Government Business Relationship - Automotive Industry within Australia - Case Study Example

Running Head: GOVERNMENT BUSINESS RELATIONSHIP Government Business Relationship Name: Institution: Course: Lecturer: Date: Introduction Australia is an independent democratic state. In such a democracy, the interests and the operations of both the government and business intersect. No government be it federal and or state government, would opt to disregard the needs of the business. However, it depends with the magnitude of the needs and how businesses approach the government in resolving its needs. This paper conducts an in-depth analysis of the role as well as structure regarding automotive industry within Australia. The paper outlines some of the main issues affecting the industry today. The main focus is given to the automotive manufacturing especially assembly. The relationship between the industry and the government and the level of support gained from the government is also examined. Australia is known for mass manufacture of large vehicles. The country’s industry possesses significant heritage plus a devoted customer base. Some of the companies that have dominated in producing vehicles in Australia include British Leyland, Ford, Nissan, Rootes, Toyota, Chrysler and Volkswagen. The automotive industry had continued to enjoy heighted degree of protection from the government. From 1960s, minimum levels regarding local content, considerable tariffs as well as import quotas were used by the state to ensure that the industry was shielded from the external competition (Australian Broadcasting Corporation, 2008). However, fundamental changes to policy landscape got introduced in the 1980s through implementation of Motor-Industry-Development-Plan. This was unofficially described as the Button Plan and was geared at decreasing the level of protection within the industry. This was realized thorough regulations; for example, quantitative restrictions pertaining imports as well as export tariffs (Singh, Smith & Sohal, 2005). Alongside the renowned Button Plan, ACIS (Automotive-Competitive-Investment-Scheme) got formulated in the 1900s which was geared at providing the industry continued government support. However, in spite of introducing both Button Plan plus ACIS, the growing pressure within the industry witnessed a substantial number of vehicle producers decline from 5 to 3 in the last 2 decades; for instance, exit of Nissan and Mitsubishi. After the closure of Nissan Assembly Plant based in Eastern Melbourne, 1,800 workers lost their jobs in the midst of difficult financial circumstances. In the recent times Mitsubishi was compelled to close her Australian Assembly operations based in Adelaide on March 2008. The closure of the facility resulted to 930 employees losing their jobs. In the year 2016, Ford announced to halt her manufacturing operations (Bracks, 2008). Despite the fact that Button Plan realized medium-term success as well as obtained its objective of streamlining the vehicle industry within Australia, it failed in opening up entry to export marketplace as per expectations. This reflect the existing and heightened global competition within the automotive industry as well as growing need of economies of scale whilst producing automobiles that are competitively priced. Furthermore, the non-tariff barriers employed by foreign nations acts as the major limiting factor, regarding Australian exports access to international markets. The strong Australian dollars, increase of non-trade barriers as well as heightened competition have made exports to decrease. Moreover, global overcapacity coupled by currency manipulations by some foreign governments has grossly contributed to the exports decline (Singh, Smith & Sohal, 2005). According to the history of automobile industry in Australia, enormous support had been received from the government. However, such support has been on decline in the last 3 decades. Surprisingly, the effective rate regarding assistance has shifted from 100 percent in the year 1984 to 12 percent between the years 2007 to 2008. The most worrying thing is that the level of assistance is declining with the passage of time. It is important to note that such effective rate put into account direct as well as indirect levels related to assistance (European Parliament 2009). The level pertaining net combined assistance; that is, net tariff and budgetary assistance has declined in the recent years. Between the years 2005 to 2006, level of assistance directed to motor-vehicles as well as parts manufacturing sector aggregated to 1.5 billion dollars. This declined later to 1.1 billion dollars by the year 2011 despite the fact that the other industries recorded high assistance levels. This includes construction, agricultural as well as the service industries. For example, in the same period, the net assistance in respect to food, beverages as well as tobacco hiked from 1.18 billion dollars to 1.29 billion dollars. The assistance directed to the finance and insurance segments doubled to hit 586.9 million dollars (DIISR, 2008). The government of Australia did not only decrease the assistance of automobile sector but also the proportion of the overall budgetary assistance. Between the year 2005 to 2006, the motor-vehicle and motor-vehicle parts producing subsector obtained 15 percent of aid. Moreover, between the period 2010 and 2011, the assistance had declined to 10 percent (AAI, 2013). This was attributed to the overall decline of assistance within the manufacturing sector. However, assistance related to motor-vehicle as well as parts manufacturing also declined as a percentage unit to manufacturing sector; that is, from 20 percent down to 16 percent. The increase