Britain's Car Manufacturing and Export Industry

The British car manufacturing industry underwent rejuvenation and hit a high record in the first half of 2016 in automobile manufacturing and sales after a slump that had lasted almost a decade. The British car manufacturing sector managed to rise after the economic recession to become the best center for automotive industry in Europe. According to The Telegraph (2016), seven mainstream and eight premium automobile manufacturers have their headquarters in Britain, it hosts seven formula one team, has six automobile designing studios, thirteen research and development centers, and over a hundred specialist brands. Therefore, this study will examine the principal reasons why Toyota, Nissan, and Mini have chosen Britain for manufacturing considering sources of comparative advantage, protectionism, dynamic gains from trade, regulatory policy, current valuation, and the movement of factors of production. Moreover, during the evaluation of the impact of Brexit on the automotive industry in Britain, a specific focus will be made on manufacturing and exporting. Many researchers have indicated that Britain's exit from the European Union will adversely impact the British car manufacturing industry.

The Compelling Reasons why Manufacturers Have Chosen Britain

Britains economy bounced back from the global financial crisis effects to become one of the most vibrant economies with a rapid growth in Europe. Major global automobile manufacturers such as Toyota, Nissan, and Mini have chosen the British market as their strategic manufacturing location for penetration into the rest of European markets for a number of reasons. To begin with, Britain has high-quality research and development resources and efficient labor supply system, which gives a comparative advantage over other countries. Britains automobile industry has a highly skilled workforce with flexible working practices, which make the car manufacturing industry in Britain highly competitive (Leech, Hawes, Bhaiji, & Scharring, 2014). They feature employees' competence, flexible working hours, and low levels of employees in labor unions. In addition, the research and development centers in Britain's automotive industry have tax benefits, which enable car manufacturers to produce high-quality products for the European Union markets. Therefore, the accessibility of quality research and development resources, and the availability of flexible, highly skilled labor gives the British car manufacturers a comparative advantage in the production of automobiles making it an ideal location for major car manufacturers.

Secondly, lack of protectionist measures in Britain compared to other nations made it a strategic location for car manufacturing in Europe. As a member of the European Union, Britain did not have protectionist measures that could result in serious implications for international car manufacturers. Toyota, Nissan, and Mini have chosen Britain since lack of protectionist measures have enabled the car manufacturers to effectively control and manage supply chain systems and substantially reduce the overall production costs incurred by the companies. The location also makes it easier for car manufacturing companies to access a huge market for their products without paying tariffs imposed to non-member states of the European Union. In addition, the European Union also negotiates free trade agreements on behalf of its members thus enabling automobile manufacturers to access global markets easily. Therefore, lack of protectionist policies has increased the competitiveness of Britain's automotive industry, thereby attracting global car manufacturers such as Toyota, Nissan, and Mini.

The dynamic gains obtained from trade by British car manufacturers also made major automobile companies choose Britain as their ideal car manufacturing location. Such location entails the following benefits: easy access to economies of scale in production, free movement of goods and services in Europe, free movement of factors of production in Europe, and free access to a large single market with an estimated number of around five hundred million people who are potential car buyers. The European Union has twenty-eight member states, therefore, automobile companies established in Britain are able to sell their products and import raw materials from all those countries without paying tariffs imposed only to non-member states. In addition, free movement of product and services between Britain and other European countries enable car manufacturers to use a fast, cost-effective, and efficient system of production in car manufacturing. Therefore, such car manufacturers as Toyota, Nissan, and Mini have made a decision to choose Britain as their Europe manufacturing location due to dynamics gains obtained by British car manufacturers.

Britain's great influence on regulatory policies established by the European Union made it a perfect location for global car manufacturers. The European Union has common policies and standards for automobile industries that ensure the automotive industry remains competitive on the single European market. National policies of different member states have undergone synchronization to obtain common regulations and standards for the European market. Therefore, Britain being the third largest state with the second-best GDP in the European Union is able to greatly influence regulations and standards that are set by the European Union to ensure that they are structured in a way that matches Britain's unique automotive industry (Leech et al., 2014). For instance, Britain influenced the EU emissions regulations to ensure they were favorable for small volume automobile manufacturers and maintained the EU's environmental goals at the same time. Therefore, major car manufacturers have chosen Britain due to its great influence on the regulations established by the European Union.

Britain's high currency value compared to other major currencies in the world is also another compelling reason why Toyota, Nissan, and Mini have chosen Britain for automobile manufacturing. Britain has effective policies that enable its currency to remain competitive on the global market, thereby enabling automobile companies to use cost-effective production systems and generate more profit margins in the automotive industry. Britains high currency value enables automobile manufacturers to access factors of production at a cheaper price and obtain more profit margins from sales compared to other states. Therefore, major global automobile manufacturers have chosen Britain as their European manufacturing location because of easy access to cost-effective production factors and high-profit margins obtained from the trade.

