Japanese Investors Wary After Honda Debacle Over Rover
JAPANESE companies thinking about building new factories in Britain have been forced to take a close look at how best to safeguard any investments they may decide to make.Skip to next paragraph
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Their wariness has been triggered by the way British Aerospace (BAe) in January sold its 80 percent share in the Rover car company to Germany's BMW, leaving Honda, which owned the remaining 20 percent, bitterly resentful.
Honda has since said it intends to sell its share in the company and end its 14-year financial association with Rover. There are also indications from within Honda that the company will adopt a tough stance in any future arrangements for the supply of vehicle components to Rover.
Economists in London's financial district say Honda's experience is likely to persuade Japanese investors to think twice before striking partnerships with British companies.
Ruth Lea, chief British economist of Nieman Brothers, says Japanese car and electronics companies contemplating new ventures in Britain will insist on total ownership and control of the companies they establish.
About two-fifths of Japan's investments in Europe are in Britain. In the 1980s, Japanese companies making cars, televisions, and other electronic equipment were attracted to Britain by the comparatively low wage structure and friendly attitude of the Thatcher government. But the Japanese views are changing.
Reflecting the new watchfulness, Suzuki, the Japanese car and motorcycle manufacturer, decided March 14 to take full control of importing and selling its vehicles in Britain. Until now, Suzuki has distributed its products through a British company. Last year Nissan, which builds cars in Britain and exports them to other European countries, took a similar step and now controls and owns its British sales outlets.
MISS Lea, a specialist in Japanese investment in Europe, says the BMW-Rover deal acutely upset Honda. She says in the future, Japanese manufacturers who decide to establish or extend operations in Britain will avoid local partnerships.
``In some ways, Honda's association with Rover was unusual,'' she says. ``The Japanese prefer total control, and we can expect them to demand it in future.''
Before BAe sold the Rover company, it negotiated with both Honda and BMW. It was widely thought that Honda would want to acquire a controlling interest in Britain's last volume-car manufacturer.
In the end, BAe executives say, Honda refused to take more than 47.5 percent, whereas BMW was willing to acquire 80 percent. BAe sources suggest that by failing to seek a controlling interest, Honda displayed a lack of commitment.
Nobuhiko Kawamoto, Honda's president, does not see it that way. In comments made in Tokyo earlier this month, he said that by providing Rover with modern technology and introducing efficient production methods, Honda had helped put the ailing British company back on its feet.
``I wonder how the British people expect to make a living in future,'' Mr. Kawamoto told the Economist magazine.
Garel Rhys, head of the Cardiff Business School and an expert on the world car industry, says Honda's annoyance is all the greater because the Rover-BMW deal will force it to revise its global marketing strategy. BMW's takeover will double its share of the European car market to around 7 percent.
This will put the squeeze on Honda's sales operation in Western Europe, where the car market declined by 16 percent in 1993.
In fact, Rover under new ownership will remain locked into a component supply arrangement with Honda for some time.
Kawamoto has said Honda will drive hard bargains if Rover, under BMW ownership, tries to vary components contracts.
Industry experts add that collaboration will probably fade after a year or two.
Honda's experience has been carefully noted by Japanese companies and the government in Tokyo, Lea says. She says Japan's investment in Britain is secure, but it is most unlikely that any new commitments will be made on a partnership basis.
Once Europe's recession is over, Japanese companies starved of sales in their home market will likely want to expand activities in Europe, Lea says.