma. [online] The Guardian. Available at: https://www.theguardian.com/news/2018/oct/04/will-nissan-stay-once-britain-leaves-sunderland-brexit-business-dilemma [Accessed 24 Dec. 2019].

Cooke, P. (n.d.). THE UNITED KINGDOM AUTOMOTIVE INDUSTRIES; STATUS, ECONOMIC RECOVERY AND EXPECTATIONS. The University of Buckingham.

Halliday, J. (2019). Nissan: no-deal Brexit would jeopardise entire European business model. [online] The Guardian. Available at: https://www.theguardian.com/politics/2019/oct/10/nissan-no-deal-brexit-would-jeopardise-entire-european-business-model [Accessed 24 Dec. 2019].

Heathman, A. (2017). Nissan’s self-driving cars will be on London's roads next month. [online] WIRED. Available at: https://www.wired.co.uk/article/nissan-driverless-cars-london [Accessed 11 Jan. 2020].

Hopia, H., Latvala, E. and Liimatainen, L., 2016. Reviewing the methodology of an integrative review. Scandinavian journal of caring sciences, 30(4), pp.662-669.

Ingram, E. (2019). New Juke production begins at Nissan Sunderland plant. [online] THE ENGINEER. Available at: https://www.theengineer.co.uk/new-juke-production-begins-at-nissan-sunderland-plant/ [Accessed 11 Jan. 2020].

Madslien, J. (2012). Analysis: What is behind Nissan UK's success?. [online] BBC. Available at: https://www.bbc.com/news/business-16408511 [Accessed 11 Jan. 2020].

Nash, C. J. (2016). Queer methods and methodologies: Intersecting queer theories and social science research. Routledge.

Reid, C. (2019). Crash-Out Brexit Could Force Closure Of Sunderland Car Plant, Warns Nissan Boss. [online] Forbes. Available at: https://www.forbes.com/sites/carltonreid/2019/10/10/crash-out-brexit-could-force-closure-of-sunderland-car-plant-warns-nissan-boss/#5c1ac32838e9 [Accessed 24 Dec. 2019].

Uyarra, E., Shapira, P. and Harding, A., 2016. Low carbon innovation and enterprise growth in the UK: Challenges of a place-blind policy mix. Technological Forecasting and Social Change, 103, pp.264-272.

Looking for further insights on Global operations and logistics? Click here.