Blog: JLR supply chain
Dave Leggett | 19 December 2008
I heard an interesting item on the radio this morning that very amply illustrates how the supply chain in the English West Midlands is being hit very hard and quickly by reduced output at Jaguar Land Rover (JLR). When Rover went belly-up a few years' back, suppliers knew the writing was on the wall for some time before it hit, and could prepare by diversifying their customer base.
And the ultimate impact of that failure on the UK automotive supplier industry was much less severe than feared.
The current business crisis, on the other hand, has hit much more suddenly - in Britain's manufacturing heartland, as elsewhere in the world.
The radio clip is a reminder of the reason why the British government will feel compelled to act: jobs. This is about managing the economy so that the immediate impact of the recession is minimised and - more importantly - that long-term damage to Britain's economic health is kept to a minimum. When companies are gone, assets sold off at auction by the receivers, that's your lot. They're really gone. And manufacturing jobs are maybe seen as even more important in Britain now that the dangers of relying too much on services (especially financial) have been shown up so graphically.
In the recession of the early 1980s Britain lost a lot of manufacturing capacity. The loss to employment was severe, but the economy later grew its services sector dramatically to take up the slack. And some new manufacturing activity came in (eg FDI by Japanese car companies). But there was a pronounced structural shift in the economy from manufacturing to high-growth services. It's hard to see that happening again in the next decade. Hanging on to manufacturing jobs looks like the thing to try and do right now.
While Jaguar Land Rover may be owned by an Indian conglomerate, there are scores of jobs (and many are high value jobs, requiring skills and training) in Britain dependent upon its operation - directly and indirectly. Some will say that UK taxpayer money should not be used to support (via a soft loan to aid liquidity) a foreign-owned company and effectively transfer substantial UK Treasury resources to Tata. And it's a debate well worth having that illustrates one of the consequencies of globalisation in the modern corporate world. The lines of responsibility and accountability have become much more complex.
But in the cold reality of struggling companies and potentially harmful knock-on effects, governments will find it very difficult to stay out. To not get involved risks long-term damage to manufacturing capacity and the economy happening by default.
Tata is holding a few cards here. If support is not forthcoming, the spectre of work and jobs shifted from the UK to India might well come into play (and that can be an unspoken threat lurking in the background). From the vantage point of Bombay House (Tata's Mumbai HQ), to what extent should it be supporting or underwriting jobs (and relatively expensive ones at that) in Britain? The UK government, like many others facing up to this sudden economic crisis, has little choice but to act - and quickly.
After the dramatic banking sector shore-up in the autumn, it's the so-called real economy requiring support now.
It's maybe not as dramatic as Lehman going bust overnight, but the long-term consequences of what's now occuring in manufacturing industry - much of it under the radar in the small supplier companies - could be just as serious, if not more so.
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