Hitachi to relocate rail division to the UK

[Wavertreelad]

There are probably many reasons for the move by Hitachi. The Japanese economy has been in decline for many years so the prospect of major domestic sales is very unlikely. The Japanese currency is also considered to be uncompetitive against other major currencies so trying to export from a manufacturing plant in Japan becomes very expensive. The surrounding countries are relatively small or mature and potentially could buy cheaper from China. The shipping costs from Japan are relatively cheap as the trains can be moved on scheduled roll on/roll off services to Japan to Europe, whilst EU Customs duty on electric locomotives is only 1.70% of the landed EU Port value, cars incidentally are 10% so hence the attraction for non EU car manufacturers to establish a presence in the EU. Manufacturing in the EU avoids the payment of duty, and establishing in the UK is particularly favourable because the problems of the Euro are avoided. Let's not forget the Euro zone tax payers are likely to be paying for the privilege of being members of the Eurozone for many more years which will inevitably result in higher taxes for companies and individuals alike. The UK also has far less stricter employment laws than many EU states, and even if the UK voted to opt out of the EU, this would take many years and in all likelihood the UK would simply a negotiate a preferential trading agreement like that already in place for Norway and Switzerland.

Apart from the economic benefits, including EU and government grants for setting up in the UK, and the commercial benefits of being in the same market as your competitors especially if there is a prospect of major orders for many years to come, there is one important other aspect, the language. English is the language of international commerce, for many non EU companies this is a huge attraction as it avoids staff posted to the new entity from the parent organisation having to learn an additional language. Allegedly, this was one of the main reasons why giant Taiwanese shipping line Evergreen moved it's European Headquarters from Hamburg to London

http://www.evergreen-line.com/tbo1/...n&Type=&Country=GB&CountryName=United Kingdom

One of the other reasons allegedly was the lack of direct flights from Taipei to Hamburg, despite the fact that the City was considered at the time and remains the European giant of the Far East trade.

I suspect either HS2 will eventually be extended northwards from York or a route cleared to the North East on the ECML with Hitachi picking up part of the bill to enable it export it's UK trains to mainland Europe and a solution to the missing link between HS1 and HS2 will be found when the project is advanced.

Hitachi will have micro analysed every facet of this deal and would only have committed if all the figures and advantages suited their business case. They will also likely to have had discreet discussions with Japanese car manufacturers in the UK, Nissan, Toyota and Honda to verify their findings, no stone will be left unturned.

 

[TheKnightWho]

the UK would simply a negotiate a preferential trading agreement like that already in place for Norway and Switzerland.

Most companies are not banking on this happening. Those arrangements were designed as stepping-stones to membership for those two countries, and involve considerably more than just a common market.

 

[transmanche]

and establishing in the UK is particularly favourable because the problems of the Euro are avoided.

That doesn't seem to have hindered Siemens.

Let's not forget the Euro zone tax payers are likely to be paying for the privilege of being members of the Eurozone for many more years which will inevitably result in higher taxes for companies and individuals alike.

Like Ireland with its 12.5% Corporation Tax? Compared to the UK with 23% (dropping to 21% from 1 April 2014).

(Of course Ireland isn't a great place to manufacture standard gauge railway vehicles.)

The UK also has far less stricter employment laws than many EU states,

Bingo!

and even if the UK voted to opt out of the EU, this would take many years and in all likelihood the UK would simply a negotiate a preferential trading agreement like that already in place for Norway and Switzerland.

Ah yes, the "Norwegian solution". The "all-the-costs-but-none-of-the-say solution". I can see that working well for us.

Apart from the economic benefits, including EU and government grants for setting up in the UK, and the commercial benefits of being in the same market as your competitors especially if there is a prospect of major orders for many years to come, there is one important other aspect, the language. English is the language of international commerce, for many non EU companies this is a huge attraction as it avoids staff posted to the new entity from the parent organisation having to learn an additional language.

