{"id":24547,"date":"2017-11-15T17:52:34","date_gmt":"2017-11-15T22:52:34","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/brexit-and-the-uk-automotive-industry-how-can-jaguar-land-rover-remain-competitive\/"},"modified":"2017-11-15T17:52:34","modified_gmt":"2017-11-15T22:52:34","slug":"brexit-and-the-uk-automotive-industry-how-can-jaguar-land-rover-remain-competitive","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/brexit-and-the-uk-automotive-industry-how-can-jaguar-land-rover-remain-competitive\/","title":{"rendered":"Brexit and the UK automotive industry \u2013 How can Jaguar Land Rover remain competitive?"},"content":{"rendered":"

If you drive one of the 600,000 JLR vehicles that were built in the UK last year, it is probable the steering wheel was manufactured in Germany, the electronic control system came from Romania, and the airbags arrived via Poland[1]<\/a>. Indeed, more than half of the 30,000 components in an average British-made car are sourced from abroad[2]<\/a>. Until June 23, 2016 that exemplified a feat of modern supply chain logistics. Now, with the impending departure of the UK from the EU, it is less of a wonder and more of an issue. The project of European integration has fostered the development of supply chains that are highly optimized, multi-tiered, and dependent on the smooth flow of goods, services, and labor across borders[3]<\/a>. Increasing protectionism and the risk of Brexit, however, are threatening to disrupt the interconnectedness of global supply chains.<\/p>\n

Jaguar Land Rover (JLR) currently buys 40% of its materials from Europe and generates 80% of its sales abroad[4]<\/a>. The UK\u2019s departure from the EU, would entail issues such as rules of origin, customs delays, tariffs and regulatory diversion[5]<\/a>, all of which have the potential to harm the production of JLR. Under trade rules that the UK is likely to face after Brexit, the carmaker could attract tariffs as high as 10% on vehicle movements between the UK and EU and 4.5% on imported component parts[6]<\/a>. Consequently, an additional cost of up to \u00a32,372 may affect JLR\u2019s profitability per car, eliminating its profit margins[7]<\/a>.<\/p>\n

How will JLR fight the threat of rising costs and who will bear the burden, its customers, or its supply chain?<\/p>\n

Responding to the risk of Brexit, JLR has sought to attract international component manufacturers and suppliers to move their production to the UK[8]<\/a>. In theory, Brexit offers an opportunity to stimulate local production of components, enhancing the industrial base and the broader economy. Indicatively, for the recent launch of the Range Rover Velar, JLR convinced the French bumper company, Plastic Omnium, to set up operations in the UK[9]<\/a>. The carmaker has even promised Plastic Omnium more work supplying other models in the JLR range[10]<\/a>.<\/p>\n

However, in an indication of the wider dilemma for the automotive industry, JLR has also sought to ramp up international expansion and minimize exposure to the risks of Brexit by opening its first engine plant outside the UK, in China[11]<\/a>. JLR already has a joint venture in China and by building an engine facility on the same site, it aims to cut shipping costs from the UK to Asia[12]<\/a>. By manufacturing engines closer to the point of sale, JLR achieves quicker turnaround times from factory to shelf[13]<\/a>. Also, it reduces the reliance of its Chinese business on British parts at a time when Britain\u2019s trading relationship with the rest of the world is unknown.<\/p>\n

But attracting more suppliers to produce in the UK and diversifying its production base are not the only steps that JLR must take in order to address the threat of Brexit.<\/p>\n

JLR\u2019s decision to invest in local parts procurement and production to offset potential increases in import costs, should be accompanied by investments in automation technologies and increased manufacturing capacity[14]<\/a>. Automation in its factories and processes will allow JLR offset some of the high labor costs associated with producing in the UK[15]<\/a>. Similarly, expanding manufacturing capacity is a key way to achieve economies of scale in undertaking operations that were originally outsourced to other European countries.<\/p>\n

Another necessary step that JLR management should take, is to reconsider its talent strategy[16]<\/a>. The single European market allowed the free movement of labor. This, however, can no longer be taken for granted, and JLR could find itself at a disadvantage. In light of the rapid technological advancements in the automotive industry, technical staff and skilled engineers will be required to ramp up the development of self-driving and electric cars[17]<\/a>. It is therefore imperative that JLR addresses the potential gap in key roles as that can result from restricted access to a skilled workforce from the EU.<\/p>\n

