UK: RISE OF THE BRITISH KOGAISHA. - As HQ to the largest number of Japanese affiliates in Europe, Britain has stolen a march on its neighbours. The lessons in quality and efficiency have been key factors in the transformation of working practices.

by Peter Popham.
Last Updated: 31 Aug 2010

As HQ to the largest number of Japanese affiliates in Europe, Britain has stolen a march on its neighbours. The lessons in quality and efficiency have been key factors in the transformation of working practices.

In the early 1980s, when Japanese inward investment was still a novelty, its enemies labelled the new arrivals 'Trojan Horses' - the first, subversive wave of the devastating Japanese invasion that was surely to follow.

If anybody still adheres to that notion, which now seems rather quaint, they would find ammunition in the names of some of the Japanese companies which have established themselves here in the intervening years. Would anyone guess that Daks Simpson (the clothes manufacturer) was a wholly Japanese-owned company? Or Pan Britannica (gardening products) or Royal Sovereign (stationery and drawing materials - a Mitsubishi subsidiary) or Rootstein Hopkins (mannequins)? Or that the Tomatin Distillery Co and Murray Allan, manufacturers of cashmere and knitwear, also owe allegiance to the land of the rising sun?

One thing is sure, and that is that it would no longer be possible to wax patriotically indignant on this theme. Times have changed; Japanese ownership of British or British-sounding companies no longer elicits so much as a flicker of surprise. From being rare and exotic newcomers 15 years ago, Japanese firms have become an established part of Britain's business landscape. They have brought their own ways of doing things, but these, too, after initial confusion and resistance, have been not only accepted but widely imitated by non-Japanese companies. The export boom currently being enjoyed by UK manufacturers is due to a large number of factors, but one of them is the tuition in quality and efficiency they have received over the past 10 or 15 years from the Japanese.

The influx began way back in 1972, when YKK set up a factory manufacturing zip fasteners. But it was in the following year, when Sony decided to build a television plant in south Wales, that it became a phenomenon. As such it sputtered on through the '70s, the ceremonial opening, at very long intervals, of a new Japanese plant attracting media attention out of proportion to its economic importance - because the idea of the remote Japanese manufacturing in Britain, and of British people working under Japanese bosses, was so unfamiliar.

It was not until the 1980s, however, that Japanese inward investment into Britain changed from a trickle to a rush, and really began to matter. The rush was caused by anxieties in Japan that unless something was done about the imbalance of trade between Japan and its trading partners, Japanese manufacturers would begin to be shut out of their vital export markets. As Japan's appetite for imported products remained stubbornly small the only answer for companies worried about the future was to build plants abroad. And as plant after plant, first in the US, then in Europe and elsewhere, proved viable, and their non-Japanese workforces more industrious and malleable than Japanese businessmen had dared to hope, more and more Japanese firms piled on to the bandwagon.

In Britain the distaste of the unions and the Labour Party for these developments was swept aside when the Conservatives came to power in 1979 and Margaret Thatcher became the great evangelist of Japanese companies setting up in the UK. Between1983 and 1989 the number of Japanese manufacturers in the UK jumped from 15 to 91. In the same period the number in Germany rose from 20 to only 81. British primacy in the field, which is today unchallenged, had been established.

Kazuo Chiba, Japanese ambassador to Britain during the period of most hectic inward movement, adduced three reasons why Japanese companies chose Britain over its European partners. 'The first is language,' he said. 'It is much easier for a Japanese manager to understand what the workers are saying in Britain, be that in Geordie country or in Wales or Scotland, than elsewhere in Europe. Maybe Japanese cannot speak English well, but they can hear and read it - our people are very good at understanding what is written.'

The second factor, he said, is 'the free trade tradition in Britain, both in the Government and in the attitudes of the people. This experience does not seem to exist in many other EU countries, and it's a very reassuring element for Japanese businessmen who want to come here.' In Germany, France and Sweden fixed costs imposed by unions or national legislation mean that the wage rate must be multiplied by as much as 80% to get hourly labour costs. In Britain the figure is closer to 35% - much the same as in Japan and the US.

'Third,' he said, 'British labour is extremely good. The people are well educated, and if you treat them right, organise them right and train them right they will respond with enthusiasm.' This may be a polite way of saying that we are a low-wage country, and it is true that Japanese firms tended to choose Britain for that reason, while they went to Germany or France if they wanted a workforce that was already trained and skilled. But there are grounds for believing that the skills and systems gap between us and our neighbours has shrunk appreciably.