In fact the very reason that many global companies (particularly US companies) sited their European operations in Ireland. Speak English, in the single market and in the eurozone.

Let's be honest, the only reason they decided to build their plant in the NE is; cheap labour, easy-to-sack[*] labour, government grants and that it was in the same country as their first large European order. And once the site is in operation, it's cheaper to keep it open than relocate to mainland Europe.

* Compared to most countries.

 

[Wavertreelad]

Most companies are not banking on this happening. Those arrangements were designed as stepping-stones to membership for those two countries, and involve considerably more than just a common market.

I agree most companies are not banking on the UK leaving the EU, and in all probability neither are the Conservative Party as a referendum in 2017 is only on offer if they win the next General Election and form a majority government. As is stands, the likelihood is remote if the polls are to be believed, and with both the two other major parties committed to Europe it would seem to be a reasonable bet that the UK I suspect including Scotland will remain in the EU for the foreseeable future. Transitional measures apply for all countries wishing to join the EU, but I suspect both Norway and Switzerland are never likely to join because it simply would not be in their interest. Norway is energy rich, with North Sea oil and Gas with a relatively small population, joining the EU would probably result in it paying in more than it would get out. To a lesser extent Switzerland is also self sustaining in energy and with revenues from it's financial sector they too would loose out financially joining the EU. The other problem that is that any membership of the EU could compromise their traditional stance of remaining neutral in wars and that would be a hard one to sell to the respective populations. As it stands both countries have negotiated preferential deals with the EU as far as trade is concerned and where it suits other legislation which usually mirrors EU policy or standards. Traditional transitional measures for any new State wishing to join the EU have in the past rarely lasted more that a few years. If I remember correctly the subject of Norway and Switzerland joining the EU was first offered about the time the UK started the process of joining, so it is unlikely to happen now.

 

[transmanche]

Norway is energy rich, with North Sea oil and Gas with a relatively small population, joining the EU would probably result in it paying in more than it would get out.

Norway already pays into the EU. About half what it would pay if it were actually a member - but of course it has no say. No MEPs, no representation in the Council of Ministers and no representation in the Commission.

(Switzerland also pays into the EU, although less than Norway. But still has no say.)

 

[Wavertreelad]

That doesn't seem to have hindered Siemens.]

I agree, but Siemens has been established since 1847 in Germany and as we all know some EU countries (UK aside) structure their tenders so "favour" national enterprises even though it is supposed to be banned. They have all done it for years, and only the UK plays it by the book. Expanding it's base into the competitions market is a common multinational policy.

Like Ireland with its 12.5% Corporation Tax? Compared to the UK with 23% (dropping to 21% from 1 April 2014).

(Of course Ireland isn't a great place to manufacture standard gauge railway vehicles.) In fact the very reason that many global companies (particularly US companies) sited their European operations in Ireland. Speak English, in the single market and in the eurozone.

The Irish have always tried to attract overseas multinationals through it's favourable taxation policy, but it's not so simple, there is little prospect of sufficient domestic demand to rely on, and the economy has still someway to go before it fully recovers. There is a relatively small population and there are no direct deep sea liner services to Ireland from anywhere outside the EU, unless you include bananas from the Caribbean. This increases the cost of Irish exports and imports, as well as lead times compared to the UK. Whilst the EU offers incentives for none EU companies to locate outside the central belt of the EU, many of those companies resident in Ireland were already resident before the country joined the EU, let alone the Euro.

Let's be honest, the only reason they decided to build their plant in the NE is; cheap labour, easy-to-sack[*] labour, government grants and that it was in the same country as their first large European order. And once the site is in operation, it's cheaper to keep it open than relocate to mainland Europe.

* Compared to most countries.

The UK retains the minimum wage legislation and much of EU employment law. The difference is in the UK there are huge difference in costs both to the employer and employee but to say the labour is cheap is I think a disservice to those people who manage to secure jobs at the plant, many of whom may be highly skilled. You only have to see what has been achieved by the Nissan plant in Sunderland, or the Toyota plant in Derby.