within the unallocated category could be attributed to General-Business-Tax-Break (Bernhart, Dressler & Toth, 2010). The government did not make the right decision to withhold financial support to the struggling industry. The reason behind this is illustrated by how the players in the industry are ‘jumping off the ship’. Prior to announcement that both Toyota and Holden will cease manufacturing work within Australia, several inquiry participants asserted that the government should assume the responsibility of providing industry-specific assistance to manufacturing firms. Other participants argued that an extension of the existing transitional assistance measures; for example, the ATS (Automotive-Transformation-Scheme) as well as other initiatives should provide an ongoing support of the automotive manufacturing (Simpson, Power & Samson, 2007). The rationale existing which justify the much needed intervention and assistance from the government is based on potential benefits which accrue to assisted firms. This also includes their employees and the spill-over costs expected to affect other parts within the economy such as taxpayers and consumers. While the car manufacturing sector generates level of spill over, the spill over associated with the industry can be termed as of significant magnitude. This is as compared to the other industries. The other firms from automotive supply chain witness insignificant levels of spill over within the manufacturing circles which are largely obtained in presence of assistance. Therefore, industry-specific assistance would not yield additional benefits which would go unrealised (Bracks, 2008). The capacity of the government to apply industry-specific assistance in attracting and retaining capital investment which would not have arisen is limited. The government should offer aid to any industry irrespective of form of the budgetary assistance, trade agreements and or regulatory settings, as long as it is in the interest of the public. Apparently, it is only sound business scenario which will strengthen long-term capital investment as well as reinvestment. The governments in other nations may choose to offer aid to their specific industries, while the communities bear the cost. However these choices never constitute any key rationale regarding industry-specific assistance within Australia (Bernhart, Dressler & Toth, 2010). The industry-specific assistance is bound to instil risks on the car-manufacturing firms due reduced performance. This will in turn cause a downward trend in the economy since the firms will focus on productivity improvements rather than searching for new commercial opportunities. The employees within such firms will be locked within a subsidised industry instead of acquiring skills which would be valued elsewhere (Carroll, 2006). While structural change inevitably impose costs on individuals as well as regions, it acts as an indication that resources are shifted in producing products as well as services that meet consumer’s preferences. The shift pertaining to resource allocation leads to an improvement of the overall performance of Australian economy, which eventually improves the community’s welfare. Conclusion In the previous 3 decades, relationship between the government of Australia and the car-manufacturing industry had been mutual and friendly. The financial support that was advanced to the sector in the mid 1980s cannot be compared to today’s assistance. There has been considerable decline in the financial support as the government turns to industry-specific mode of assistance. The withdrawal of assistance has been gradually implemented at the onset of increased global competitive markets. This has really affected many firms within the industry who opt to horde operations as a result of declining income. As the paper concludes, the government of Australia should reconsider using industry specific assistance. More support should be channelled to the struggling sector for the benefit of Australian economy, stakeholders and the general community (Carroll, 2006). References Bracks, S. 2008, Review of Australia’s Automotive Industry, Final Report, July, Canberra. AAI (Australian Automotive Intelligence) 2013, Australian Automotive Intelligence Yearbook 2013, Melbourne. Bernhart, W., Dressler, N. and Toth, A. 2010, Mastering Engineering Service Outsourcing in the Automotive Industry, Roland Berger Strategy Consultants, Munich, Germany. Simpson, D., Power, D., & Samson, D. (2007). Greening the automotive supply chain: a relationship perspective. International Journal of Operations & Production Management, 27(1), 28-48. Carroll, N. 2006, ‘Explaining unemployment duration in Australia’, The Economic Record, vol. 82, no. 258, pp. 298–314. DIISR (Department of Innovation, Industry, Science and Research) 2008, A New Car Plan for a Greener Future, Canberra European Parliament 2009, Regulation (EC) No 443/2009 of the European Parliament and of the Council of 23 April 2009 Setting Emission Performance Standards for New Passenger Cars as Part of the Community’s Integrated Approach to Reduce CO2 Emissions From Light-Duty Vehicles, Official Journal of the European Union, 6 May 2006/L 140/01, pp. 1–15. Singh, P. J., Smith, A., & Sohal*, A. S. (2005). Strategic supply chain management issues in the automotive industry: an Australian perspective. International Journal of Production Research, 43(16), 3375-3399. Banks, G. (2005). Structural reform Australian-style: lessons for others? (p. 3). Productivity Commission. ABC (Australian Broadcasting Corporation) 2008, Suppliers Weigh up Mitsubishi Closure, ABC News, http://www.abc.net.au/news/2008-02-06/suppliers-weigh-up-mitsubishi-closure/1034186 (accessed 22 December 2013). Read More