The most significant victory in the battle to persuade the Japanese to move to Britain rather than anywhere else was Nissan's decision in 1983 to build a car factory at Washington, near Newcastle. This coup achieved a number of goals: for the British Government it was a timely antidote to the succession of disastrous closures - in coal mines, shipbuilding and steel - from which the North East was reeling. It gave a powerful incentive to Japanese component manufacturers to pack their bags and head in the same direction; and it sent a message of confidence in Britain as a manufacturing environment that reverberated throughout Japanese industry.

By the time Nissan was up and running, Japanese companies had begun to mull over a further urgent reason for putting down roots in Europe: the prospect that, after the integration of the European economy scheduled for completion by the end of 1992, Europe would wind up the drawbridge. Any Japanese companies which had not by then started manufacturing operations in Europe, it was feared, would run the risk of finding themselves stuck outside the world's largest single market.

It was around 1988 that Japanese firms became sensible of this danger, and the rush to Europe turned into a stampede. Thirty-eight companies came to the UK between 1989 and 1990, and another 46 in the following 12 months. That, however, proved to be the peak: the bursting of Japan's 'bubble economy' around this time, and the recession that got under way in Europe in the same period, slammed on the brakes, and between 1993 and 1994 only 19 new firms arrived from Japan throughout Europe.

Today, while the frenzy has abated, the situation in Britain continues to compare favourably to that prevailing elsewhere in the Continent. The number of Japanese affiliates in the UK stands at 206, 28% of the total in Europe and nearly twice as many as either Germany or France. Furthermore, while Japanese affiliates in Britain increased by a net total of nine between 1993 and 1994 (three departed but 12 arrived), the net gain in France was only two, while Germany showed a net loss of two. This suggested that, despite the recessions in both Japan and Europe and the debilitating debate about Britain's future role in Europe, its fundamental attraction to Japanese manufacturers remained strong.

The toughest test which the Anglo-Japanese relationship has had to face so far came in January of last year, when British Aerospace suddenly announced that it was selling Rover Group, in which Honda had a 20 % stake, to BMW. The involvement of Honda in what was then British Leyland had arguably saved the ailing British giant from extinction back in the early 1980s. It had also given British workers their first taste of Japanese quality standards: Leyland workers unpacking Honda Ballade kits from Japan, which they were to assemble and badge as Triumph Acclaims to be sold in Britain,were astounded to find that all the parts of each kit were included, and that they all fitted together. From these beginnings the Honda-Leyland relationship had grown into a true partnership. In 1986 Honda opened its own plant in Swindon and Rover (as the British firm had been renamed) was sold to British Aerospace, but continued to collaborate on design and manufacture.

When BAe suddenly announced that it was selling Rover - Britain's last remaining volume car producer - to the German firm, expressions of patriotic hand-wringing were surprisingly muted. Instead came expressions of outrage on behalf of Honda. The deal was depicted as the triumph of British short-termism, and dire predictions were made regarding the effect of such a 'betrayal' for the future of Japanese direct investment in the UK.

Fifteen months on, it is still too early to tell what effect the sale will have. Two items of good news in the past six months have been hailed as proof that problems have been overcome. Firstly, NEC, the leading Japanese electronics firm, announced that it is to build a second semiconductor plant at Livingston, near Edinburgh, at a cost of £530 million. The firm's first plant has been one of the biggest success stories of Japanese involvement in Europe, having become the most productive NEC semiconductor plant in the world. The new factory, representing the biggest Japanese investment in the UK after Toyota's £850 million car plant near Derby, will employ some 430 staff when it begins production in October 1996, and will be one of the most advanced factories of its kind in Europe. The second piece of good news was that Toyota is planning to double UK production, creating another 1,300 jobs in Derby.

But media excitement at these two developments obscured the fact that both investments were part of a continuing programme and had been planned long before Rover's sale. Had either project been cancelled, it would indeed have been dire news. But nothing much could be deduced from the fact that they went ahead as planned.

As Garel Rhys of Cardiff Business School says, 'It's too early to tell if the sale will have any effect. Asians are susceptible to loss of face, and it was certainly a bit of a shock. Japanese companies ask themselves, "Don't the British understand the value of long-term partnership?" Can it be possible that the Government, as it claimed, was not involved in the decision? Was there a perfidious plot here? How much influence these anxieties have we will only be able to tell in 10 years' time - though I suspect that the harm will not be as great as feared.'