 

[transmanche]

The difference is in the UK there are huge difference in costs both to the employer and employee but to say the labour is cheap is I think a disservice to those people who manage to secure jobs at the plant, many of whom may be highly skilled.

I'm not doing them a disservice at all. I didn't say they were unskilled, I said they were cheap... cheap in comparison to similarly skilled workers in other countries, such as Germany.

You only have to see what has been achieved by the Nissan plant in Sunderland, or the Toyota plant in Derby.

The single-union representation was key to Nissan choosing the UK, along with the relative ease of being able to lay-off staff. It's the productivity of the staff that keeps Nissan here - but even that hasn't always insulated the plant from worries about production being moved to the eurozone.

 

[Wavertreelad]

I'm not doing them a disservice at all. I didn't say they were unskilled, I said they were cheap... cheap in comparison to similarly skilled workers in other countries, such as Germany.

Fair comparison I agree, the danger is some often associate cheap labour with unskilled jobs and this is clearly not going to be the case. The cheap labour argument was used extensively during the 80's and 90's when we exported our manufacturing capability to the likes of China and India. Compared to UK and EU prices labour costs in these countries remain competitive, but they are increasing dramatically all the time and in some cases without any increase of quality to the product, hence part of the reason why manufacturing is returning to Europe in some industries.

The single-union representation was key to Nissan choosing the UK, along with the relative ease of being able to lay-off staff. It's the productivity of the staff that keeps Nissan here - but even that hasn't always insulated the plant from worries about production being moved to the eurozone.

Agree but the car industry always plays the jobs game because of the huge swings in demand and the global nature of the business including supply chain.

Whichever way we look at this it has to be good news for UK in jobs and the people of the North East as well as the UK rail industry and perhaps ultimately the passengers who will use the trains.

 

[Clip]

How much money did the UK Government give them to set up the factories again?

I cant think of a number off the top of my head but are you saying this is a bad thing? It has secured not only thousands of jobs in places like mackemland where there has historically been very low unemployment and not to mention the supply chain from British businesses also.

Are you saying that the money invested by Governments in securing these factories has been a bad investment then?

I am actually quite shocked at some of the negativity from some posters about this on this thread, its almost like you dont want it to happen.

 

[jon0844]

I can't see how this is a bad thing. Even if it's mostly going to be administrative staff, I have to assume there won't be that many people from Japan being asked to relocate - so there will be jobs created for people in the UK.

Presumably Hitachi will be doing research on trains for the UK, Europe and managing all the variations in requirements for different member states, signalling etc, as well as the demand of various operators on things like internal layouts.

Then you'll need to be aware of upcoming tenders, and have people in place to properly research and create bids to go in. And then of course manage things if Hitachi wins orders.

There will therefore be a good mix of jobs created, so I really can't see a negative - regardless of the 'reasons' for picking the UK.

 

[L&Y Robert]

Where exactly in the NE will the jobs be?

 

[NotATrainspott]

I suspect either HS2 will eventually be extended northwards from York or a route cleared to the North East on the ECML with Hitachi picking up part of the bill to enable it export it's UK trains to mainland Europe and a solution to the missing link between HS1 and HS2 will be found when the project is advanced.

The cost of a new HS line is around the same as gauge-clearing the ECML, so there is no reason not to build a new line. Each individual section of HS2 will be equipped with a rolling stock depot and an infrastructure maintenance depot (they can be in the same place, but aren't in any of the current plans) and I would be extremely surprised if at least one of them wasn't located in the Teesside area. As a result all that Hitachi would have to do would be to reopen or build a short, slow, single-line and possibly even unelectrified GC-gauge line from the factory to the nearby depot in order to connect with the rest of the network. Since the York-Teesside part of the Newcastle extension will be even easier to build than Lichfield-Crewe it might not be very long until it exists.

