Political issuescan be defined as a political system that restricts certain operations andactions (Daviter, 2007). In2016, the UK voted to leave the European Union to become a self-governingentity in the hope of enjoying the same benefits EU members have such as; theaccess of Free-trade. The European Union isone of four major trading blocs, which Britain could be refused access to oncethey officially leave (Peter, 2016).
Toyota is aJapanese multinational automotive corporation, who have manufacturingoperations within the UK (Toyota UK, 2016). Toyota heavily depend on theEuropean market for importing car components whilst 80% of their vehicles areexported to Europe (180,00 cars) (Tovey, 2017). Toyota has treatedBritain as their entry to the EU, which means Britain’s restrictions to access of free trade within the EU could create concernswith the sourcing of labour for Toyotas manufactures which could increase thecosts of supplies (Monaghan, 2017). The rise in tariffs to receiveentry to the European markets once the UK has officially leaft the EU could resultin the total costs of goods also rising (Financial Times, 2016). The Transaction cost theorystates that the aim of an organisation is to minimize the costs of exchangingresources in the external environment whilst minimizing the costs of withintheir internal environment (Hollenson, 2011). According to Torkelli et al.
(2016) if the external costs are greater than internal costs the organisationcan expand. The theory is made up of two cost elements: Pre costs (searchingand contracting) and Ex post costs (monitoring and enforcing costs) (Hollenson,2011). Research from above shows that The UK is yet tonegotiate a trade deal with the EU, this suggests that Toyotas pre costs willbe greater, as they will have to spend money on searching and contracting newsupplier who provide lower prices. Since there is currently very little visibility on thetrade dimension, it is very difficult to predict the future regarding access tosingle markets.
Therefore, Toyota will alsoexperience greater post costs such as closely monitoring the externalenvironment and renegotiating with suppliers. If the market continues to lackpredictability, internal costs will continue to increase which may hinder therate at which Toyota expand. Althoughthis theory acknowledges suppliers may adopt opportunistic behaviours suchas increasing costs of material due to a higher demand for new suppliers (Judge& Dooley, 2006).
Valentinov & Curtiss (2005) propose that the theory ismore relevant to smaller organisations due to their lack of access of resourcesand contacts, therefore impacts according to this theory will be far greater asopposed to Toyota. If the UK is unable to createsufficient trade agreements with the EU, Britain willhave to enter the World Trade Organisation bloc (Financial Times, 2017). Therefore, the cost ofbuilding a Toyota car in the UK could rise by 10% subsequently, increasing the price of the purchase (Pooler , 2017).
Therefore, in the short term,consumption levels could be reduced. The restriction ofaccess to free trade within Europe can increase the costs of distributingToyota’s products within Europe and restrict where they can distribute their products.These rises in costs can also impact Toyota’s marketing budget. Toyota hasreceived some assurance from the UK government who have invested £21 million in Toyota, to improve and upgrade theirmanufacturing plants and improve their technology in the UK (Ruddick, 2017). However,the restricted access off free trade to the EU is still a concern. Toyota would also benefitfrom attracting new suppliers to the local area to protect themselves from thepotential impacts of tariffs on imported materials to the UK. However, if thereare no trade deals and investments made within the next 3-5 years, ultimatelythis could force Toyota to relocate their manufacturing operation to Europe asthis issue cannot be ignored (Campbell & Inagaki, 2016).