External and Internal Influences - Oz Clothing Company - Case Study Example

Business Report Student’s Name: Institutional Affiliation: External and Internal Influences Those Are At Play In This Case The productivity of the company has drastically gone down, and the cost of production has escalated in the recent past. International competition and economic melt down are adversely affecting Australian manufacturing operations. The economy internationally is not performing well and the company growth is largely affected with low sales being occasioned by dwindling purchasing power among the customers. Oz Clothing manufacturing operations are based in Australia, and the company suffers so much in the absence of local market (Coghlan, 2011). Many industries are being affected, and the income of consumers is not getting any better. Internationally, there are companies which are able to produce at low cost and, therefore, offer a huge price cut as compared to Oz Clothing. Low costs of production in order territories of the globe are making it hard for manufacturing companies to compete on the global front. Competition from China firm is driving the company to the periphery to the extent that it cannot make any profits. Chinese companies are able to produce high volume of quality products and offer them at affordable prices (Fine, 1998). They use high-skilled labor intensive industries which are in a position to come up with very quality products. Oz manufacturing uses low skilled labour which cannot produce sophisticated products, which can fetch competitive prices on the global market. Oz manufacturing has to do something about its situation. Producing in Australia seems to be more costly than producing abroad. Shifting its production base offshore seems to be the only viable solution. The company has to compete effectively with other industries from fast growing economies like China. Establishing a plant in China seem to be very tricky for the company since there is more financial commitment involved; and presently the company does not have enough capital for expansion. This is an observation made by the company managing director. Many multinational companies are established at a place where the cost of production is low, and accessibility to the necessary technology is efficient. Low skilled labour being used by Oz Clothing is very much available in Australia, but does not offer the required skills to come up with high-end products, which will be available, in the international market and fetch competitive prices. The underwear line that the company is holding on lacks originality and fashion. If products of the company do not get more touch of expertise, they will not appeal to many people in the market. The production strategy has to be revamped (Arup, 2006). The company is experiencing a lot of international pressure in terms of competition while, in its local market, it cannot leave impact it terms of effective sales. More share issues can only be conducted if the company is doing very well and hence it will attract many stock buyers. The company has outstretched its limits of rising capital with bank loans; and the shareholders may be unwilling to see another issue of share being proposed to come up with the required capital. There are many methods that a company can use to raise capital. Credit financing is a means that is readily available for the company to use. The company goes to financial institutions and takes loan which will be paid at an interest later. Oz Clothing Company apparently has borrowed a lot from the financial institutions to a degree that it cannot borrow any more. The assets of the company are always attached to the loans that the company takes. Excessive credit financing is not good and the company end up incurring many expenses in terms interest expense. If the company is going well enough, its stocks price will be high occasioning a stock split. If the shares were trading at $80 and a shareholder had 100 shares worth $8000, if the stock is split he will have 200 shares trading at a price of $40. Oz Clothing Company is also being affected by government policies and regulations. The federal government imposes a tax on every worker being employed in the industry. The action of processing his pay attracts some amount of deductions. The government does nothing about reduction of payroll tax as stated by the finance director, Evanz Costello. The government could ease the burden on the manufactures by reducing the payroll taxes in order for many citizens to be employed. As observed by the finance manager, the government does not accord Oz Clothing Company the support it requires. It is not in the textile and clothing industry alone. The payroll tax is imposed across many industries. As suggest by the management at Oz Clothing, the deduction or tax that the government impose on the payroll used be used pay the workers in these industries and ease the burden of operation. The federal government does not appear to be promising any more tax cuts. Seemingly the industry has to bear the burden of payroll taxes for long since the government seems not to be relenting. Tax imposed by the government can affect the local industry greatly. If these taxes seem to be eating on the perceived profits, the companies are unlikely to make any profits. Tax cuts ease the burden of expenses on companies and are able to make a profit which they can plough back into the business (Rubery & Wilkinson, 1994). The customers cannot pay the price needed for the company survival. If the company factors in all its cost and adds up a profit margin, the price seems to be very high for the customer to afford. The cost of production in the Australia clothing and textile industry has escalated. The revenue generated in the Australian market cannot support the growth of the company not even its survival. The imminence of loss is very likely as other super brands from international producers like China make it to the local market. Other companies in the world can produce superior brands of textile products at lowered cost and huge bargains to the customer in this time of economic melt down internationally. Chinese manufacturers have lower costs in manufacturing, are expertise in mass-market production and they do not experience work rigidities. Increased flexibility in production together with reduced costs is a good incentive of boosting the sales volume. Australian producers or manufacturers seem to be disadvantaged at both aspects. The company is contemplating shifting its operations to an offshore location rather than Australia but, it faces the challenge from the Workers Union which will oppose the move for the sake of its members. The clothing workers union may vehemently fight the effort of the company to exit the low-skilled manufacturing industry. It may hurt the workers more than the company itself. The workers union may be devastated (Lechner & Pfeiffer, 2001). The workers working for Oz Clothing Company employ more that six hundred workers. The