 

[Clip]

Where exactly in the NE will the jobs be?

Well I am guessing that as they are building a works in Newton Aycliffe they will have options on the land around it for extension.

 

[gordonthemoron]

where exactly in Heighington/Newton Aycliffe/Aycliffe village/Industrial Estate will the factory be?

 

[Clip]

Not far from Heighington station

Thats from google maps

 

[gordonthemoron]

be handy for Locomotion #1

 

[LNW-GW Joint]

Can the OP at least get the manufacturer's name right: Hitachi.
We had enough problems with Alst(h)om!

While I am at it there are also some posters who think NWR is an acceptable abbreviation for Network Rail.

 

[Xenophon PCDGS]

While I am at it there are also some posters who think NWR is an acceptable abbreviation for Network Rail.

Whereas the more knowledgeable amongst us know that this is really the three-letter station code for Newtonmore.....

 

[Katada]

Can the OP at least get the manufacturer's name right: Hitachi.
We had enough problems with Alst(h)om!

While I am at it there are also some posters who think NWR is an acceptable abbreviation for Network Rail.

I just noticed, only a typo.

 

[contrex]

We had enough problems with Alst(h)om!

I am struggling to think of what kind of 'problem' the errant h could cause. To be fair, the letter h was present from the 1928 merger of Société Alsacienne de Constructions Mécaniques and Thomson-Houston, until 1998 when (to cut a long story short) the 'h' was dropped. So you could argue that it is historically correct to refer to pre-1998 rolling stock right up to the first TGV Duplex sets as having been made by Alsthom. After all you wouldn't say that GWR 6972 Beningbrough Hall was built by BR Western Region.

 

[MarkyT]

. . . until 1998 when (to cut a long story short) the 'h' was dropped.

I remember that happening, press releases and all. I seem to remember it was part of an attempt to 'appear more international' - although quite how dropping a letter from a name without changing its pronunciation could do that I couldn't understand. Returning to Hita(t)chi, that's clearly wrong with the extra 't' as the company trades under a roman alphabet identity, but assuming the name was originally translated from Japanese characters, it might easily have had the extra t in some interpretations, but not the current official one.

 

[LesS]

In his first post on this subject Wavertreelad pretty much had it correct.

From this side of the world these issues are viewed differently. For several decades, (particularly from when the Yen became too strong) Japanese manufacturers moved their factories to lower cost countries. Winners were Malaysia, Thailand and China. This does not apply to motor vehicles where the factors are different.

As to railway manufacturer I am uncertain whether the UK Hitachi facility will be for manufacture or for assembly. I suspect assembly. The economic value is in "design" and not in manufacture.

Some local examples. A contract for 676 suburban electric cars for Sydney will be completed within the next 3 weeks. The contractors are a JV between Hitachi and Downer EDI Rail. Hitachi supplying the traction motors and electronics. The carbodies and most fitting out were completed at Changchun, China then shipped to Newcastle for completion by EDI Rail. The local completion included the driving cab shells, driving consoles etc and the substantial array of computer masterboards, as well as extensive testing. The EDIRail setup achieved the completion of an 8 car set every 3-4 days. China had to be able to supply carbodies to meet this scale, which they eventually did. The reports I received were that the Hitachi components simply worked, straight out of the box. The sea voyage from China to the Australian east coast is fairly short but not short enough to avoid trouble. I am aware that one carset was destroyed in transit by contamination in the ships hold mixing with seamist and seawater. A journey to Europe would multiply such problems.

Hitachi/EDI Rail have a considerable record in supplying passenger rolling stock. They supplied Queensland with high speed electric trainsets and these were successfully duplicated by Hitachi in supplying similar product to Taiwan. (The Toroko sets). The Javelins supplied to SE Trains is further development of the concept.

