Japanese Firms Rushing to Gain Foothold in Europe
When Nissan built an auto plant in Sunderland, England, two years ago, the idea was to provide a strategic manufacturing base to ship cars across the English Channel to continental Europe. The vehicles were produced with nearly 70% of their components from Europe.
That wasn’t good enough for the French and Italian governments. Sales of Nissans produced in England were restricted in France and Italy because the Japanese autos needed 80% local content to qualify as “European” cars.
The Nissan plant illustrates both Japan’s strategy and the potential problems in preparing for the emergence of a single European market in 1992, said Harold J. Meyerman, president and chief executive of First Interstate Bank Ltd. The 12 countries of the European Community plan to unify their markets to better compete with Japan and the United States.
‘More Emphasis on Europe’
“One of the important implications of 1992 . . . is likely to be less emphasis on North America and more emphasis on Europe on the part of Japanese corporations,” said Meyerman, who heads the First Interstate Bancorp subsidiary that provides merchant banking, wholesale corporate banking and financial advisory services.
Already, Japanese companies such as Nissan are rapidly expanding into Europe, where they lag behind U.S. companies. Toyota Motor recently disclosed that it is studying the feasibility of establishing a car plant in England by 1992. NEC has established a plant to make wafers for semiconductors in Livingston, Scotland. Japanese banks are diversifying away from the London financial markets and opening branches and subsidiaries in Frankfurt, Paris, Milan and elsewhere in continental Europe.
European countries traditionally have been perceived as lagging “behind the more dynamic and adaptable Pacific Rim economies” because of “over-regulation, high and inflexible labor costs, and technological backwardness,” Meyerman said.
“As we look into the 1990s, this no longer appears to be true,” he said in a recent address to the Asia Society. “The creation of a single European market will be an important determinant of the shape of global economic relations during the coming decade.”
When the EC unites, it will become the second-largest market in the world. In 1992, the combined national output of the 12 member countries is projected to reach $6.5 trillion, compared to a U.S. gross national product of $6.4 trillion. Japan, at $4.4 trillion, is projected to be about two-thirds the size of the single European market.
In 1987, Meyerman said, the EC accounted for 17% of total world exports, excluding exports of member countries to each other. That compares to an 11% share for the United States and 10% for Japan.
“The single European market is likely to have major repercussions on both the rules governing international trade and on patterns of trade. In addition, global capital movement--both direct investments and financial flows--will also be affected by the European integration,” Meyerman said.
He said Japanese and American policy-makers are concerned that a unified Europe might take a more protectionist attitude--often characterized as “Fortress Europe”--toward the rest of the world, resulting in divisive trading blocks. “This danger should not be dismissed lightly,” he cautioned.
Japan’s newly aggressive investments in Europe have been accelerated in the wake of uncertainty about the 1992 European market. A presence in the EC when the new economic order takes effect could insulate the Japanese firms from other protectionist actions.
For example, the EC is studying plans that would require semiconductors to be fabricated locally to qualify as European under EC origin rules. As a result, Hitachi, Toshiba and Fujitsu, all Japanese semiconductor companies like NEC, are studying plans to build plants in Europe over the next four years to produce wafers for semiconductors.
Fujitsu Ltd. said in Tokyo last week that it plans to select a site for its semiconductor manufacturing plant in Europe toward the end of March this year. The company said late last year that it would build a plant to establish its foothold ahead of the 1992 integration of the European countries.
Most American semiconductor companies, except Intel Corp. of Santa Clara, Calif., have already established substantial fabrication plants in Europe.
Other Japanese firms such as Toyota said they had planned to move into Europe even before talk of a single-market concept. “At this point nobody knows how integration in 1992 will affect the automobile industry or what kind of changes we can expect to see. So, while 1992 is obviously something we continue to look at with interest, it wasn’t a decisive factor behind initiating the recently announced feasibility studies,” Toyota said from Japan.
Although the EC is much less important to Japan as an export market than the United States, the European share of Japanese exports has been growing during the 1980s. It now accounts for slightly less than one-fifth of Japan’s total export, or less than half the U.S. share, Meyerman said.
‘Worried About Europe’
Meanwhile, Japanese imports from Europe are rising at a faster rate than those from the United States, said Meyerman, who explained that this pattern might be Japan’s way of courting the Europeans. “The Japanese today are worried about Europe,” he said.
Nevertheless, Europe is attractive to Japan because of the drop in the dollar, the EC’s large consumer market--population 323 million--and the forecast of continued economic growth in the area. So far, Japan has invested only 15% of its total foreign direct investments in Europe. That compares to 38% in North America and 18% in Latin America.
“The blunt fact is that European industry is afraid of Japanese competition and may well succeed in maintaining, or even increasing, trade barriers aimed specifically at Japan,” Meyerman said. “The recent release by the Japanese government of a forecast showing the country’s trade surplus declining only $5 billion to $88 billion in the next fiscal year can only reinforce the perception in Europe that discrimination against Japanese products is justified. I therefore foresee that, while Japanese investment in Europe will grow, it will not be a smooth process.”
Toward 1992
“One of the important implications of 1992 . . . is likely to be less emphasis on North America and more emphasis on Europe on the part of Japanese corporations.” --Harold J. Meyerman, president and chief executive of First Interstate Bank Ltd.
European Community: 1. Ireland 2. United Kingdom 3. Portugal 4. Spain 5. France 6. Belgium 7. Netherlands 8. Denmark 9. West Germany 10. Luxembourg 11. Italy 12. Greece 1992 Projections for gross national product: EC (the combined national output of the 12 member countries): $6.5 trillion United States: $6.4 trillion Japan: $4.4 trillion 1987 Share of world exports: EC (the combined national output of the 12 member countries, excluding exports to each other): 17% United States: 11% Japan: 10% Source: First Interstate Bank Ltd.
