Improving Manufacturing in Australia - Example

Improving Manufacturing in Australia College: Name: Students ID: Date: Course Name: Unit Code: Time: Instructor: Executive Summary The Australian economy has experienced a momentous economic transformation. From the 1970’s to the present day, Australia has removed barriers to trade to become one of the least protected economies in the OECD. The sector’s contribution to the overall GDP has dwindled from around 18 per cent to just less than half of that, 6.4 per cent in 2013/14. The declining proportion of the manufacturing sector has had serious economic impacts on the Australian economy. As globalisation pushed Australian manufacturing firms overseas and others closed, a lot of people, especially in the low skill cadre, lost jobs. However, the sector still faces real prospects. The government can shore up the sector by actively supporting research and development (R&D). The Australian government also has to develop policies to continue supporting education given that the current labour force is aging. Table of Contents Executive Summary 1 Introduction 3 Methodology 5 Results 6 Conclusion 9 Recommendations 10 References 12 Introduction The Australian economy has experienced a momentous economic transformation. This has primarily been driven by a change in government policy to open up the economy through lower tariffs and reduced barriers to foreign direct investment inflow. As a result, the Australian manufacturing sector has suffered amid the increased competition from overseas companies and reduced productivity. Globalisation has played a big role in this transformation (Roos 2012). This paper looks into the Australian manufacturing sector particularly to assess the impact globalisation has had on the sector and necessary measures that can be used to save the sector. Australia is a democratic country located in the Asia-Pacific region. The country is mainly westernised due to the dominant British population. It has attracted a lot of foreigners due to its relaxed immigration policies. However, the country has a lot of other indigenous cultures. It is the 6th largest country in land area (approximately 7.7 Km2), but has a small population of about 23.13 million people (2014). Australia has one of the most urbanised population. Majority of the people (about 90 per cent) live along the major cities located along the country’s coastline. These include Sydney, Melbourne, Perth, Adelaide, Canberra, and Hobart The country has among the most developed economies in the world. The economy is characterised with low inflation, high growth, and low interest rates. The economy is mainly under the service sector, which accounts for around 70 per cent of the overall GDP. The country’s main exports entail mining, such as coal, gold and iron ore, and agricultural products, such as wool and wheat. Australia is endowed with immense physical resources and has invested heavily in infrastructure, education, transport, health and training. The country’s main trade partners are China, the United States, New Zealand, South Korea and Japan. Today, Australian manufacturers have turned out to be more externally engaged. The firms have to manufacture goods that rank higher in the global value chain, cultivate niche products for international markets or ready-made goods for worldwide supply chains. The success stories of these few manufacturing firms resist a damaging view as regards the prospects of Australian manufacturers. The country has various industries within the manufacturing sector that have kept up comparative and competitive advantages over the rising low cost countries. All the same, majority of these successful Australian manufacturing firms have endured a challenging re-alignment process. They have improved the Australians’ living standards and bred a more vibrant, competitive, competent and skilful economy (National Manufacturing Summit, 2005). Methodology Quantitative and qualitative are extensively used in business and management research to distinguish both the data collection techniques and data analysis procedures. Denzin and Lincoln (2000) argue that quantitative research methods focus more on the measurement and analysis of underlying relationships between variables but not process. They are principally used as synonyms for any data collection technique such as a questionnaire or data analysis procedure such as graphs or statistics that generate or use numerical data (Saunders, et al., 2007). Qualitative methods are used primarily as synonyms for any data collection technique such as interviews, or data analysis procedure such as categorising data that generates non-numerical data. This research study is based on quantitative data. The data was collected from secondary sources, particularly from reports, journals and websites. The data was then analysed using descriptive methods. The descriptive research design was meticulously designed to guarantee a wholesome depiction of the situation and certifying minimum bias in collection of the data and trimming down the errors in analysing and interpreting the data collected. The data was analysed using descriptive statistics. A descriptive approach is able to provide a clear picture of the phenomenon