A new contract was recently called for 450 electric passenger cars for Brisbane. Because of the terms of the contract EDI Rail/Hitachi very early in declined to tender. The contract has been awarded to Bombardier. Their main facility is in Melbourne. These cars will be built at Bombardier's facility at Savli, India.

The bottom line is that manufacture will occur where the required level of quality can be delivered at the most competitive cost. This may not necessarily be the cheapest. I doubt that another sub-contract will go to China from Australia for passenger cars.

 

[DownSouth]

A new contract was recently called for 450 electric passenger cars for Brisbane. Because of the terms of the contract EDI Rail/Hitachi very early in declined to tender. The contract has been awarded to Bombardier. Their main facility is in Melbourne. These cars will be built at Bombardier's facility at Savli, India.

And just for a twist, when Bombardier won deals with QR and Transperth for the 160/260/B-series they subcontracted a large portion of the work to EDi Rail at Maryborough.

Adelaide's new EMUs are currently being assembled at Bombardier's Dandenong facility, but the vast majority of the manufacturing spend is in Europe.

 

[Wavertreelad]

In his first post on this subject Wavertreelad pretty much had it correct.

From this side of the world these issues are viewed differently. For several decades, (particularly from when the Yen became too strong) Japanese manufacturers moved their factories to lower cost countries. Winners were Malaysia, Thailand and China. This does not apply to motor vehicles where the factors are different.

As to railway manufacturer I am uncertain whether the UK Hitachi facility will be for manufacture or for assembly. I suspect assembly. The economic value is in "design" and not in manufacture.

Some local examples. A contract for 676 suburban electric cars for Sydney will be completed within the next 3 weeks. The contractors are a JV between Hitachi and Downer EDI Rail. Hitachi supplying the traction motors and electronics. The carbodies and most fitting out were completed at Changchun, China then shipped to Newcastle for completion by EDI Rail. The local completion included the driving cab shells, driving consoles etc and the substantial array of computer masterboards, as well as extensive testing. The EDIRail setup achieved the completion of an 8 car set every 3-4 days. China had to be able to supply carbodies to meet this scale, which they eventually did. The reports I received were that the Hitachi components simply worked, straight out of the box. The sea voyage from China to the Australian east coast is fairly short but not short enough to avoid trouble. I am aware that one carset was destroyed in transit by contamination in the ships hold mixing with seamist and seawater. A journey to Europe would multiply such problems.

The bottom line is that manufacture will occur where the required level of quality can be delivered at the most competitive cost. This may not necessarily be the cheapest. I doubt that another sub-contract will go to China from Australia for passenger cars.

And it wasn't just manufacturing that the Japanese outsourced, you will struggle to find a containership registered under the Japanese flag, despite the fact that Japanese shipping lines control hundreds of them employed globally. Of the three Japanese shipping lines serving Europe, two K Line and NYK both have their European Headquarters in London, whilst the third MOL is located in Rotterdam, and each one is part of a major industrial group which means many "sister" companies and subsidiaries. The Japanese banking and insurance industry is also global but also very established in the UK.

The risk of damage shipping rolling stock, or cars and vehicles on roll on/roll off vessels is usually minimal as the decks are not exposed to elements, although I have heard of several cars being damaged or written off when the drivers misjudge the speed and ramp during loading/unloading operations! Of course if the cargo is shipped on a conventional vessel the risk is understandable, and we all remember the pictures of the damaged Freightliner class 70 which was dropped during unloading operations. This is the reason why now these locomotives are now shipped on ACL's weekly ro/ro service to Liverpool.