livelihood of these workers depends on the life of the company in Australia. If the company’s operations are moved from Australia, the daily earning of these workers will be cut short, and they will be left jobless. What will become of their families and the bills they have to pay? The management is reluctant to push through with the decision to relocate to an offshore production site due to the concern of the Workers Union. The management of the company also anticipates the government not to be happy with the move to relocate to an offshore location. The federal government has pumped too much money into the industry and may not be happy with the exit of Oz Clothing from that production line. A government has to ensure that its citizens have a livelihood. In this case, the relocating of Oz Clothing Company will cut-short many peoples’ work. The government may want to fight unemployment and encourage an internal solution to be found like more funding from it. The federal government may intervene if it learns about the intention to have the workers abandoned without work. The production industry is also engulfed in the politics of the day. Politicians will be against moving Australian jobs offshore. Politicians are always looking for support, and they would want to cash on the issue of Oz Clothing by opposing the move relocate to an offshore production location. The government and the politicians will mostly advocate for strengthening the local industries to compete favorably in the international market despite the hardship at home. Oz Clothing company management accuses the government of taking very little notice of the problems facing industries in Australia. The government protection of outside competition particularly China is very minimal. The government has to reduce tariffs and increase protections of its home industries. Government protection of its local industries will ensure growth and give stability to the local industries. From the perspective of Oz Clothing Company, the government is showing very little interest as far protecting the local industries is concerned. Moving the company offshore has an impact on the debt situation of the government since it has spent a lot of money trying to kick-start the industry. The government budget is funded even by international borrowing from huge economies like that of China. The money the government spilled into the industry may have come from such sources. Consequently, International relation may be affected. It may jeopardize Oz Clothing company relations with China. The company has to seek working with China and not being antagonistic by just relocating to China. The recent arrest of Australian executives in China has strained relationship between the two countries and a drastic measure of relocating may destroy the ties further. Recent changes in government policies increased cost and union power. These seem to be all against the local industry and make it hard to flourish. The government has not yet done anything to make industrial activities in Australia less costly and flexibility. There might be less flexibility in manufacturing than it is being experienced at the present. The Workers Union is stronger than before, and the industry operations may be slackened with increased trade union activities. The management of the company is also perturbed by the move to ensure more consumption of local goods only. The Australia Council of Trade Unions (ACTU) was going to push for a ‘buy local’ campaign which requests the local, state and federal government to give preference to products made in Australia. Although the effect of this proposal is not yet known, it is unlikely that the government can support such a motive which can destroy its international ties. The government cannot be advocating for free trade and protection of local manufacturing concurrently (Nolan, 1996). The government may not risk breaching its international treaties in the name of protecting home industries. Subsidies and tariffs from the government are not forthcoming. If the government cannot provide price cuts, then it can be expected that it provides subsidies. In this case, the government channels funds in the avenues where companies can access facilities and equipment and reduced costs. The purpose of subsidies is to reduce the production costs of companies so that they can produce goods at reduced costs and fix prices that are affordable (Sabillon, 2000). The argument of the company’s management against local production is that the Commodity type may not be competitive if it is manufactured locally in Australia. The company has to produce products of superior grade to compete effectively in the market internationally. Customers are seeking price cuts. Competition on the basis of price is very unlikely for the case of Oz Clothing. The economic melt down has had an adverse effect on incomes of consumers or customers. They can no longer afford high-priced end products. They want price bargains. It is the government which has made the textile industry not to be competitive or innovative. The clothing and textile industry has for very long enjoyed protection from the government and as Rita puts it ‘people have grown fat and lazy’. The industry should then be blamed for being sluggish and not adaptable for changing trends in the market. The country is not suitable enough for low-skilled labour intensive industry like Oz Clothing. The market is not promising and the costs occasioned by huge spending on labour escalate the cost of production. Lack of market for the goods products and intensive competition from other international manufacturers give the company little chance of prospering in the local market. The labour costs are very high, and there is too much inflexibility in the labour utilization, as it was observed by Brent. The industry being labour intensive, huge salaries were being paid to the numerous workers employed by the company. For this reason, Clothing Workers Union will be crying foul if a lot these employees lose their source of livelihood. The company is caught in a dilemma of exiting or not exiting the Australian industry. If it takes its operations offshore, more than six hundred workers will be left without a livelihood, and if it does nothing about the situation, the imminent losses can cause its closure due to failure. It is apparent that the company faces a big problem, and it has to look for an urgent solution before it is too late. The external and internal influences in this case are very many, and management of the company has to sit down and analyze the impact of every factor or action. Past Oz Clothing’s strategic business objectives might and impact on IR (Industrial Relations) policies and practices Oz Clothing company business strategic objectives must have centered on dealing with the needs of the local market of Australia and some exports. The company has been funding its operations from the various sources of finances without outsourcing some of its products. The company was