Is Foreign Ownership So Bad For Car Manufacturers?
The media has recently been full of the controversy surrounding Pfizer’s bid to take over AstraZeneca. A lot of the unease around the deal concerns the thought of a large British firm being owned by an American one.
The media has recently been full of the controversy surrounding Pfizer’s bid to take over AstraZeneca. A lot of the unease around the deal concerns the thought of a large British firm being owned by an American one. Politicians and other interest groups are rightly concerned about the potential for job losses in the UK and a reduction in the level of top-class research being carried out in the country. There is no doubt that such deals do carry these risks. In 2010, US giant, Kraft Foods, took over UK firm, Cadbury. Promises were made about the security of British jobs but these proved to be hollow and a major Cadbury factory soon closed, with the loss of several hundred jobs.
The Kraft deal is one that is often quoted by opponents of the Pfizer takeover of AstraZeneca but not all examples of foreign takeovers are negative. After the demise of MG Rover in 2005, the UK car industry was left almost entirely in foreign ownership. The financial crisis then hit hard and by 2009 UK car production dipped below a million for the first time in many years. The recovery, however, has been marked as car production has risen by more than 50%. The future looks rosy, too, and according to the Society of Motor Manufacturers and Traders (SMMT), the industry is on track to break its record of more than two million cars by 2017.
Today the industry employs around 130,000 and contributes in excess of £10 billion to the UK economy. Moreover, around 80% of production goes for export, which is a great help for the country’s balance of trade. It also creates jobs outside of London and the southeast and is a key part of the Government’s desire to ‘rebalance’ the country’s economy away from the service sector and back towards manufacturing and engineering. In short, the car industry is exactly the sort of success model that the Government is pushing for. At the same time, it is almost entirely foreign owned.
What are the reasons behind this success? According to Mike Wright, executive director of Jaguar Land Rover (JLR), it is down to the adoption of modern manufacturing systems, the presence of a high-quality workforce and supportive government policies. This environment is in stark contrast to the situation that was prevalent in the 1970s, where the industry was almost completely British owned. Then the industry suffered from difficult industrial relations, weak management and underinvestment. The resulting quality of cars produced was notorious. Then, the era of foreign-owned car making began with Nissan in Sunderland in the 1980s and it became apparent that it was perfectly possible for the UK to build high quality cars.
Such foreign ownership brought with it new management and production techniques and greater levels of efficiency, as the new plants adopted best practice techniques, unencumbered by the baggage of traditional manufacturing practices. This foreign ownership also opened up new funding sources, introducing new investment to an industry that had been chronically underfunded for many years.
Chief economist of the manufacturers’ organisation, EEF, Lee Hopley, confirmed: "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."
There is no doubt that both quality and productivity in the UK car industry have improved. Volumes, too, are beginning to approach levels not seen since the early 1970s. Not all the news is good, however, and foreign ownership does seem to have had at least one negative side effect. It seems that the supply chain has contracted, just as car production has increased and is now much smaller than it was during the peaks of the 1970s. It is estimated that today around 60% of car components used in UK production are imported. This compares unfavourably to the situation in France and Germany, where that figure is closer to just 40%.
This is a situation that the Government is actively trying to address and various policy initiatives have been launched to try to build up the British supply chain. Nevertheless, the UK car industry’s experience of foreign ownership has been largely positive, proving, perhaps, that the ability and desire of the ownership to invest in the business is more important than their nationality.