under study Results The country’s manufacturing sector has been on a downfall since the 1970’s. The sector’s contribution to the overall GDP has dwindled from around 18 per cent to just less than half of that, 6.4 per cent in 2013/14 (Industry.gov.au, 2015). Besides, the sector’s profitability (gross profit margin) has been lower than all other businesses since 2001/02. Also, while other businesses have experienced a rise in gross profit margin of about 10.9 per cent to around 12.7 per cent, gross profit margin in the manufacturing sector has dropped from around 9.5 per cent in 2001/02 to about 7.8 per cent in 2013/14 (aph.gov.au, 2014). Accordingly, actual investment in the sector in 2013/14 was the lowest in 12 years, valued at about $8.8 billion. The declining proportion of the manufacturing sector has had serious economic impacts on the Australian economy. As globalisation pushed Australian manufacturing firms overseas and others closed, a lot of people, especially in the low skill cadre, lost jobs. Also employment went down due to declining labour productivity growth rates as well as major decline in employment in the Textile, Clothing and Footwear industry as of the late 1980s. With time it turned out to be tricky to re-enter the labour market, leading to long-term unemployment due to technological changes. At the same time, product market reform was soon followed by labour market reform owing to the shift in Australia’s economic structure away from manufacturing. Then and there, in like terms, employment in the Australian manufacturing sector also went down (Roos 2012). Figure 2: Employment Patterns in the Manufacturing Sector compared with other sectors Today the Australian manufacturing sector is very much joined with the global value chain, making it vulnerable to rises and falls in international input costs as well as the Australian dollar. Therefore, amid the current paleness in the global economy plus the tall Australian dollar, exports continue to fall. In fact, over the last decade, importation of manufactured goods has gone up by 7.0 per cent whereas Australian manufacturers’ exports have increased by a mere 4.4 per cent over the same period due to the difficulties in finding export markets. As a result, in the short-term, volume of new orders will face a downward fall. Moreover, margins will be squeezed as input prices go up and selling prices fall given the intensive competition in the global markets (Dennis 2012b, p.78). The Australian manufacturing sector is still an important part of the Australian economy through its linkage to other sectors as indicated in the diagram below. The sector is widening up its borders and sharing the platform with other high-growth sectors (Swift 2006, p.6). Figure 1: Link between Manufacturing and other sectors 10% 3% 20% 5% 30% 54% Source: Australian Bureau of Statistics 2011 At present, Australia’s income growth is being propelled by various unique factors. The drivers of growth have shifted even though Australia’s income went up by 4.1 per cent per annum since 2005 (dependable with long-term growth drifts). Were it not for the resources boom escorted by investment and a rise in terms of trade, Australia’s income growth would be considerably worse. A third of the current income growth is attributed to the resources sector (Ten percent of the economy). Over 50 per cent of this income growth is a result of the passing mining boom effects of progressive terms of trade plus added capital, what is referred to as the ‘Dutch Disease’. In actual terms, the core growth (measured by labour and capital productivity) has declined. Even as a high labour productivity between 1999–2005 injected $43 billion (measured in 2010 real terms) to national income, in the past few years this has gone down by more than 60 per cent to a mere $17 billion. McKinsey noted that if this drop is not fixed, the economy faces dire consequences for forthcoming GDP growth are profound, as it may well drop to 0.5 per cent per annum if productivity is not improved (Fuchslocher 2007, p.4). On average, the sector has been growing by 0.9 per cent every year ever since 2000 (in dollar terms). In 2010 the manufacturing sector generated a $96.8 billion value addition to the economy. The sector has remained under pressure amid the rising mining boom that has led to the rising value of the Australian dollar along with the ever more competitive environment of global manufacturing, accounting for the 34 per cent of total Australian exports in 2011. The sector also contributes considerably towards overall employment, contributing 991,800 jobs in 2011 (Roos 2012, p.15). Conclusion Globalisation has brought about quite a few benefits for the Australian economy, and a number of evils as well. One sector that has suffered the brunt of the evils of globalisation is the Australian manufacturing sector. The sector has suffered mainly due to the dislocation of many manufacturing firms to overseas countries, particularly Asian countries, so as to benefit from the lower production costs in those countries in view of the fact that they could not to find cost savings that would sufficiently support them to compete on price or quality. Worse still quite a number of the manufacturing