Last Updated 20 Apr 2022

the Case of Nissan in the UK

Words 1556 (6 pages)
Views 403
Table of contents

Direct investment among the richest countries has been one of the eminent features of the world economy since the mid-1980s. Within this broad trend, Europe features prominently as both a home and host to multinational enterprises (MNEs). Not only did many Japanese and American firms invest massively, but even the most somnolent European firms appeared to awake to the need to look beyond their own national borders. (Thomsen and Woolcock, 1993)

In narrow terms, FDI is simply all capital transferred between a firm and its new or established foreign affiliates. In its broadest sense, FDI represents competition: among workers, governments, firms, markets and even economic systems. (ibid)

The main objective of this report is to illustrate the motives in relation to firm`s desire to locate some production or other activities in a foreign country. In order to do so, several theories that seek to explain why FDI takes place will be discussed, such as Dunning`s Eclectic Paradigm, Vernon`s Life Cycle model, the Knickerbocker Model and others. Moreover, to evaluate the rationale for FDI, references will be made to the case study of Nissan`s automotive investment in North-East England.

Order custom essay the Case of Nissan in the UK with free plagiarism report


Theoretical Background

The most commonly seen forms of FDI can be determined as:

  • Merges and Acqusitions;
  • Privatisation-related investment;
  • New forms of investment (joint ventures, strategic alliances, licensing and other partnership agreements);
  • Greenfield investment (a new operation);
  • Brownfield investment (expansions or re-investment in existing foreign affiliates). (Hill, 2007)

One of the first theories explaining multinational firms was created by Hymer (1959). He develops a specific - advantages theory which states that firms need to have internal – specific advantages over domestic rivals, in particular economies of scale and superior product technology, in order to invest in that country.

Thereafter, Knickerbocker (1973) emphasise oligopolistic rivalry as an explanation for FDI, with firms investing in each other`s home markets to gain first mover advantages, leading to a follow-the-leader pattern of international investment to reduce risks in an uncertain oligopolistic environment.

Furthermore, Vernon`s (1966; 1979) product life-cycle theory explains the shift from export to direct investment in developed and developing countries. Rivalistic firm behaviour drives firms in developed countries to locate lower value added or mature activities in low cost developing countries so that the firm can move up the product cycle and focuse on developing new products therefore sustaining the competibility.

Thereafter, the internalisation theory was developed in order to understand why firms invest abroad instead of exporting or licensing to domestic firms. It argues that high transaction cost, such as enforcing contracts, maintaining quality, and keeping proprietary rights over technical and marketing knowledge, may justify direct ovnership (internalisation) of overseas activities. This theory has been expanded to include the transaction costs of political intervention and trade barriers. (Loewendahl, 2001)

However, several theoretical studies have started to incorporate the insight from different perspectives into their own disciplines and are acknowledging the important contributions that different approaches can make to each other. (ibid)

Dunning has brought together the main principles of there theories and developed Eclectic, also knows as Ownership-Location-Internalisation, paradigm, that clearly identifies these three areas of possible advantage for FDI to take place. (Dunning and Lundan, 2008)

Although academically it is still under discussion, most countries seem convinced that inward FDI is benefical for their local economies. (Oxelheim and Ghauri, 2004) The study of Nissan`s automotive investment is a case in point, which will be explained in the following section.

Nissan Case Study

A company of Nissan`s automotive investment in North-East England is examined in more detail as:

  • Nissan succeeded in its demands for a single union plant, which was highly controversial, unprecedented in the UK motor industry, and set the stage for the further investment of Honda and Toyota.
  • It was the single lagrest investment in the UK at the time of severe industrial decline and the investment represented a turning point for the North-East region development.
  • The investment signalled the revival of the UK car industry and the emergence of Japan as a major new investor in the UK.

The success of Japanese auto manufacturers was compouned by the oil crises in the 1970s, which led to demand for small cars, of which Japan was the lowest cost and most efficient producer (Moore, 1994). Japan`s share of world car production increased from just 1% in 1960 to 27% in 1985. Furthermore, in 1996 Nissan`s share of the world passenger car production, at 5.8%, was the sixth highest in the world and exceeded that of Renault, Rover and Alfa Romeo combined. (Sadler, 1992)

With rapid growth at home and abroad, Nissan began overseas production as early as 1962, setting-up in Thailand – the first overseas investment by a Japanese automobile company. By 1990, Nissan had 11 overseas production bases and Nissan UK was established in 1984. (Loewendahl, 2001)

In spite of Nissan`s global consolidation in the automotive industry, its financial crisis lead to a strategic partnership between Nissan and Renault in March 1999. This partnership was beneficial for both parties due to the strategic fit between the two companies:

  •  Geogrphic fit: Nissan has a strong presence in Asia-Pacific and North America while Renault is strong in Europe and ahs plants in Latin America.
  • Business strengths: Nissan is strong in manufacturing capability, product technology, and its supplier technology base, while Renault is strong in management, product planning and product design capabilities.
  • Product range: Nissan is strong in light trucks and sport utility vehicles (although Nissan`s product portfolio covers nearly all segments), while Renault is strong in passenger cars.