Although Honda itself made ominous rumbling noises in the immediate wake of the deal, these have not been followed by any drastic moves. The plant at Swindon continues to work at capacity, and while an eventual winding-up of the relationship with Rover is envisaged, existing contracts are being honoured.

In ownership the British car industry is, of course, hardly British at all any more; but, sentiment apart, that matters far less for its future than the fact that the lessons the Japanese have taught have been taken to heart.

Nissan was where the instruction took place. As an area with no car-building tradition, Tyneside seemed initially an odd spot for Nissan to choose. But the pool of tough, proud products of the Tyne's dying heavy industries, eager for a second chance to prove their worth, turned out to be ideal for Nissan's purposes. Many lessons were taught by the Japanese: diligent timekeeping; what they call the 'three Ss of workshop management' - seiso (orderliness), seiri (usefulness) and seiton (cleanliness); pride in the task, the team and the company; and the disciplines of 'lean', 'just-in-time' production.

But all of these would have been just empty exhortations without the most important innovation - giving responsibility for their work to the workers. In traditional British practice, the nitty-gritty of car production was the domain of the engineers: any change in production techniques or concerns about quality were the engineers' prerogatives. The workers, having no intercourse with the engineers, merely did as they were told.

In the Japanese system, by contrast, all production questions are dealt with by the production supervisor, who directly controls his team of men. He chooses them, hires them, trains and looks after them; and they in turn work as hard with their heads as with their hands. 'Nissan has managed to give ownership of the production process to the production department,' says Edward Handyside, formerly a training controller with Nissan, who left to start his own consultancy. 'We think it's the Holy Grail. In Nissan the how of the production process belongs to production, and the man who has responsibility for it is the production supervisor. He determines how the work is done - and naturally he will involve the workforce as far as possible in terms of finding improvements. If the operator says, "Look, I've got a better way of doing this - I'll move this rack here, this material there," the supervisor says, "By God, that's good, yes, it'll work," and that improvement is realised immediately.'

It was this restoring of self-respect to production workers that was the most revolutionary aspect of what Japan had to teach. Other practices enforced the same classless lesson, and when the success of Nissan in Britain became clear - by 1992 its employees were producing 45 cars each per year, compared to 38 at Volkswagen, 33 at Vauxhall and 32 at Ford's British factories - other British car firms began falling over themselves to apply the same ideas. Rover's 'New Deal' announced in spring 1992, provided a neat summary: 'Rover will be a single-status company - all distinctions between staff and hourly paid will be ended; clocking phased out; everyone in the company to wear company workwear; single status catering; no employee to be laid off ...'

This last, brave boast of Japanese and Japanese-influenced companies became a victim of the recession: in November 1993 Nissan offered voluntary redundancy packages - while remaining true to its promise not to impose compulsory redundancies - but other firms such as television manufacturer Matsushita Electric have had to lay people off compulsorily. In other respects, though, the revolution has been a thoroughgoing one. And it has not been confined to the car industry.

The quality standards demanded of component manufacturers by the Japanese car industry have had a galvanising effect on British firms. As the yen has risen against other currencies, the importance of having high levels of local content has changed from a propaganda question to one of sheer survival. The Japanese have therefore taken the lead in helping suppliers to attain the necessary standards, and while some have fallen by the wayside, others have learned lessons that make them far more competitive internationally than they were before.

'Generally British component manufacturers have come up to scratch,' Rhys believes. 'The British component sector is not so far behind the competition. Japanese companies say that many of them are giving them the quality they get at home, and the costs are not far behind either.' As he sees it, the key to continuing success for UK firms is maintaining their reputation for high quality and low cost. 'The Japanese are always expecting us to become high-wage, because after all we are a developed country. We can't rely on being low-wage, we have to be low-cost. And in fact we are doing that in ways that are not generally recognised. Not only Japanese companies but also new American, French and German firms investing here are impressed by the improved British performance.'

Now the soaring value of the Deutschmark is tempting German car companies like Mercedes to overcome their longstanding reluctance to import parts - and what makes the temptation almost irresistible is the fact that British manufacturers - working since 1992 to the same technical standards as Germany - can now produce components of equal quality for around 60% of the cost. The worst thing you could say about Japanese affiliates in the UK used to be that they were 'screwdriver plants' - where Japanese products were merely assembled from kits freighted in from Japan, with no creative input from the British side. This has become less and less common.

