{"id":25286,"date":"2017-11-15T19:55:01","date_gmt":"2017-11-16T00:55:01","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/nissan-after-brexit-driving-manufacturing-out-of-the-uk\/"},"modified":"2017-11-15T19:55:01","modified_gmt":"2017-11-16T00:55:01","slug":"nissan-after-brexit-driving-manufacturing-out-of-the-uk","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/nissan-after-brexit-driving-manufacturing-out-of-the-uk\/","title":{"rendered":"Nissan after Brexit: Driving Manufacturing out of the UK?"},"content":{"rendered":"

Could isolationist Brexit policy derail the automotive manufacturing industry in the UK? According to leadership at Nissan\u2019s Sunderland plant in Northeast England, supply chain complications stemming from Brexit cast doubt on the future of Nissan’s UK manufacturing operations.<\/p>\n

\n

Context:<\/h3>\n

The Nissan automotive manufacturing plant in Sunderland, UK is uniquely vulnerable to supply chain disruption for several reasons. First, the plant imports nearly 60% of the parts required for manufacturing [1]. As a result, plant operations are especially vulnerable to the increase in tariffs which could result from Brexit. Colin Lawther, Senior VP of Manufacturing Supply Chain at Nissan, estimates that the increase in tariffs following Brexit could cost the company over \u00a3600m [2], rendering the operation unsustainable in the long-term.<\/p>\n

Nissan VP Colin Lawther testifies before Parliament.<\/figcaption><\/figure>\n

Moreover, logistical complications resulting from importation delays due to customs could impede Nissan\u2019s manufacturing model, currently the fifth most efficient automotive manufacturing operation worldwide [3]. The plant relies on only 3% downtime (or 6 minutes per day) in manufacturing operations [4] and maintains only one-half day\u2019s inventory in stock. Thus, small disruptions in the supply chain could render the plant unable to fulfill orders on time. Unfortunately, the global supply chain upon which the Sunderland plant relies is not easily replicable in the UK\u2014according to Lawther\u2019s testimony before a parliamentary committee, the \u201cUK supply base is not competitive globally\u2026\u201d [5]. Finally, the additional tariffs would not only impact the supply of chain of parts imported by Nissan, but it would increase the cost to export finished cars; the Sunderland plant exports approximately 60% of its cars to the EU.<\/p>\n

Work-in-progress at Nissan’s Sunderland plant.<\/figcaption><\/figure>\n

Nissan\u2019s response:<\/h3>\n

Nissan management has taken several immediate steps to preempt potential supply chain issues in the wake of the Brexit vote. First, Nissan officials have lobbied the UK government to bolster the supply base within the UK, requesting a \u00a3100m fund to attract suppliers in order to build this infrastructure. Before the UK International Trade Committee, Lawther lamented that \u201c[i]f we don\u2019t as a country really invest in the supply base, my fear is that it will be a house of cards effect\u201d [6]. He further suggested that, absent assurances from the UK that the government would subsidize an expansion of the supply base internally, Nissan would have to consider other manufacturing options outside the UK.<\/p>\n

In the long-term, Lawther also vowed to consistently reevaluate the UK government\u2019s commitment to supporting Nissan\u2019s supply chain: \u201cAs those circumstances change, and we wouldn\u2019t wait until the end of the process, we will continually review the decisions that we take, based on anything that materially changes\u201d [7]. Furthermore, Lawther suggested that Nissan could eventually divert resources from its Sunderland plant to its U.S. plant in Tennessee or one of its Japanese plants. Still, it is possible that such drastic measures would never be required, as the UK could negotiate favorable trade agreements with the EU in order to maintain low supply costs for Nissan and other automotive manufacturers.<\/p>\n

Way ahead:<\/h3>\n

In evaluating the way ahead for Nissan\u2019s Sunderland plant, the first step is to determine the tradeoff between additional costs resulting from tariffs imposed on UK imports and exports versus the higher cost of shipping cars manufactured at another plant already in operation (e.g., a Japanese or American plant). For example, even with a 10% tariff on parts imported into the UK, it might still be more cost-effective to manufacture automobiles in the Sunderland plant in order to reduce shipping costs to consumers in the UK and EU.<\/p>\n

Next, supposing that manufacturing automobiles at another plant and shipping them to the UK and EU is not cost-effective, Nissan should consider vertical integration of its supply chain in the UK. Because the Sunderland plant maintains low inventory and relies on limited downtime, Nissan would benefit from plant workers maintaining more control over their suppliers, particularly as the automobile supply base in the UK would likely experience difficulties as it expands and matures. At the very least, the Sunderland plant could explore partnerships with it suppliers to help them streamline their processes.<\/p>\n

Finally, Nissan could also consider relocating its Sunderland plant to another country in the EU. This new plant would have tariff-free access to the rest of the EU and would have the capacity to ship to the UK at a relatively low cost.<\/p>\n

 <\/p>\n

Questions for further consideration:<\/h3>\n
    \n
  1. Is reliance on the UK government to support expansion of the UK supply base a viable strategy?<\/li>\n
  2. What are the obstacles to vertical integration of Nissan\u2019s supply base in the UK?<\/li>\n<\/ol>\n

     <\/p>\n

    Word Count: (766)<\/p>\n

     <\/p>\n

    Works Cited<\/p>\n

    [1]<\/a>\u00a0Auto Express. (2017).\u00a0Nissan asks for \u00a3100million boost to UK supply industry<\/i>. [online] Available at: http:\/\/www.autoexpress.co.uk\/nissan\/97259\/nissan-asks-for-100million-boost-to-uk-supply-industry [Accessed 15 Nov. 2017].<\/p>\n

    [2]<\/a> ibid.<\/p>\n

    [3]<\/a> Ft.com. (2017).\u00a0Nissan asks for \u00a3100m supplier fund to safeguard UK car industry<\/i>. [online] Available at: https:\/\/www.ft.com\/content\/9bd3e876-fddc-11e6-96f8-3700c5664d30 [Accessed 15 Nov. 2017].<\/p>\n

    [4]<\/a>\u00a0Automotive Logistics. (2017).\u00a0Nissan outlines UK supply chain and Brexit concerns – Automotive Logistics<\/i>. [online] Available at: https:\/\/automotivelogistics.media\/news\/nissans-lawther-warns-parliamentary-committee-supply-chain-concerns [Accessed 15 Nov. 2017].<\/p>\n

    [5]<\/a> ibid.<\/p>\n

    [6]<\/a> ibid.<\/p>\n

    [7]<\/a>\u00a0Carroll, L. (2017).\u00a0Brexit means taxpayers need to support supply chain, says Nissan<\/i>. [online] the Guardian. Available at: https:\/\/www.theguardian.com\/business\/2017\/feb\/28\/brexit-taxpayers-support-supply-chain-nissan-sunderland-car-auto [Accessed 15 Nov. 2017].<\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

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