The Competitive Advantage of Australian businesses - Assignment Example

? Business Introduction In this paper, the researcher will select two articles published between 1st and 30th September and then analyze those articles in context to their implications for Australian government, domestic business of Australia, Multinational corporations etc. In the second question, the researcher will analyze the articles in context to relevant international business concepts and theories in order to put theoretical depth to the analysis. Two articles are named as “Failure on gas could hit GDP by $14bn” reported by Tasker (2013) and “Australian businesses must grab Indonesian opportunity” reported by Durie (2013). In the next section, these two articles will be discussed briefly and after that, implication of the content of these two articles will be analyzed. Question 1 Article 1: Failure on gas could hit GDP by $14bn Tasker (2013) reported that Australian government is developing new gas supplies in New South Wales (NSW) but failure of this development would not only affect the wholesale price index of market in the country but also cause reduction in Gross Domestic Product (GDP) by more than $14 billion in next 22 years. Although, Australian Petroleum Production and Exploration Association (APPEA) states that the country has significant amount of scope to develop its gas and petroleum reserve in the east coast but there is argument that development of coal-seam gas would negatively affect the economic growth of the country. Tasker (2013) reported that at present, NSW imports gas from other states and developing gas would definitely reduce gas price in the state. There are three pertinent issues in this case such as 1- developing CSG assets in NSW would increase resource capability of Australian government and that would decrease wholesale price index and volatility of economy in the country (Tasker, 2013). Developing gas reserves in NSW would help the Australian government to create jobs in the area between Newcastle, Sydney and Wollongong. 2- Developing CSG assets in NSW would be matter of great interest for local oil companies in Australia. As of now, 95% of gas resources are being imported by NSW and local companies need to pay heavy amount of tax to use the imports but development of gas resources in NSW would probably increase resource availability of local Australian oil companies and due to availability of gas, gas export driven revenue for local oil companies would shot up (Tasker, 2013). 3- Developing gas sector would probably increase national competitiveness of Australia and provide opportunity to multinational oil companies to enter the gas market in NSW. However, developing gas and oil sector in NSW could decrease command of international companies over Australian companies regarding the supply of gas and crude oil. It’s expected that Australian companies would go for low cost local gas supply rather than importing it from International players and such change in supply-demand equation would decrease bargaining power of international oil companies (Tasker, 2013). Article 2: Australian businesses must grab Indonesian opportunity Durie (2013) reported that Australian government is trying to increase business transactions with Indonesia and it is quite evident from the visit of Australian Prime Minister to Indonesia in order to strengthen the business, economic and political tie-ups. At present, Indonesia is the fourth largest country in terms of population in the world and the country can be the potential doorstep for Australian companies to enter business environment ASEAN countries. Australian government is also taking help of the leading companies such as Leighton, ANZ and Coca Cola to decide the business and trade policies that could increase ease of doing business in Indonesia. Three implications of this article can be briefed in the following manner. 1- Australian government is trying to boost up its economy and GDP growth by increasing trade transactions with Indonesia (having GDP growth over 6%) and also trying to achieve the first mover advantage for exploring trade opportunities in Indonesia. Developing trade relationship with Indonesia would help Australian government to access agricultural yield of the later and that would address food shortage issues in the country Durie (2013). 2- Establishment of trade relationship between Australia and Indonesia would definitely help local business players to access Indonesian import in cheaper price (subsidization of tax rate and trade quota is likely to happen after the improvement of trade relationship between Indonesia and Australia) and that would decrease value chain cost for local players. In long run, domestic business companies in Australia would go for penetration in Indonesian Market through joint venture, foreign direct investment or licensing Durie (2013). 