One of the other reasons why manufacturing is returning slowly to Europe and North America is because of the reliability of supply. When these economies moved their manufacturing to the Asia, the lower cost of the goods could easily offset the additional cost of shipping the goods half way round the world and were delivered on time, helped by the fact that the shipping lines provided weekly sailings at relatively high speed to major ports in Europe and North America. As manufacturing moved more production east, the demand for space on the ships increased and so the shipping lines ordered bigger and more ships. At the start of container operations in the Europe/Far East/Europe trade which excluded China in 1972 the largest ship was about 2500 teu, today that size of vessel is used as feeder vessel between Antwerp and Liverpool by one global shipping line, whilst on the Europe/Far East trade the average size is 10000/13000 teu, with some 18000 teu vessels already in service. The banks happy to invest in this growing business allowed the business to grow, but when the global crash happened suddenly there were over 500 containerships left idle (about 200/250 today) with no work. As the shipping lines still had to pay the costs of these ships they slowed their services down from 23/24 knots to 18 knots and sometimes below to save fuel costs, and allowing some of these idle vessels to be employed on their services to enable a weekly service to be maintained. As a consequence, transit times have increased by anything up to a fortnight, added to which to take into reduced volumes during Chinese New Year etc, there will be reduced or no sailings. As higher quality standards have risen, so have the delays in production in some cases, with the result that now if a company in the UK now urgently needs the product urgently they have to consider airfreight, which at a minimum is going to take a week and at considerable extra cost. The advantage of manufacturing some products in Asia is slowly being eroded, especially in economies where there is an abundance of high unemployment and skilled labour.

 

[contrex]

I seem to remember it was part of an attempt to 'appear more international' - although quite how dropping a letter from a name without changing its pronunciation could do that I couldn't understand.

Although native English speakers who don't speak any French would probably recognise that the Th in Thomson is pronounced like a letter T, knowing that the th in Alsthom is pronounced that way too would depend on knowing French pronunciation or knowing about the Thomson-Houston part of the 1928 merged company. People who use "International English" might well think the th was pronounced like th in this, that, therefore, thing, though etc. At least Alstom sounds the same to French ears.

Returning to Hita(t)chi, that's clearly wrong with the extra 't' as the company trades under a roman alphabet identity, but assuming the name was originally translated from Japanese characters, it might easily have had the extra t in some interpretations, but not the current official one.

Maybe it's the same demon that makes people say 'choritzo' (I have even seen it written!)

 

[Surreyman]

Fairly low risk business strategy, an assembly plant is already under construction, they can rent/lease an office with @20-30 staff as a 'European HQ' for sales and admin staff and appoint a CEO for Europe.
So far so good, in 'PR' terms they can play the 'British based company' party piece and if anyone quibbles, they can point out that Bombardier is Canadian and most of Bombardiers high value 'bits' are manufactured outside of the UK!
Hitachi will be very keen to win more IEPs (or at least son of IEP) to replace remaining HSTs.
The recently published 'rolling stock plan' seems to indicate a huge demand for EMUs over the next 2 decades.

 

[kieron]

Even if they only transfer existing staff (and there will very likely be some new staff, probably in the form of secretarial, cleaning, security, etc. for the offices) it will create a boost for the UK economy (although probably not noticeable in the greater scheme of things)

It would do. Hitachi already have sales and administrative staff in London owing to Hitachi Rail Europe being based there, however, and there isn't enough detail in the announcement to say whether a single new permanent job will be created from this move. They announce three impressive-sounding jobs, but they may all be internal appointments from within the London operation.

The factory they're building is a different matter entirely, though.

 

[WatcherZero]

They also said no staff would transfer from Japan to the UK and Japan would continue to be run from Japan, which again hints at a more modest promotion of the European office responsibilities.

 

[Wavertreelad]

They also said no staff would transfer from Japan to the UK and Japan would continue to be run from Japan, which again hints at a more modest promotion of the European office responsibilities.

This would follow the strategy of most Japanese corporations, with the European HQ being responsible for European operations and sales as well as compliance with European standards etc, whilst reporting to Japan HQ who would be responsible for overall strategy and finance. I would suspect that other divisions of Hitachi may follow suit once the rail division is in place.

 

[WatcherZero]

Yeah except in this case they will be responsible for worldwide sales except the Japanese domestic market.