The hot topic of foreign owned businesses is nothing new to the UK car industry

The hot topic of foreign owned businesses is nothing new to the UK car industry

The recent and well publicised bid from US drug company Pfizer to buy its UK rival AstraZeneca has certainly created a political storm surrounding the topic of British businesses falling under the ownership of foreign companies.

The attempted takeover has been seen by some people as a threat to Britain’s science base, British jobs and any future research and development spend. Opponents of the deal have been quick to highlight Kraft Foods 2010 takeover of Cadbury, where the closure of a large factory and the loss of several hundred jobs followed soon after the deal was struck, despite previous assurances that no posts would be at threat.

However, the UK car industry is one area of the British economy that has shown the benefits of foreign ownership in a very positive light. When the collapse of MG Rover occurred in 2005, it left the British car manufacturing sector to be dominated by overseas firms, who have turned around an industry that was once regarded as an example of British economic failure.

Car production in the UK was dealt a severe blow during the global recession and in 2009, production fell to below the one million mark, the first time that had happened in decades. Since then, manufacturing has grown by more than 50 per cent, with the Society of Motor Manufacturers and Traders forecasting that it could hit a record high of more than two million in 2017.

Now the British car industry is able to employ almost 130,000 people, generating more than £10bn a year for the UK economy. The current growth being witnessed in the motor industry is exactly the kind of progress that politicians and policymakers want to encourage throughout the wider economy. It is also an industry that is creating jobs outside of London and the South East and is driven by exports, with around 80 per cent of cars that are produced in Britain, being done so for foreign markets. UK car production

Executive director at Jaguar Land Rover, Mike Wright, believes there are three reasons for the revival in the industry. These include a high-quality British workforce, supportive UK government policy through the Automotive Council and the adoption of global manufacturing systems.

When we look back to the 1970s, the UK motor industry was still largely British-owned and characterised by troublesome trade unions, weak management and under-investment. The majority of the cars that rolled off the production lines were also notorious for their low quality.

It was in the 1980s that the industry began to change as Japanese car firms, starting with Nissan at Sunderland, began to produce vehicles in the UK. It was new foreign ownership in the car sector that was associated with the sharing of global best practice, improvements in management techniques and a higher level of efficiency.

It is also overseas ownership that can often open up new sources of funds for investment too. Chief economist of the manufacturing trade body EEF, Lee Hopley said, “Foreign ownership has benefited some parts of manufacturing in terms of bringing in investments and a focus on internationalising the business, so improving its export performance and therefore its overall productivity and efficiency. Productivity in the car industry has improved markedly since the 1970s.”

However, foreign ownership may have also been a shortcoming for the industry, because although car output figures are heading back to the levels of the early 1970s, the wider supply chain is a lot smaller than it was 40 years ago. According to a 2012 study, 40 per cent of the components in a British-made car are sourced domestically. In contrast, about 60% of parts come from the domestic supply chains within Germany and France.

The high import content of British-made cars has had a large impact on the sector’s trade balance. In 2012, the UK car industry was able to run a trade surplus on completed cars for the first time since 1976, with the value of British-built cars being sold abroad, outstripping the value of cars built abroad and bought in. That said, when taking into account the components, the automotive sector is still a large net importer as a whole.

One academic from Manchester Business School, Professor Karel Williams, argued that the weakness of the domestic supply chain had been driven by a pattern of foreign ownership.

Prof Williams said, “It’s not simply about the number of shiny cars off the line, it’s about the amount of British components under the bonnet. And the problem there is the cars in the 1970s were basically 100% British. And the percentage is now much lower. If you correct for the imported content, we will still only be producing something around two-thirds the value of output that we produced in the 1970s, and indeed probably significantly less than we produced in the late 1990s.”

There are concerns about UK investment, but the big global firms have all invested heavily in physical plant, process and research and development, all the way throughout the economic downturn. These firms are now reaping the rewards of that investment.

Perhaps the real lesson that the car industry can learn is not so much that foreign ownership is necessarily a good thing for the sector or a company, but that it should not have to be seen as a threat. The real difference is not between domestic and foreign ownership, but between the firms who are prepared to make an investment for the long-term and those that are only interested in their own short-term gain.

Within the UK car sector, the bigger manufacturers might all be owned by overseas firms, but at least they have been able to demonstrate a commitment to British industry and its workers.

 

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