JAPANESE SPECIAL

Investment in Europe

Breaching the trade barriers

Roland Gribben

s Britain a Trojan horse for Japanese invaders? Or are these samurai going to invigorate our industry? The recent flurry of Japanese moves to invest in Britain has provoked some unusual responses. The left-wing Derbyshire County Council laying out the red carpet to attract Toyota to set up a car assembly plant is just one of them.

On the other side of the Pennines, in the north-east, Japanese companies are emerg- ing as the new industrial landlords. Nissan is hardly a natural successor to Armstrong, Swan and Hunter, Parsons and Reyrolle, the Ridleys and the other coal barons, but the region, in the absence of a new generation of manufacturing entrep- reneurs, is not in a position to choose its benefactors. The north-east business com- munity, central and local government, the myriad of agencies that now inhabit the investment landscape, and academia com- bined to persuade Fujitsu that Newton Aycliffe, a first-generation new town, offered more than Silicon Glen in Scotland as a site for an integrated microchip plant.

Regional competition for Japanese in- vestment has become intense. The success of the 'Scottish Mafia', primarily the Scot- tish Development Agency and the Scottish Office, and the `Taffia', in the shape of Peter Walker, the Welsh Secretary, and the Welsh Development Agency, in pro- viding a focal point for inward investment has created jealousy and rivalry among the English regions. The seduction of Nissan, Fujitsu and ntlw Toyota is an indication that those English regions are finally promoting themselves properly. Some movement of the gOal posts has helped. The large bribes, in the guise of investment grants, that helped Scotland and Wales attract the first Wave of Japanese investment, are now not so big. The abandonment of regional poli- cy after complaints from Brussels of unfair subsidies has also reduced the attractive- ness of the Celtic fringes. The Britain of Wilson, Heath and Cal- laghan held little appeal for the Japanese largely because of the seemingly intract- able problems of industrial relations and low productivity. Thatcherite Britain is more accommodating. The switch in the balance of power from shop steward to manager, component suppliers ready to be beaten into shape, easy access to an expanding EEC, an abundance of cheap golfing have all helped to make Britain the first investment stopping off point for Japan in Europe.

The Government, for its part, hoped that the arrival of the Japanese would aid industrial recovery and provide an addi- tional competitive spur and also that some of the best Japanese practices — a tena- cious approach to production engineering, the drive for quality and harmonious labour relationships — would rub off. Some of them have. The Japanese have left their company songs behind, managers have donned overalls to mix on the shop floor and in the canteen, and they have been impressed by the quality of British' workers, particularly the women. 'We're find they learn quickly. We're not doing anything different from what we do in Japan,' one Japanese industrialist told me.

Britain also represented for the Japanese the soft underbelly in a European Com- munity worried by the growing force of the new industrial competitor but divided on how to cope with the threat. Japan had in the past concentrated more time and effort on trying to reach an accommodation with its most important customer and protector than with the EEC. The United States had both the size and the clout. In the early days of grumbles over a growing trade deficit with Japan and complaints about unfair trading, Japan was able to get by in Europe simply by playing off one EEC state against another and hence avoid collective action.

The map of Europe has now changed and so have Japanese priorities. The pros- pect of economic integration in Europe and growing anti-Japanese sentiment in the United States now makes the EEC a more appealing investment location. The Japanese may publicly voice concern about `Fortress Europe' and the protectionist implications of Lord Cockfield's grand design but privately they are delighted at the prospect of treating Europe as a single market.

Investment strategy can now be tackled on a comprehensive basis rather than in a piecemeal fashion. The battle of Poitiers the French attempt to control the flow of Japanese video recorders by limiting entry through a single customs point — will not be re-fought as long as new EEC rules are observed.

The EEC decision to reinforce local- content regulations is aimed at raising the quality of Japanese investment in Europe and encouraging the import into Japan of European technology. So far Japanese manufacturers have followed their conven- tional foreign investment practice and con- centrated on setting up 'screwdriver' assembly plants that continue to depend on a high level of Japanese imports, particu- larly of more sophisticated components, from the homeland.

European rules covering local content products must have 60 per cent of EEC components to qualify for duty-free cir- culation — have proved a nightmare to invigilate. Britain has constructed a bizarre formula to label Nissan cars as British- made even though the transmission sys- tems still make the long journey from Japan to Sunderland. The very loose Brit- ish interpretation of the European content rules provided the basis for recent com- plaints from France and Italy over British Nissan imports and protests in reply from an indignant Lord Young, the British Trade and Industry Secretary.

Britain's wooing of the Japanese indust- rial investor has raised other conflicts inside the EEC. The encouragement of Japanese investment in electronics has put Britain at odds with proponents of a `European approach' to resist Japanese domination of key areas in microelectro- nics technology, who accuse Britain of acting as a Trojan horse for an industrial invader.

There is an element of envy — as well as truth — in the argument. Even if Britain had not been quite so welcoming to the Japanese, there are other good reasons why they have favoured the Continent less. France is part of the awkward EEC bri- gade. The Japanese do not understand the Italians. They respect and fear the Ger- mans and are now looking at Spain as a nation underdeveloped by the Far East. Britain is a low cost, low-tech base and offers a quality of life that appeals to the expatriates, as well as being an important financial centre that provides a base for the invasion of Japanese capital.

There is more Japanese investment to follow. The 'laser beam' approach that characterised the first onslaught concen- trated on consumer electronics after the appreciation that European rivals neg- lected their customers. This approach is broadening. More high-technology invest- ment will emerge. Much of it, however, may be steered towards West Germany. The Japanese, rather than the EEC, 1992 and all that, will dictate the pace and content.

Roland Gribben is the business editor of the Daily Telegraph.