Improving Australia Export and Import - Case Study Example

IMPROVING AUSTRALIA EXPORT AND IMPORT Name Course Tutor University Date Introduction In 2013-2014, the value of exports in Australia increased by 9.5% to $31.2billion. The country realized this growth in all the major export sectors. The export volumes increased by 5.8%, with the minerals and fuels sector registering an impressive growth. Iron ore and core formed the bulk of export volumes. Other top exports included natural gas, education-related travel services, and personal travel services. China was the largest trading partner during this period as it accounted for 23.9% of all trade. Other major trading partners were the US and Japan. The terms of trade during this period fell by 3.7%. Import prices increased by 7.5% while exports rose by 3.5%. The main top imports are personal travel services, crude petroleum, refined petroleum, passenger motor vehicles, and freight services. Personal travel is the major import services. The main destinations for short-term departures during this period were New Zealand and Indonesia. However, travel to the US contributed the most value (DFAT 2014). The US is the largest exporter in the world for commercial services. It is the second largest exporter in the world for merchandise. In 2013, the US exceeded the average for advanced economies. The total trade was responsible for 30% of the country’s economy. The exports amounted to $2.3trillion. This was an increase of 2.9% from 2012. It realized a drop in imports and it was able to improve the trade balance by $61.2billion. It exported 70% of goods and 30% of services while the imports were 83% and 17% for goods and services respectively. The main merchandise exports were transportation and equipment, computer and electronic products, chemicals, machinery, and petroleum and coal products. The main merchandise imports were computer and electronic products, transportation equipment, oil and gas, chemicals, and machinery. Travel and intellectual property use were main service exports (Han and Soroka 2014). Australia can improve its exports and imports. America has managed to realize growth in its trade because of increasing the number of trading partners and diversifying the goods on offer. It has made its goods appealing to other countries while at the same time it has managed to reduce its imports. This has helped to improve its balance of trade. Australia has the opportunity of realizing increased profits from trade. It can also increase its productivity (Business Council of Australia 2014). However, it faces intense competition from a world that has become more global. Globalization has changed the face of trade. It has not only increased competition but it has increased accessibility of emerging and developing markets. Science and technology has contributed to a large part of this change. Body The use of science and technology is one way of ensuring increased effectiveness in all areas of trade. It will also increase productivity and profitability. Focusing on technology and innovation will lead to better ways of operations, and this has the likelihood of decreasing costs and expenses while improving efficiency and productivity (Bell, Frater and Butterfield 2014). Innovation can occur in every step of the business process. This makes it possible to reduce costs, increase efficiency, and improve productivity in all areas of the business. This requires an investment in learning and innovation as well as ensuring sufficient resources. The government needs to invest in skills training, improving education to meet the needs of the current markets in technology and science, and investing more on research and development. Australia cannot afford to copy the technologies developed in other countries. Such investments will ensure that Australia is at par with other developed countries and that is able to compete with them effectively (ATSE 2015). The transfer of intellectual property is one of the major export services in American trade. In the year 2013, it contributed to $129.2billion US dollars (Han and Soroka 2014). This shows the importance of investing in technology and science. The government will need to dedicate sufficient resources in research and development towards this end. For this to happen, the government needs to collaborate with different public and private institutions, including businesses and institutions of higher learning. There is a need for policy makers to focus on improving macroeconomic regulations and design policies that will enable the country to benefit economically. There is a need to reduce the inflationary pressures on businesses and make the imports and exports more competitive in the market place. They should focus on lessening the burden of monetary policy as well as maintaining greater fiscal discipline (Enright and Petty 2013). The country’s ability to compete will erode once there is an overvaluation of the dollar. As noted, globalization has made it possible for many countries to compete on the global market. Therefore, Australia cannot afford to make its currency more expensive. This will contribute to making exports more expensive and trading markets will look elsewhere for cheaper goods and services. In many cases when formulating policies, it is important for the government to consider the impediments that can occur. Such impediments can be major obstacles to improving trade in the country. Some of these artificial impediments add many burdens to importers and exporters (Business Council of Australia 2008). Imports and exports are necessary for a country to prosper. While many countries tend to focus on the exports, it is important to consider the imports as well, especially because they lead to good trading relations with other countries. Therefore, policies should not add to the cost burden of international trade. Other than the fiscal and monetary policies, other policies and regulations to consider concern industry and trade, business regulations and taxation, education and training, economic infrastructure, and labour market participation and regulation. Australia has a small domestic market compared to its peers and competitors. It needs exports to enable its economy to grow. The small size of the country’s population is a major barrier to its competitiveness. The small scale nature has discouraged innovation especially in sectors that are heavily traded. This has also discouraged productivity, especially when dealing with goods that serve the domestic market (Lydon, Dyer, and Bradley 2014). Increasing and expanding the markets outside the region will lead to innovation. America is a vast country and it has a higher population compared to Australia. There are many industries and the free market economy has increased competition. This has in turn led to decrease in prices as well as increase in innovation. High competition in industries often leads to production of goods of higher quality. Australia has managed to compete with the US in two sectors, which are agriculture and mining and extraction. However, it lags behind all the other sectors (DFAT 2014). For the country to become more competitive, it needs to consider the other areas as well. Some of the sectors it should consider