3- However, the business relationship between Indonesia and Australia might not be of great interest for Multinational corporations. For example, MNCs like P&G, ANZ and Coca Cola operate business both in Australia and Indonesia and business relationship between both the countries would hardly impact the business direction of MNCs. However, MNCs having headquartered in Australia might get benefitted from the trade relationship between Indonesia and Australia in terms of decrease of trade barriers, decrease in interest rate, easy availability of land etc. Question 2 There is no doubt that each of the articles is pertinent to Australian business perspective due to their own merit but interesting fact is that implications of both of the article can be realized in the light of Porter’s Diamond Model. Bergek et al (2008) and Dogl, Holtbrugge and Schuster (2010) also found that a country can increase its competitiveness by establishing trade relation with other countries. Some may argue that the second article can be analyzed by Mercantilism but the researcher believe that trade relationship between Australia and Indonesia would not only about money or wealth transaction. Hence, using Porter’s Diamond Model would help the researcher to cover pertinent factors in the article in far more comprehensive manner in contrast of using Mercantilism theory. Modern research scholars such as Viedma (2002 and 2003) and Stahle and Bounfour (2008) also used Porter’s Diamond Model while assessing national competitiveness in terms of National Systems of Innovation (NSI). Brief description of Porter’s Diamond Model will be given in order to develop the framework of the future discussions. Porter (1990) gave the concept of “diamond” for linking the industrial competitiveness with the existing business system of a particular nation. Dimension of the diamond model is directed by factors like strategy of the firm, condition of economy, nature of supporting industries, competitive rivalry etc. Figure 1: Porters Diamond Model (Source: Chobanyan and Leigh, 2006) According to the above model, national competitiveness is dependent on stages like innovation, investment, wealth and factor and these four verticals can be used to analyze the above mentioned two articles. Article 1: Failure on gas could hit GDP by $14bn Porter (2001) designed Competitive Index in order to link GDP rate, per capita income and wholesale price index as the measure of national competitiveness. However, Bontis (2004) raised question over the validity of such indexes because according to the scholar, repository of intellectual capital for a country should be incorporated in order measure Competitive Index for the very country. The article states that Australian government is developing new gas supplies in New South Wales (NSW) and if government fails to support the gas supplies in east coast region and NSW then the country would lose GDP worth of $14 billion in next 22 years. In such context, factor, demand condition, strategy of the firm and supporting activities will be the most compelling issue for Australian government, domestic industries and international players and these issues can be addressed in the following manner. Factor Conditions At present, NSW of Australia does not have permanent gas supply sources and dependents heavily on imports and due to such dependency, economic growth of the region is being halted. Another thing is that, economic growth of NSW is dampened by factors like lack of availability of infrastructure, lack of logistic activities and industrial activities and non-availability of qualified human resources (Tasker, 2013). Developing gas basin would partially or fully address these factors and these are the reasons behind the intention of Australian government to develop gas basin in NSW. Demand Conditions At present, NSW imports 95% of its crude oil from other states while local manufacturing and petroleum industries need to use the gas and oil resources in order to run their business smoothly. Demand for coal seam gas (CSG) is pretty high in the region while government has banned BTEX drilling and hydraulic fracture stimulation (fraccing) in order to decrease adverse environmental impacts (NSW Government, 2013). NSW Government (2013) local companies invest more or less $150 million annually in order to import gas and petroleum from other states. Due to such demand condition, local companies should lobby for development of gas reserve in NSW region. Strategy and Supporting Activities NSW Government (2013) reported that oil and gas exploration needs involvement of supporting activities like engineering support, drilling support, transportation & logistics, research and innovation etc. In such context, existing oil exploration facilities in NSW lacks the above mentioned activities and local companies are investing money to avail such support from other states and countries. Resource rich Multinational companies have the opportunity to integrate the supporting activities altogether in newly gas basin of NSW region and achieve competitive advantage over local players. Hence, it can be said that developing gas basin in NSW can influence strategic move of not only local companies but business intention of MNCs planning to enter Australia. Article 2: Australian businesses must grab Indonesian opportunity Durie (2013) reported that Australian government is trying to increase business transactions with Indonesia and it