Brexit Effect on Honda Corporation

Market Position

Honda has always been an important part of the world’s car manufacturing industry. The history of the company encompasses many decades since 1947 (History, n.d.). The company started its endeavor by producing motorcycles, which were immensely popular at the time, while gradually shifting the focus toward automobiles. At the same time, the industry continues to exhibit an increased level of changeability, and its rules are subject to alterations.

Following the globalization trends, Honda established a plant in the United Kingdom (UK) in order to optimize its supply chain in terms of European production and sales. Overall, Honda’s Swindon manufacturer produced four models, which are Jazz (2009-2014), Accord (1992-2002), CR-V (2000-2018), and Civic (1994-present). The company occupies 1.7% of the UK’s automobile market, showing an annual capacity of 150,000 cars and providing 3,500 jobs (Chapman, 2019). Therefore, while Honda does not occupy a leading position in the country’s market, it still remains an important player in the sphere.

Honda originates from Japan, which caused additional challenges in terms of its operation in the European segment. Remoteness and complicated logistics became considerable challenges, which is why the establishment of the British plant was a logical response. Honda’s management has devoted much attention to optimizing the supply chain in Europe. According to the company, its operations rely on over 25 European suppliers, who provide details directly to the manufacturing facility where cars are assembled (Sustainability report, 2018). Therefore, Honda relies on a multiple outsourcing model, leaving the production of some parts to secondary suppliers, thus optimizing the functioning of the main plant.

In its pursuit of efficiency, Honda recognizes the importance of risk management, which is why the manufacturer places the work of its suppliers under scrutiny (Sustainability report, 2018). At the same time, Honda acknowledges the efforts of the partners who have repeatedly met the quality requirements of the company and values the goods relations with them.

Furthermore, the sustainability of the supply chain is another concept gaining increased attention in recent years. Honda promotes responsible purchasing and operations, which translates into relations with suppliers.

The company has incorporated an integrated supply chain management framework by establishing an ESG department in 2016 (Sustainability report, 2018). Its purpose is to help the management achieve the desired levels of efficiency and sustainability in cooperation with logistics departments and the regional headquarters. The main areas of activity of the integrated supply chain management include the response to legal regulations, risk management, and effective environmental policies. Overall, the company has attempted to maintain an image of an efficient and responsible manufacturer of the 21st century, but the external environment has introduced some disruptive forces.

Brexit Effect

Brexit has become one of the most significant events in the contemporary history of the UK. Bloom et al. (2019) have concluded that the unprecedented level of uncertainty has become the primary reflection of Brexit in the country’s economy. This indeterminacy was caused by the complicated negotiations of a potential deal between the UK and the European Union (EU), which regulated their relationship following Brexit.

A lack of such deal can entail over £55 billion in losses for the UK’s motor industry over five years (BBC, 2020) In addition to causing new challenges, Brexit is expected to aggravate the underlying issues of the country’s car manufacturing sphere. Amid undeclared trade war, President Trump imposed tariffs amounting to $7.5 billion on products imported into the United States from Europe (BBC, 2019). These development limit Honda’s global market opportunities, thus reducing potential revenue sources, as well.

In the fallout of its secession from the European Union, the UK is expected to implement a range of independent policies. Some of them may entail additional difficulties for companies accustomed to the European legislation. While sustainability has been in the focus of Honda’s operations, new policies take its pursuit to a new level. The UK’s Prime Minister Boris Johnson has announced a plan to prohibit the sales of diesel and petroleum cars by 2030 (Harrabin, 2020). The government’s green plan appeared in the fallout of the Brexit, and it aims at introducing new requirements in terms of reducing carbon dioxide emissions and non-renewable energy consumption.

The emphasis on electric vehicles in the UK has been on the increase since Brexit, forcing manufacturers to develop expensive technologies in this sphere. This process disrupts the existing supply chains, as current, well-established partners are usually unable to reorient their production from combustion-based vehicles to electric cars. Similar to other mid-range manufacturers, Honda is reluctant to engage in this costly technological race, announcing plans to leave the United Kingdom in 2021 (Tsang, 2019). In addition, Brexit imposed further limits on trade capabilities between the UK and the EU, leaving Honda with fewer options in this regard.

As far back as 2008, the company predicted an unprecedented disruption of its supply chain caused by the projected customs formalities. The total financial impact of new regulations was calculated to amount to millions of euros in forms alone (Barker and Campbell, 2018). Overall, Brexit altered the landscape of the UK’s automobile industry, highlighting the gap between the business and the government.

Honda’s Response

In such difficult circumstances, Honda’s management had to find an optimal solution in relation to its Swindon facility. Having considered the economic impact of the latest developments, the company made a difficult decision to cease its operation in the country. Ziady (2020) sees this step as a warning to the UK’s government, showing the economic chaos Brexit may entail. In 1985, Honda established the Swindon plant with the sole purpose of having a production site inside the European Union in order to avoid import tariffs (Elliott, 2019). However, Brexit has invalidated this advantage, as customs formalities are to return, disrupting the well-established supply chains.

Rearranging the logistics of the Swindon plant would be an unnecessary expenditure, and Honda responded in a drastic yet reasonable way, moving its production for the EU to Japan, China, and North America (Ziady, 2020). In the current environment, the trade agreement between Japan and the EU makes it easier to continue trade from Honda’s home country than from the UK (Japan, n.d.). Therefore, it appears that Honda has reached the bottleneck of the UK market, which no longer presents the initial advantages.

On the other hand, while Brexit contributed to the manufacturer’s departure from Swindon, it was not the only factor. As discussed earlier, today’s automotive business is highly demanding in terms of technology, thus requiring considerable expenses. Experts state that Honda’s UK production has never fully recovered after the severe economic crisis of 2008-09 (Elliott, 2019). Accordingly, the plant already struggled financially, and the looming implications of Boris Johnson’s initiative could put it on the verge of bankruptcy, affecting Honda’s worldwide performance. Furthermore, in 2020, the world faced the Covid-19 pandemic, which has had a profound impact on all industries across the globe.

In an environment where international logistics were complicated by the coronavirus restrictions and the purchasing power of the customers decreased, Covid-19 served as the catalyst, accumulating with the effect of Brexit. The detrimental impact of these environmental forces pressured Honda’s UK division to reconsider the entire framework of its operations, leading to the imminent closure of the Swindon facility.

Reference List

Barker, A. and Campbell, P. (2018) ‘Honda faces the real cost of Brexit in a former Spitfire plant’. CNBC. Web.

BBC (2019) ‘US set to impose tariffs on $7.5bn of EU exports in Airbus row’. Web.

BBC (2020) ‘UK car industry warns of £55bn no-deal Brexit hit’. Web.

Bloom, N. et al. (2019) The impact of Brexit on UK firms. National Bureau of Economic Research Working Paper No. 26218. Web.

Chapman, B. (2019) ‘Honda to close Swindon plant by 2021 with loss of 3,500 jobs. Independent. Web.

Elliott, L. (2019) ‘Honda’s exit is based on many factors, but Brexit is certainly one’. The Guardian. Web.

Harrabin, R. (2020) ‘Ban on new petrol and diesel cars in UK from 2030 under PM’s green plan’. BBC: Science. Web.

History (no date). Web.

Japan (no date). Web.

Sustainability report (2018). Web.

Tsang, A. (2019). ‘Honda confirms plan to leave Britain as Brexit looms’. The New York Times. Web.

Ziady, H. (2020). ‘Honda shutdown is a warning of the chaos Brexit could cause’. CNN: Business. Web.

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