include finance, manufacturing, logistic and communication, wholesale and retail trade, real estate, and construction. Improving productivity in these sectors will ensure that the country increases its exports. Reducing input costs and lowering the exchange rate can help the country to become more competitive. It has become increasingly more expensive to produce goods in Australia compared to other competing countries. Over the last few years, Australia has experienced steady economic growth. It has managed to withstand the recent financial crisis that was experienced in many countries around the world. However, this economic growth contributed to a shortage of resources in terms of materials and labour (Lydon, Dyer, and Bradley 2014). Consequently, this led to an increase in the cost of production and in the prices of most goods and services. Additionally, it is important to consider that some of the well performing exports such as natural gas have become more expensive. Some of the sectors that experienced the high prices were mining, construction, and utilities. In the manufacturing sector, high labour costs have contributed to increased input costs, which have in turn increased the costs associated with production. Australia pays higher wages compared to the US and this affects the costs of its goods and services. It also fails to compete with other countries such as China, which have lower labour costs. Transportation, cost of lease and rent, and utility costs determine the cost of production and the final price of goods and services. These costs are higher in Australia compared to the US. In some cases, the differences are highly significant and they explain the differences in production. For instance, the cost of leasing facilities in Australia can be as high as 50% compared to the US. The cost of transport and utilities are as high as 35% (Lydon, Dyer, and Bradley 2014). This makes the price of goods more costly in the Australian domestic market compared to the American market. Changes in the distribution channels should consider the costs of transportation and leasing as well. In addition, they should consider additional markets. Australian firms should consider production with the objective of export. The country should not just export the surplus goods that remain after serving the domestic market. They should produce goods that are suitable and sufficient for domestic consumption and export. This will ensure that they retain innovation and invest in the resources to do so. This requires a change in mindset. The Australian producer should adopt a global mindset, as this will ensure that the manufactured goods are able to serve different markets. Firms should not just focus on competing along the value chain but they should orient their thinking towards the global market. This will require them to identify the needs of the export market. It should adopt the same principles it has towards mining and agriculture to manufacturing and services sector. The American market is huge and diversified. American producers understand the different people they serve. They have to consider the differences in social and economic status, race and nationalities, and any other distinguishing factors that may affect the consumption of goods. Therefore, essentially, the producers are more aware of the intense competition and the needs of an export market since they serve a diversified clientele. Australia needs to consider expanding to other markets and increase its trade with the existing markets. Other than Europe and America, the country does a lot of trade in Asia. About 60% of the country’s two-way goods and services trade is with Asia. This means that only 40% of trade is with the rest of the world. This is a huge contrast compared with American exports. The US exports cover more than 200 destinations. The top most markets for US goods in 2013 were Canada at $301.6billion, The EU at $ 262.2billion, Mexico at $226.1billion, China at $121.7billion, Japan at $65.2billion and Germany at $47.4billion. In addition, the US conducts significant trade with other countries including Brazil, Singapore, Korea, Taiwan, United Arab Emirates, Saudi Arabia, India, Switzerland, and Australia (Han and Soroka 2014). This shows a very diversified market. Australia can take advantage of the opportunities created by globalization to increase trade with other countries. It should especially focus on the emerging and developing countries, which pose less competition compared to the developed partners. For instance, the US has taken advantage of this and it has increased trade with the South American and Central American markets. From 2009 to 2013, growth in trade in these regions has increased by more than 70% (Han and Soroka 2014). In addition, Australia can take advantage of trade agreements to secure its exports in certain markets. Recommendations Australia needs to invest more in science and technology to remain competitive. This will not only increase its ability to compete in the technological sector, but it will also ensure increased productivity, efficiency, and productivity There is a need for Australian institutions to collaborate with each other. Private and public businesses as well as learning institutions should collaborate with each other. The government needs to ensure that it invests in learning resources, research, and development. Having a skilled workforce is one way of ensuring continued innovation There is need for the government to consider expanding its export markets. America trades with many countries around the world. Australia should consider expanding to other regions especially emerging and developing markets. Australia should increase competitiveness of other goods. It has managed to compete well with the US in the sectors of agriculture and mining. It can apply the same principles in other areas as well. Globalization has changed business competition and Australia should consider diversifying its export product portfolio There is need to consider reducing the transport costs, cost of utilities, as well as other costs associated with leasing. This will ensure that the input costs are lower. It will in turn lead to a reduction of costs and an increase in production. References: ATSE 2015, Advancing industry competitiveness in Australia, Australian Academy of Technological Sciences and Engineering, viewed 5 January 2016, Bell, J, Frater B, & Butterfield L, 2014, The role of science, research and technology in lifting Australian productivity, viewed 5 January 2016, Business Council of Australia 2008, Improving international competitiveness in Australian business, viewed 5 January 2016, Business Council of Australia, 2014, Building Australia’s Comparative Advantage, viewed 5 January 2016, DFAT 2014, Composition of Trade Australia 2013-14, Australian Government Department of Foreign Affairs and Trade, viewed 5 January 2016, Enright, M, & Petty, R 2013, Australia’s competitiveness: from lucky country to competitive country, John Wiley & Sons Australia Han, S & Soroka, N 2014, U.S. trade overview, 2013-14, viewed 5 January 2016, Lydon, J, Dyer D, & Bradley C 2014, Compete to prosper: improving Australia’s global competitiveness, McKinsey Australia, viewed 5 January 2016, Read More