can be defined as a political system that restricts certain operations and
actions (Daviter, 2007). In
2016, the UK voted to leave the European Union to become a self-governing
entity in the hope of enjoying the same benefits EU members have such as; the
access of Free-trade. The European Union is
one of four major trading blocs, which Britain could be refused access to once
they officially leave (Peter, 2016).
Toyota is a
Japanese multinational automotive corporation, who have manufacturing
operations within the UK (Toyota UK, 2016). Toyota heavily depend on the
European market for importing car components whilst 80% of their vehicles are
exported to Europe (180,00 cars) (Tovey, 2017). Toyota has treated
Britain as their entry to the EU, which means Britain’s restrictions to access of free trade within the EU could create concerns
with the sourcing of labour for Toyotas manufactures which could increase the
costs of supplies (Monaghan, 2017). The rise in tariffs to receive
entry to the European markets once the UK has officially leaft the EU could result
in the total costs of goods also rising (Financial Times, 2016).
The Transaction cost theory
states that the aim of an organisation is to minimize the costs of exchanging
resources in the external environment whilst minimizing the costs of within
their internal environment (Hollenson, 2011). According to Torkelli et al.
(2016) if the external costs are greater than internal costs the organisation
can expand. The theory is made up of two cost elements: Pre costs (searching
and contracting) and Ex post costs (monitoring and enforcing costs) (Hollenson,
2011). Research from above shows that The UK is yet to
negotiate a trade deal with the EU, this suggests that Toyotas pre costs will
be greater, as they will have to spend money on searching and contracting new
supplier who provide lower prices. Since there is currently very little visibility on the
trade dimension, it is very difficult to predict the future regarding access to
single markets. Therefore, Toyota will also
experience greater post costs such as closely monitoring the external
environment and renegotiating with suppliers. If the market continues to lack
predictability, internal costs will continue to increase which may hinder the
rate at which Toyota expand.
this theory acknowledges suppliers may adopt opportunistic behaviours such
as increasing costs of material due to a higher demand for new suppliers (Judge
& Dooley, 2006). Valentinov & Curtiss (2005) propose that the theory is
more relevant to smaller organisations due to their lack of access of resources
and contacts, therefore impacts according to this theory will be far greater as
opposed to Toyota.
If the UK is unable to create
sufficient trade agreements with the EU, Britain will
have to enter the World Trade Organisation bloc (Financial Times, 2017). Therefore, the cost of
building a Toyota car in the UK could rise by 10% subsequently, increasing the price of the purchase (Pooler &
Campbell, 2017). Therefore, in the short term,
consumption levels could be reduced. The restriction of
access to free trade within Europe can increase the costs of distributing
Toyota’s products within Europe and restrict where they can distribute their products.
These rises in costs can also impact Toyota’s marketing budget.
received some assurance from the UK government who have invested £21 million in Toyota, to improve and upgrade their
manufacturing 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 benefit
from attracting new suppliers to the local area to protect themselves from the
potential impacts of tariffs on imported materials to the UK. However, if there
are no trade deals and investments made within the next 3-5 years, ultimately
this could force Toyota to relocate their manufacturing operation to Europe as
this issue cannot be ignored (Campbell & Inagaki, 2016).