To conclude, JLR\u2019s interconnected supply chain, which is based on cross-European manufacturing, faces some serious challenges in light of Brexit. The carmaker will need to decide whether to invest in local parts procurement and production, re-shore manufacturing operations, or diversify its manufacturing locations in order to offset exposure to the risks of Brexit. In light of all of this, JLR will also need to consider how it can automate more of its manufacturing processes and what its supporting talent strategy should be. A key question remains open, however: How should JLR balance its response to the ambiguous external trade environment with the requirement to increase investment in new technologies, such as e-mobility and driverless cars?<\/p>\n

(Word count: 798)<\/p>\n

\n

[1]<\/a> Peter Campbell and Michael Pooler, \u201cBrexit triggers a great car parts rate for UK auto industry\u201d, Financial Times, <\/em>July 30, 2017, [https:\/\/www.ft.com\/content\/b56d0936-6ae0-11e7-bfeb-33fe0c5b7eaa], accessed November 2017<\/p>\n

[2]<\/a> Automotive Council News Release, \u201cRise in amount of British parts used in British car production as manufacturers boost UK automotive supply chain investment, finds new research\u201d, June 20, 2017 [https:\/\/www.automotivecouncil.co.uk\/wp-content\/uploads\/sites\/13\/2017\/06\/170620-Auto-Council-release_Rise-in-British-parts-used-in-British-car-pr….pdf], accessed on November 2017<\/p>\n

[3]<\/a> Carlos Mena, Andrew Humphries, Thomas Y. Choi, \u201cToward a theory of multi-tier supply chain management\u201d, Journal of Supply Chain Management<\/em> 49, 2 (April 16, 2013): p.2-3<\/p>\n

[4]<\/a> Peter Campbell and Michael Pooler, \u201cBrexit triggers a great car parts rate for UK auto industry\u201d, Financial Times, <\/em>July 30, 2017<\/p>\n

[5]<\/a> OECD,\u00a0“Protectionism? Tariffs and Other Barriers to Trade”, International Trade: Free, Fair and Open?<\/em>, (Paris: OECD Publishing, 2009), p. 54-75<\/p>\n

[6]<\/a> SSMT, SSMT Motor Industry Facts 2017, <\/em>[https:\/\/www.smmt.co.uk\/wp-content\/uploads\/sites\/2\/SMMT-Motor-Industry-Facts-2017_2-online.pdf], accessed on November 2017<\/p>\n

[7]<\/a> Ibid<\/p>\n

[8]<\/a> Peter Campbell and Michael Pooler, \u201cBrexit triggers a great car parts rate for UK auto industry\u201d, Financial Times, <\/em>July 30, 2017<\/p>\n

[9]<\/a> Ibid<\/p>\n

[10]<\/a> Ibid<\/p>\n

[11]<\/a> Peter Campbell, \u201cJaguar Land Rover opens first engine plant outside UK in China\u201d, Financial Times<\/em>, July 20, 2017, [https:\/\/www.ft.com\/content\/2bfdae04-6d5f-11e7-bfeb-33fe0c5b7eaa], accessed on November 2017<\/p>\n

[12]<\/a> Ibid<\/p>\n

[13]<\/a> \u201cBrexit triggers a round of reshoring\u201d, The Economist, <\/em>October 19, 2017, [https:\/\/www.economist.com\/news\/britain\/21730479-firms-shorten-their-supply-chains-divorce-europe-nears-brexit-triggers-round], accessed on November 2017<\/p>\n

[14]<\/a> Thomas Seal, Jill Ward, \u201cCars made in UK may struggle to be British enough post-Brexit\u201d, Bloomberg, <\/em>August 21, 2017, [https:\/\/www.bloomberg.com\/news\/articles\/2017-08-21\/cars-made-in-u-k-may-struggle-to-be-british-enough-post-brexit], accessed on November 2017<\/p>\n

[15]<\/a> Christoph Knoess, Ron Harbour, Steve Scemama, \u201cPrepare your workforce for the automation age\u201d, 性视界 Business Review<\/em>, November 23, 2016<\/p>\n

[16]<\/a> Ibid<\/p>\n

[17]<\/a> Ibid<\/p>\n","protected":false},"excerpt":{"rendered":"

Brexit threatens to disrupt Jaguar Land Rover's cross-border and interconnected supply chain. 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