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MockExamQuestion1Feb2019.docxMock exam type question based on Dyson moves to Singapore for 1 February 2019
Write, in essay form, an answer. Read the case study below…..One page answer covering everything regarding the question. Be sure that you develop as many argument as possible to answer the question .
Question:
Identify and explain the economic changes which have encouraged James Dyson to move Dyson’s headquarters from the UK to Singapore. Develop as many arguments as possible, taking into account international economic climates and conditions.
In conclusion, decide if you think Dyson’s decision is appropriate and explain your reasoning.
Why is Dyson moving to Singapore? It's not just Brexit
James Dyson may be a leading Brexiteer, but moving the Dyson HQ to Singapore is complicated. UK skill shortages, tax breaks, and other incentives will have made the upheaval appealing
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Thursday 24 January 2019
Getty Images / Larry Busacca / Staff
Dyson is one of the UK’s biggest engineering and innovation success stories. Now, the vacuum cleaner company turned electric car entrepreneur is moving its headquarters out of the UK to Singapore – even though founder and owner James Dyson was one of the country’s most vocal Brexiteers. So what gives?
The company’s chief executive Jim Rowan insists that the move has nothing to do with Brexit or the UK’s tax regime. Instead, he says, Dyson wants to be “future-proof for where we see the biggest opportunities.”
“We have seen an acceleration of opportunities to grow the company from a revenue perspective in Asia,” Rowan said. “We have always had a revenue stream there and will be putting up our best efforts as well as keeping an eye on investments.”
But that’s very much at odds with James Dyson’s glowing forecasts for the economic opportunities in a post-Brexit Britain. Clearly, his company believes that Britain is falling short on the opportunity front. For economics professor Jonathan Portes at King’s College, the case is clear-cut: the move illustrates “why we should not take James Dyson’s views on Brexit seriously.”
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Four months ago, in October 2018, and after eight years of negotiations, Singapore and the European Union signed not only a Free Trade Agreement (FTA) , but also an Investment Protection Agreement plus a framework agreement on closer partnership and cooperation. Come Brexit Day on March 29, should there be a “no deal” scenario, it will be easier to trade with the EU if you're a Singaporean company, rather than a British outfit. Companies covered by the FTA will be trading with each other tariff-free. Already, Dyson does all its manufacturing in the Far East, mainly in Malaysia .
However Linda Lim, an economist at the University of Michigan specialising in doing business in South East Asia, argues that the FTA alone may not be the biggest reason for the Dyson move. If Dyson can win with its big bet on building electric vehicles, Singapore’s cost disadvantages will make it difficult for a niche car manufacturer to succeed, not least because of the transport costs and long turnaround time. All this “will be prohibitive, so Singapore-made cars just will not be price-competitive in EU markets, and certainly not in the UK itself, bar a separate UK-Singapore FTA.”
There are distinct advantages of being headquartered in Singapore, though. The city state provides tax incentives and benefits for companies that locate their global or regional HQ there. “A case in point is the US semiconductor company Broadcom, which had its global HQ in Singapore, while basically the vast majority of the leadership was in the US,” says Lim – although political pressure by the Trump administration ultimately forced Broadcom to ‘re-domicile’ to the United States.
Steve Keen, an economics professor at Kingston University and a keen Brexiteer himself , believes the Dyson exit has less to do with trade deals and more with UK skills shortages.
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“Dyson gets access to Asian markets and Asian industrial engineering skills,” Keen says. The UK is believed to have an engineering skill shortage , which Keen says is linked to former prime minister Margaret Thatcher's focus on financial services. “The upshot is that the UK simply doesn't have the engineers and skilled machinists that Dyson's technology requires, whereas Asia has them in abundance.”
Combine that with Dyson innovation, starting with its vacuum cleaner technology and now more recently its unconventional solid-state battery technology, and you have the winning ingredients, says Keen. “There's also a marketing angle. A Ford EV is 'meh' next to a Tesla, because of Musk's justified image as an innovator. A Dyson is just as Wow! on that front as a Tesla, given Dyson's reputation as an innovator,” he argues. “Finding the engineers to implement a new design should be much easier in Singapore than in the UK.”
In practice the upheaval to Singapore is relatively minor. Rowan said none of Dyson's 4,000 UK workers would lose their jobs and the company is planning on spending £200 million on new buildings in Hullavington, plus redeveloping its offices at its Malmesbury base. The company will be registered in Singapore and both its chief financial officer, Jorn Jensen, and legal officer Martin Bowen would relocate.
Lim believes that Dyson simply wants to focus its car business on Asia, and the logistics demand being close to these markets. “This is one industry where it makes economic and business sense to ‘produce where you sell’ in order to customise to local and regional consumer preferences, minimise transport and logistic costs and turnaround time, and so on,” she adds.
Singapore’s free port will also make it easy to hook into the deep automotive supply chains of Japan, Korea, China and Thailand. There will be instances where exporting makes sense, says Lim, but even the European and Japanese automakers that export to the US market have located most of their production in the US over the past 40 years.
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That’s all true, of course, but doesn’t answer why Dyson moves its headquarters out of the UK. After all, neither BMW, Mercedes nor Peugeot are in a rush to move their own headquarters closer to their big markets in North America or Asia. They are happy to remain in the world’s largest single market, regardless of where their factories are based.
Dyson’s decision to make electric cars in Singapore moves the company closer to the fastest growing market for electric vehicles – China – but that, says Lim, can’t quite explain the move either. China’s EV market is growing so fast thanks to government subsidies – but only for EVs produced locally, not overseas. “That's why Tesla and other EV manufacturers have opened plants in China,” she says.
One of the big topics during the Brexit debate was immigration, and demands for clamping down on it. While the UK government tries to reduce the numbers, UK companies are already reporting shortages of skilled workers .
For Dyson, the company, this is in marked contrast to Singapore with its liberal immigration policy; for any company, it’s relatively easy to hire the talent it needs from anywhere in the world. Still, the talent that Dyson needs is scarce everywhere, even in the US, says Lim, so it's not clear why such experts would want to relocate to Singapore, when they can find good jobs in larger markets, including the US and China.
The most critical motivator, thinks Lim, are investment incentives offered by the Singaporean government – tax breaks, various subsidies like R&D grants, state equity investments and loans. “These have not been and may not be disclosed, but given Singapore's many disadvantages as a manufacturing location especially for automobiles, I can't imagine that Dyson is investing there without some such incentives,” she adds.
Brian de Laine Produced 31 January 2019
