At Honda, they understand: The Japanese may feel let down, but they have done well out of Britain, says Tim Jackson

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SCENE: a spacious but bland office, at the top of a glass and metal tower in the fashionable Aoyama district of Tokyo. Behind a highly polished desk, a Japanese in a blue suit puffs disconsolately on his first Mild Seven of the day, looking at a miserable set of domestic car sales figures and wondering how long it will be before his company's market share in the United States stops falling. A secretary rushes in and bows.

SECRETARY (in the high voice required by Japanese office etiquette): There's a telephone call from Mr George Simpson, chairman of Rover.

EXECUTIVE (grunts and picks up receiver): Ah, hello, Simpson-san. Happy New Year. But it must be midnight in London. What are you doing up so late? You've what? An offer of pounds 800m from who? Decision by Monday morning, if we can better it? (Long pause.) Yes, I think we'd better. OK. I'll have you met at the airport. I see. BA5, nine o'clock.

YOU CAN see why Honda was annoyed. A 15-year relationship; eight different agreements, ranging from cross- shareholdings to shared body panels. After witnessing the fuss when Ford and General Motors tried to buy Land Rover, the Japanese carmaker had taken it for granted that no foreign company could buy Rover. True, British Aerospace had asked for an offer a few months ago, but it did not sound serious. Then, like a bombshell, a phone call, a flying visitor to Tokyo, and a single working day to decide whether to outbid an offer from BMW that had been months in preparation. No time even for a meeting of the full Honda board.

The BMW-Rover deal leaves Honda with a number of pressing questions to answer. What is to be done about the car with which Honda and Rover were to replace the Honda Concerto in 1995, codenamed Theta? And the successor to the current Honda Accord, which many industry analysts had assumed would be another joint effort? Will the Land-Rover Discovery still be sold in Japan, rebadged as the Crossroad to help Honda win back market share from the Nissan and Suzuki four-wheel drives? And above all, can Honda allow BMW executives to walk around the lines of its Swindon factory, brandishing certificates that show they own 20 per cent of Honda UK Manufacturing Ltd?

With such issues at stake, it may have sounded like understatement when senior Honda executives were quoted in yesterday morning's Japanese press as saying they were 'disappointed' at the way in which BMW's purchase of Rover had happened. But Japanese, after all, is the language in which something that is utterly out of the question is 'slightly difficult', and the polite way to turn down a proposal is to promise to give it long and careful consideration.

When the dust has settled, Honda's top management will overcome their irritation. They will remember that British Aerospace never pretended to have a permanent commitment to the car business. How could it, when Rover's 450,000-odd cars a year make it no more than a bit-player at world automotive shows? Nor was Honda's commitment to the partnership anything but temporary. Honda had gone into business with Rover not out of a philanthropic wish to rescue a decadent economy, but because it needed a way into the European market. The arrangement provided Honda with goodwill in the British market, with connections at Westminster and with the backing of Conservative lobbying firepower at the European Commission in Brussels.

After the great improvements that Rover made with Honda's help, and the building of Honda's own factory in nearby Swindon, the partnership could not possibly stay the same. With the capacity to build 200,000 cars a year and the intention to build up reliable sources of local supply, Honda will soon be quite able to stand on its own feet. Rover, although too small to develop new models across the entire car market, is probably the most efficient of the indigenous European car assemblers. Its factories were a ready-packaged study course for car companies in continental Europe who could not face the embarrassment of going to Tokyo. So behind the talk of betrayal and public humiliation, behind the allegations that British Aerospace did not respect the traditions of how relationships ought to work, Honda surely recognises that it has no cause for complaint.

Throughout the history of their partnerships with Western firms, Japanese companies have been ruthless. In the 19th century a feudal Japan invited a number of foreign experts to help it establish railways, telegraphs, armaments manufacture and the rest of the infrastructure of a modern industrial economy. While the experts were on Japanese soil, they were milked for every drop of technological knowledge or managerial expertise; their job done, they were sent home without ceremony.

With the encouragement of the government, Japanese businesses used the same principle to catch up with the West after the Second World War. IBM, for instance, was allowed into the Japanese market only in return for undertakings to share its secrets with nascent local competitors. More recently, firms such as Toshiba and Matsushita have applied the same approach to joint ventures and strategic alliances with foreign competitors.

The shareholdings that Rover and Honda exchanged were unusual: for Honda at least, they were proof of a relationship that would last longer than a single car model. But this was far less significant than the crossholdings that are standard in Japan between companies and suppliers, or companies and their bankers or insurers. In return for 20 per cent of Rover, Honda gave away not a share of its parent company equity, but 20 per cent of a British manufacturing subsidiary that was already tied closely to Rover by joint components supply and new model development.

The company's executives in Tokyo can certainly complain of the fickleness of British public opinion in tolerating a German takeover only a few years after it was taboo even to mention the possibility of a Japanese takeover of Rover. But the real reason for anger in Aoyama is that Honda had believed itself to be the dominant partner in the relationship. The Japanese maker also forgot that agreements between companies in a competitive market are based on mutual self-interest, not on diplomacy.

It may sound bizarre that Japanese companies could ever think otherwise. But the past decade has been an extraordinary time in the car business, when the competitive advantages of Japanese makers were so glaring that the stronger among them were almost able to dictate their terms in doing business with foreigners. Now that the Americans are catching up and the Europeans are showing some awareness of how much further they have to go, car assembly is likely to become like more other industries. The terms of co-operation will become more equal. And no partnership, however friendly, will be for ever.

(Photograph omitted)

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