Also striking is the increase in the amount of research and development carried out in the UK on behalf of Japanese firms. From small beginnings a number of specialised research centres have sprung up around the country: the Microelectronics Research Centre, formed by Cambridge's illustrious Cavendish Laboratory in association with Japanese companies; the research centre set up by Toshiba in the same city; research units belonging to Sharp, Kobe Steel and Canon elsewhere. Eisai Pharmaceuticals has built a £1 million research laboratory within University College London, and Nissan's 320-person European Technology Centre near Cranfield has already developed one vehicle, the Terrano, from scratch to production by Nissan's subsidiary in Spain.

These are paradoxical developments. As Louis Turner, chief executive of the UK-Japan High Technology Industry Forum puts it, 'The literature on multinational companies tells us that research and development are the last functions transferred overseas ... Research is so strategically important that it should be kept close to company headquarters.' Yet increasingly Japanese companies are allowing their research to grow legs and wander. Why?

One major reason is that Japan is conscious of being a long way, culturally as well as physically, from its European market. Another is that Britain, as well as other European countries, has developed particular and enduring strengths in research. In Britain's case these include computer software, high-fidelity audio and broadcasting technology. For years Japanese firms such as Canon have employed the talents of foreign designers to give distinction and individuality to the styling of their products. Increasingly now they are obtaining foreign input into the technological content as well. Probably the most important example is the British computer firm ICL, now wholly owned by Fujitsu, which spends over £200 million per year on research and advanced technology.

Japanese companies have now spread across the UK, from the Highlands to the Lowlands and from the Tyne to the West Country and Kent. New towns like Milton Keynes, Telford, Washington and Livingston have been particularly successful at drawing new investors, with their promises of good infrastructure, greenfield sites and healthy living conditions. But thanks to the concentration of Japanese banks and other financial institutions in the City, London remains the undisputed HQ of the Japanese in Britain. Of the 56,000 Japanese living in the UK, about 30,000 live in London, which is home to branches of nearly 700 Japanese firms.

Elsewhere in the UK, life for the Japanese has its privations - a shortage of Japanese restaurants being among the most notable. London, however, provides everything you need to live life a la japonaise: the Asahi and Yomiuri newspapers each morning by satellite, daily Japanese television programmes ditto, hairdressers, interior designers, estate agents, schools, removal firms, restaurants cheap and expensive - practically everything in fact except that old-fashioned essential of Japanese life, a public bath house.

The biggest concentration of Japanese retailers in Europe is to be found at Colindale, off London's north circular road, at Yaohan Plaza, which describes itself as 'all Japan under one roof'. Open for a year and a half now, it has a supermarket, crockery shops, a beauty salon and a huge bookshop, as well as numerous food stalls selling sushi, noodles and glutinous rice cakes.

There are other compensations to living in Britain for Japanese posted here. Golf in Japan, while hugely popular, is very expensive; here by comparison it is practically free (the London Golf Club near Sevenoaks is one of several in which Japanese firms have invested heavily). Housing is far roomier than the Japanese norm, and that rare luxury, a garden, is standard. Britain has few earthquakes, lots of unspoiled countryside, world-class theatre ...

It's not surprising that many Japanese, after the initial period of adjustment, find themselves taking for granted a quality of life that is in many respects unattainable in Japan.The problems and drawbacks are those which are common to most parts of the world outside Japan: a less trustworthy infrastructure, shoddy workmanship, poor timekeeping, boorish manners. But the pleasure of life in Britain is not restricted to creature comforts. As one Japanese housewife put it, 'What I really appreciate about living here is that one can relax and feel natural. Japan is such a tense society: everyone is on their guard all the time. Whenever Japanese living in Britain get together, they always comment on how relaxing it is to live here by comparison. It makes it very hard to go back.'


The changing face of the industrial landscape



South Wales

An early pioneer: Sony's decision in 1973 to build a television plant in South Wales was the start of the Japanese phenomenon




A major coup for the British government: the arrival of Nissan in 1983 was a timely antidote to the succession of closures in coal mining, shipbuilding and steel from which the North East was reeling




Going it alone: Honda opened its own plant in 1986 after making its debut in Britain as the saviour of the ailing British Leyland




Continuing the trend: the Livingston semiconductor plant has become the most productive of NEC's operations worldwide and the company is building a second plant at a cost of £530 million




Growth plans: the £850 million car plant, the biggest Japanese investment in the UK, is doubling production which is expected to create another 1,300 jobs.

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