Lastly, another compelling reason why Toyota, Nissan, and Mini have chosen Britain for automobile manufacturing grounds on the free movement of factors of production in the European Union states. Britain's automotive industry greatly benefits from the free movement of factors of production between the European Union member states. Automobile manufacturing companies in Britain's automotive industry can easily access a highly skilled and experienced workforce due to the mobility of labor between European Union member states (Leech et al., 2014). Moreover, car manufacturers are able to source for cheap car manufacturing components from the established strong network of suppliers in the European Union. Therefore, the free movement of production factors such as labor and production materials enables British automobile companies to manage effectively their operations, thereby increasing their long-term competitiveness in the automotive industry in Europe.

The Implications of Brexit for Britains Car Manufacturing and Export Industry

Britains decision to leave the European Union has implications on its automotive industry. Several concerns raised due to Britain's decision to exit the European Union include an increase of the overall cost of production, possible exit of major car manufacturers from Britain, and inability for British automobile companies to access free trade agreements and the single European market (Gibbs, 2016). Britains decision to exit the European Union will significantly increase the overall cost of production for manufacturing automobiles in Britain. This is because its exit from the EU will eliminate the benefits enjoyed by British car manufacturers such as free movement of labor and vehicle assembling components. The cost of manufacturing automobiles in Britain will increase substantially since the majority of Britain's skilled labor and vehicle assembly components are imported from other European Union states such as Germany, France, and Spain. As a result, this will lead to an increase of the price of British manufactured cars since consumers will experience the higher cost of production, which will reduce significantly the competitiveness of Britain manufactured vehicles on the market.

Britains decision to leave the European Union may result in possible exit of major international automobile manufacturers from Britain. Major automobile companies such as Toyota, Nissan, and Mini have established their European market manufacturing plants in Britain because of its strategic location and economies of scale they obtain. If the benefits enjoyed by the car manufacturers in Britain cease, the automobile companies may decide to scale back their production or eventually exit Britain. For instance, Toyota and Nissan said there was a possibility of shifting their manufacturing plants from Britain because of Britain's decision to leave the European Union. Therefore, Britain's decision to exit the EU will result in international automobile companies scaling back their operations, thereby having a negative impact on British automotive industry as well as the overall economy.

British automobile manufacturers will lose the benefits they enjoyed from free trade agreements valid when Britain was a member state of the European Union. As a non-member state, British automobile manufacturing companies will lose their access to the large European Union market, thereby significantly reducing their sales volume and profit margins since the EU is the primary market for British manufactured cars. Automobiles and car assembly components exported or imported to Britain will be subjected to tariffs, bans, and strict regulations that are imposed to non-member states of the European Union. This will lead to delays in the production of cars, long inspection period, and regulations. Furthermore, the tariffs imposed on finished cars and car assembly components will foster the increase in the price of the finished automobiles. As a consequence, this will lower the competitiveness of British manufactured cars, thereby making consumers shift to cheaper cars.

Recommendations

I strongly recommend that the client should wait for Britain to officially finalize its Brexit talks with the European Union before investing in Britain's automotive industry. Britains decision to cease membership of the European Union will have a negative effect on its automotive industry. The effects will include an increase in the cost of production, which will entail a rise in the prices of manufactured cars. Car manufacturers will also lose the benefits enjoyed from the free trade agreements and their products will be subjected to tariffs, trade bans, and strict regulations. Furthermore, Britain car manufacturers will not access the large single European Union market freely. Therefore, the Korean car manufacturer should wait for the completion of talks with the European Union to see whether Britain is offered a great deal that will enhance the cost effectiveness of manufacturing cars in Britain and increase the profit margins of British manufactured car exporters before making the investment.

Conclusion

Britain has risen from the economic slump to become one of the strategic locations for international car manufacturers to establish their plants on the European market. Thus, as a member of the European Union, Britain's automobile manufacturers enjoyed a wide range of benefits such as free trade agreements, free movement of factors of production, and access to the single European Union market, thereby increasing the competitiveness of Britain's manufactured cars on the market. Britain's decision to leave the EU will have adverse effects on its automotive industry since Britain's car manufacturers will have to forfeit all the benefits they enjoyed when Britain was a member of the EU. Therefore, Britain's car manufacturers will wait for the completion of ongoing talks between Britain and the EU to see whether Britain strikes a deal that will sustain the competitiveness of Britain-manufactured cars in the EU market.

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