What Does Brexit Mean for UK-Japan Business?
by Melissa Francis
The terms of the Brexit deal are due to be finalised on March 29th 2019. In this post, cultural insight agency Tokyoesque discuss what the potential impact will be for UK business with Japan, and how UK companies can leverage insights to mitigate concerns from Japan while adding value to their business.
What is the current situation between the UK and Japan?
The UK is the second largest investment channel for Japan behind the US, having contributed around £46 billion in investments to date. It is home to more than 800 Japanese businesses which employ more than 100,000 people.
Softbank, one of Japan’s most notable communications giants, has been one of the driving forces behind the recent surge in UK investments. Along with its purchase of Cambridge-based ARM for £24 billion in 2016, the company created 2,000 additional jobs in the UK. Softbank also invested more than £382 million in local AI startup ‘Improbable’ (boosting the valuation of the business to $1 billion).
In 2016, another major Japanese communications firm KDDI, opened a £135 million data centre in London’s Docklands. In the same year, the UK’s exports to Japan were worth £11.6 billion. Japan’s leading automotive companies Toyota, Nissan and Honda produce 835,000 cars every year at their facilities in the UK, a large proportion of which are exported to the EU.
Concerns from Japan
Following the Brexit vote, trade and politics have become more entangled than ever. The main concern from the Japanese side has always been the lack of reassurance as to what will happen post-Brexit. Without clear decisions being made in the UK, management is unable to make solid strategic decisions.
If we look at this from a cultural perspective, Japanese companies tend to be far more risk-averse in their approach than their western counterparts, particularly when it comes to dealing with international organisations. There is a preference for planning ahead to best avoid undesirable consequences. Unfortunately, all the confusion surrounding Brexit has meant that decisions are being made more hastily than would usually be the case.
Given how much mutual benefit the UK and Japan have enjoyed over the years, it stands to reason that a ‘no-deal’ Brexit would not be ideal. Officially withdrawing from the EU without a deal in place would have a detrimental impact on Japan’s current and future investments in the UK. Fearing the repercussions, several large corporations have already made preparations to move their UK sites to areas within the EU (such as The Netherlands or Germany), which they believe will safeguard their operations and ensure longevity.
Opportunities for Japan in the UK
Beyond the panic and uncertainty, Tokyoesque put forward the case that the UK still holds many significant benefits for Japan. It’s worth considering which aspects will be most important from a Japanese point of view and how businesses can meet those needs.
According to a ‘Think Tank’ report on Brexit published by Japanese bank Mizuho in 2017, these are just a few of the aspects that will continue to confirm the UK’s position on the world stage, even after having left the EU:
- The prominence of the English language will still be an advantage for international companies looking to keep their base in the UK and operating from there.
- London will somewhat retain its position as an international financial centre and will still be able to attract investments more readily than other parts of the EU.
- From a legal perspective, the UK market will be easier for international companies to operate in compared with EU countries. This is because the UK has fewer regulations to contend with.
- High-ranked universities continue to produce competitive personnel for UK-based Japanese companies.
UK-based startups are also seeing higher levels of investment than ever before (£8.27 billion in 2017 alone). This offers Japanese investors the chance to get involved in a lucrative venture market, particularly in fields such as Fintech.
In order to preserve the strong trade and investment relationship between the two countries, there have been talks about implementing a UK-Japan Free Trade Agreement (FTA) by 2020, which would bear similarities to the EU-Japan Economic Partnership Agreement (EPA) that has entered into force this month (February 2019). If this happens, it will provide perhaps even greater benefits on both sides.
Test Japanese sentiment towards Brexit in your industry
Regardless of whether or not the UK leaves the EU with a deal, there will be a period of transition before the impact is truly felt on either side. Why wait for the dust to settle on the political decisions? Tokyoesque enables businesses to stay informed by keeping a finger on the pulse. Discover how Japanese counterparts within your industry perceive Brexit in relation to their business with the UK. By digging deeper and unearthing the perceptions and cultural nuances that underpin Brexit concerns, Tokyoesque is able to assist businesses in becoming more aligned with Japanese thinking.
Contact Tokyoesque for a free consultation.