Nissan`s major FDI strategy for setting-up production in the European economic community (EEC) was market-seeking, and the UK was Nissan`s largest market in Europe, accounting for one third of Nissan`s sales in Europe in 1982. (Loewendahl, 2001)

The economic conditions in several UK regions provided an environment suited to Nissan. While industrial relations in the UK in the early 1980s were not perfect (as far as Nissan was concerned), the Thatcher government promised radical changes. Nissan considered conditions in the North-East to be particulary favourable for establishing a single union and introducing new work practices, because Sunderland would provide an acquiescent workforce that has no tradition of automobile production, in region of high unemployment. (McRae, 1997)

The domestic environment in the UK was considered less hostile than in the other major EEC countries and Nissan`s productivity advantage would be most apparent in the British market. In addition, the English language, competitive production cost and availability of government grants were also important. Also factors like Japanese financial services in London, similar commercial and legal systems, low taxes and cultural proximity (Morris, 1988), with a shared interest in gardens, rugby, golf and tea, playing a role in the decision-making of Nissan and other Japanese MNCs (Loewendahl, 2001).

With reference to the terminology of Dunning`s eclectic paradigm, there was a high correspondence between the ownership advantages of Nissan and the location advantages of the UK. The UK was also able to meet the requriments of Nissan`s market seeking FDI strategy and project specific needs, as well as Nissan would satisfy the requirements of the UK`s inward investment-led industrial and regional policy. (ibid)

Therefore, it can be said that Nissan and the follow-on investment of Honda and Toyota have prevented the collapse of the British car industry and Nissan is propping-up the North-East manufacturing economy. For instance, between 1986 and the end of 1999 the FDI coming from Nissan, Toyota and Honda reached £4 billion in the UK. In other words, these three MNCs accounted for 80% of the increase in the UK car manufacturing output from 1991 to 1999.

Nissan Motor Manufacturing UK is responsible for supplying the European market and managing its supply-chain, nevertheless, it does not have control over strategic activities including research and development, planning or co-ordinating the global network of operations. These activities remain in Japan, with Nissan`s European operations co-ordinated from Brussels.

It can be outlined that Nissan (also mentioning Toyota and Honda) have made a positive contribution to the economy of the UK in terms of export, suppliers and job creation. It also applies to Japanese inward investment in other sectors of the economy. However, according to theoretical and empirical research, this particular picture of Japanese investment is shadowed when, for instance, the emphasis is put on the type of jobs being created. While Nissan has been at the centre of new training initiatives in the North-East, the jobs are not high skilled and are characterised by highly intensive work organisation. (Loewendahl, 2001)


To sum up, the most commonly seen motives for companies to become MNCs and invest in other countries are related to the business perspectives of merges and acquisitions, therefore accessing a foreign market, as well as the benefits of lower wages or more favourable government policies.

In long term perspective of attracting FDI, especially from Japanese investors in the UK, a potential threat can be identified in relation to joining the Euro-zone. Japanese companies have invested in the UK in order to serve the European market, and what matters most are currency fluctuations within Europe, not with the dollar and the Yen. With Japanese companies like Nissan concentraiting production in one location and exporting to the rest of the European market, the importance of currency stability is increased. (Loewendahl, 2001)

However, a pre-condition for further investment in the UK by Nissan and other Japanese companies may, therefore, be that the UK remains at the heart of economic and political integration in Europe.

the Case of Nissan in the UK essay

This essay was written by a fellow student. You can use it as an example when writing your own essay or use it as a source, but you need cite it.

Get professional help and free up your time for more important courses

Starting from 3 hours delivery 450+ experts on 30 subjects
get essay help 124  experts online

Did you know that we have over 70,000 essays on 3,000 topics in our database?

Cite this page

Explore how the human body functions as one unit in harmony in order to life

the Case of Nissan in the UK. (2017, Mar 22). Retrieved from

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Save time and let our verified experts help you.

Hire writer