is quite evident from the visit of Australian Prime Minister to Indonesia in order to strengthen the business, economic and political tie-ups. Robin (2013) reported that Australian Prime Minister Tony Abbott visited Indonesia not only to improve political relationship between two counties but also increase domestic competitiveness by establishing business transactions between two countries. Robin (2013) also reported that Indonesia can offer lot of business opportunities for Australian companies and also help Australia to capitalize agricultural resources of Indonesia. Factor Conditions Liu and White (2001) stated that countries should establish trade relationship with other countries in order to achieve resource competency and in case of second article, Australian government is doing the same. According to Robin (2013), GDP growth in Indonesia is almost double of GDP growth of Australia and establishing business relation between these two countries would open the door for local business companies of Australia to cater demand of 0.24 billion Indonesian customers. Trading between these two countries would expectedly decrease current account deficit for Australia. Due to such presence of such factors, establishment of trade relationship between Australia and Indonesia would increase national competitiveness of the former. Demand Conditions Robin (2013) reported that local companies in Australia are facing problems like market saturation and establishing trade relationship between Indonesia and Australia would help local Australian companies to cater demand of large Indonesian population. On the other hand, Durie (2013) reported that bi-lateral trade agreement between two countries will help Australian food companies to access low cost agricultural supply from Indonesia. Overall, business competitiveness of local Australian companies would expect to increase by the trade agreement. However, the researcher has found that Indonesia is still a developing nation and concentration of MNCs is higher in case of Australia rather than Indonesia. Hence, trade agreement between two countries might not create immediate impact on multinational companies. Conclusion Nelson (2008) argued that competitive advantage for nations should be driven technology and market factors and these factors are loosely covered in Porters Diamond Model. The essay has discussed about pertinent in context to porter Diamond Model and tried to provide rationale for selecting Porters Diamond over other concepts like Mercantilism etc. The researcher has found that both the article is somewhere related to national competitiveness of Australia but content of these two articles is different. However, it is evident from the above discussions that international businesses and national competitiveness is multidimensional issues and future researchers should consider all the available options before reaching to definitive conclusion. Reference List Bergek, A., Jacobsson, S., Carlsson, B., Lindmark, S. and Rickne, A., 2008. Analyzing the functional dynamics of technological innovation systems: A scheme of analysis. Research Policy, 37(3), pp. 407-29. Bontis, N., 2004. National Intellectual Capital Index: A United Nations initiative for the Arab region. Journal of Intellectual Capital, 5(1), pp. 13-39. Chobanyan, A. and Leigh, L., 2006. The competitive advantages of nations Applying the “Diamond” model to Armenia. International Journal of Emerging Markets, 1(2), pp. 147-164. Dogl, C., Holtbrugge, D. and Schuster, T., 2010. Competitive advantage of German renewable energy firms in India and China. International Journal of Emerging Markets, 7(2), pp. 191-214. Durie, J., 2013. Australian businesses must grab Indonesian opportunity. [online] Available at: [Accessed 01 October 2013]. Liu, X. and White, S., 2001. Comparing innovation systems: A framework and application to China’s transitional context. Research Policy, 30(7), pp. 1091-114. Nelson, R. R., 2008. What enables rapid economic progress: What are the needed institutions? Research Policy, 37(1), pp. 1-11. NSW Government., 2013. Petroleum activity in NSW. [online] Available at: [Accessed 01 October 2013]. Porter, M. E., 1990. The competitive advantage of nations. New York, NY: Free Press. Porter, M., 2001. The business competitiveness index. The Global Competitiveness Report. Geneva: World Economic Forum. Robin, M., 2013. Abbott heads north: what trips up Australian businesses in Indonesia. [online] Available at: [Accessed 01 October 2013]. Stahle, P. and Bounfour, A., 2008. Understanding dynamics of intellectual capital. Journal of Intellectual Capital, 9(2), pp. 164-77. Tasker, S .J., 2013. Failure on gas could hit GDP by $14bn. [online] Available at: [Accessed 01 October 2013]. Viedma, J. M., 2002. SCBS social capital benchmarking system. McMaster University, Hamilton: World Congress on Intellectual Capital. Viedma, J. M., 2003. CICBS: Cities’ intellectual capital benchmarking system. A methodology and a framework for measuring and managing intellectual capital of cities. A practical application in the City of Mataro. McMaster University, Hamilton: World Congress on Intellectual Capital. Read More