firms have had to shut down their operations and those that endured had to change. The contribution of manufacturing sector to the GDP declined following these government policies. This has caused a decline in employment in the sector mainly due to reduced labour productivity. The sectors exports have also gone down and this is leading to a decline in income growth in the long-term. Recommendations The Australian manufacturing sector today contributes considerably to the overall GDP, notwithstanding the declining proportion of contribution. Still this sector faces real prospects. The role of the sector in supplying the international market will continue based on capital and expert personnel. An important aspect to note is that it is only the proportion of manufacturing’s contribution to GDP that has declined. In fact the contribution of manufacturing since the 1970s has gone up from $16.9 billion to $26.3 billion with an average annual growth rate of 1.5 per cent (Productivity Commission, 2003). The existing terms of trade present a tough trading environment, but, in earlier times quite a number of policies have boosted the sector. These include intellectual property rights; import licensing; rules of origin; quarantine laws and procedures; investment; custom measures; and dumping regulations; among others. The most important point of consideration now is the future of the Australian manufacturing sector (Herrigel & Zeitlin, 2009). One simple way to promote the growth of the sector is for the government to actively support research and development (R&D). ACCI (2007) proposed that the government should boost the ordinary R&D Tax Concession from 125 per cent to over 150 per cent and also bring down the weight of Capital Gains Tax (CGT). In the current global economy, innovation is a fundamental driver of economic growth and economic theories are gradually more recognising the role of government in creating an enabling environment for innovation. This will enable the country’s manufacturing sector to advance in the global value adding chain and produce niche products that enable the country to productively contend with emerging economies such as China as well as other developed countries (Hutton et al., 2007). Skill requisition for firms to compete in the global scale is fundamental. Therefore, there is need for the Australian government to develop policies to continue supporting education given that the current labour force is aging. This will enable the government to counter the problem of skills shortage manufacturing firms face today (Eslake, 2011; Karmel & Rice, 2011). References Australian Chamber of Commerce and Industry (ACCI), (2007), “Australian Manufacturing Position Paper”. Australian Bureau of Statistics, (2011), “Australian Economic Indicators, Mar 2011, data cube: Excel spreadsheet, cat. no. 1350.0.DO.004”, viewed 26 March 2011, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/1350.0Apr%202011?OpenDocument Australian Industry Group, (2011), “February 2001 Performance of Manufacturing Index”. Deloitte and US Council on Competitiveness, (2010), “2010 Global Manufacturing Competitiveness Index”. Dennis, R. (2012a), “The Uses and Abuses of Economic Modelling in Australia”, Australia Institute Technical Paper No 12, January Dennis, R. (2012b), “Too much of a good thing? The macroeconomic case for slowing down them mining boom”, Australia Institute Policy Brief No. 37, March Eslake, S. (2011), “Productivity: The Lost Decade”, Paper presented to the annual policy conference of the Reserve Bank of Australia, HC Coombs Conference Centre, Kirribilli, Sydney, 15th August Fuchslocher, C.T. (2007), “The Role and Development of Technology--‐Intensive Suppliers in Resource--‐Based Economies: A Literature Review”, GIGA Research Programme: Transformation in the Process of Globalisation. N° 60 November 2007. Herrigel, G. and Zeitlin, J. (2009), “Inter-firm relations in global manufacturing: Disintegrated production and its globalization”, in G. Morgan et al., Eds., Oxford handbook of comparative institutional analysis. Oxford, England: Oxford University Press Hutton, W., et al, (2007), “The future of manufacturing”, New Statesman. Karmel, T. and Rice, J. (2011), “The Economics of Apprenticeships and Traineeships”, National Centre for Vocational Education Research McKinsey Global Institute, (2011), “Growth and renewal in the United States: Retooling America’s economic engine”, viewed 16 October 2014, . National Manufacturing Summit, (2005), “Innovation in Manufacturing”, Workshop discussion paper, December. Productivity Commission, (2003), “Trends in Australian Manufacturing”, Commission Research Paper, AusInfo, Australia. Roos, G. (2012), “Manufacturing into the Future”, Adelaide Thinker in Residence 2010 – 2011”, Adelaide Thinkers in Residence, Government of South Australia, Adelaide, Australia Swift, R. (2006), “Measuring the Effects of Exchange Rate Changes on Investment in Australian Manufacturing Industry”, Economic Record, 82. Zhou, H. Leong, G. Jonsson, P. and Sum, C. (2009), “A comparative study of advanced manufacturing technology and manufacturing infrastructure investments in Singapore and Sweden”, International Journal of Production Economics, vol.120, pp. 42–53 Read More