using its own manufacturing and exporting its products to markets such as China. Brent Baer, the manufacturing director, observes that the company should outsource all the manufacturing or establish a plant in China. Oz Clothing previously did not advocate of outsourcing and produced all of its products from its plants. Internal sourcing seems to be the best strategy that had been adopted by Oz Clothing in its operations. The company looks forward at changing this style of production. The company used low-skilled labour in its production operations. Low skilled labour is easy to maintain since the salaries and wages paid to them is also low. High skilled labour is more expensive due to the cost involved in hiring such labour. Low-skilled labour must have been advocated due to low cost of hiring and keeping the workers at the factory. Oz Clothing Company concentrated more on the local market and paid little attention on going international. If any exports were being made, then they were very scanty. The company preferred to operate on the lower end products that require low skilled labour to make them. The company looked forward to subsidies and price cuts from the government. The industry had flourished greatly by getting support from the government. It is now that the industry is experiencing a lot of hardship due to changing government policies and reduced support. The company looked forward to produce low cost products and sell them in the general market indiscriminately. The company had no elaborate control on its spending, and that is why it has overstretched its budget. The budget of the company included a large portion of borrowing from financial institutions resulting to a huge amount of debt in the form of bank loans. High expectations from the government drove the passion by which decisions were reached at in Oz Clothing Company. The industry expected more protection from the government only to be hit with new regulations, which resulted in, more power being granted to the union. There was a poor policy on labour and hence despite the use of low-skilled labour, the labour costs were still enormous. The company must have used low-skilled but labour intensive operations that occasioned huge salaries being paid to the workers. The population of workers was many. Labour costs choked the operations of the company. The company produced commodity type products and consequently the underwear line seems to luck originality and are not fashionable. The company targeted low cost products whose production cost is low. The company products were majorly for the local market, and there was little innovation and diversification to increase competition. The company allocated little funds for marketing and advertising and looked forward to the government to protect it from international competition. The margins are razor-thin, and many retailers are cancelling orders with Oz Clothing, and hence the company has to change most of its strategies. The margins projected was very small considering the operations of the company, and consequently very little or no profit was realized. The company also ensures there is little or no confrontation with the union bodies and the international community. It wants to maintain good industrials relations. New set of strategic business objectives for Oz Clothing and their impact on IR (Industrial Relations) policies and practices The stakeholders involved in this case include the government (federal, local and state), Clothing Workers Union, International community, employees (workers), company’s management, competitors, customers, suppliers, Retailers, farmers of raw materials, and lobby groups (like environment). All this stakeholders are affected by the operations of the company and consequently change of the strategy will also affect them. The company has to get its act together in order to turn around and be profitable. The bank finances have to be gotten under control. The company has to start by controlling its spending. An audit of the workers has to be done, and those found to be redundant or playing very little role in the accomplishing the company’s objectives should be fired. To control the reaction from the Union bodies, the management should commence by proposing salary cut for those workers working in product lines that are not profitable (Peltzman, 1998). Eventually product lines that are not profitable should be axed and the ones which are profitable should be strengthened. The company needs to improve the efficiency of the domestic manufacturing. The efficiency can be achieved if the rigidity in labour is overcome. Let the company keep employees that it can sustain. Overheads salaries and other expenses on employed should be reduced. Some of the produced lines can be merged to produce another superior product line. The cost structure has to be changed if the product lines need to be adjusted. The underwear being produced by the company cannot compete with other international produced products if it lacks a good design and it is not fashionable. It is important to upgrade the product line and perhaps target a niche in the market. The company can also focus of premium high fashion products which come with niche marketing and innovative design. This is a grant idea which was suggested by one member of the management team. Ordinary product lines that target the entire market experience stiff competition from other producers since they all target the same market. Premium fashion products that include more innovative design can be directed to a certain niche in the market, which would be more profitable, than the general market. Producing products for the general market exposes a company to high competition that may not be sustainable (Proud, 2007). Premium high fashion products are able to fetch high prices from those consumers who appreciate innovation and originality. Low cost underwear line produced by the company cannot fetch a high price in the market. The company has to quit low-skilled labour intensive manufacturing as agreed on by the companies’ directors. At this level of production, it is facing stiff competition, and it can rather face out the low skilled employees and begin recruiting high skilled employees for production of goods that are more innovative and fashionable. Value added brands are needed and not volumes (Nabi & Luthria, 2002). Producing low-cost brands at high production cost is not economical for the sustainability of the welfare of the company and its employees. Oz Clothing Company production should concern fashion, design, small-batch manufacturing and innovation. The company can exit the Australian market in phases. Downsizing should be the beginning point, and upgrading of its product lines to address the needs of certain niches in the market. If the company exits the Australian market abruptly, union leaders may confront its actions and demand compensation for the retired workers. Let the company upgrade its activities so that the present workers become relevant and quit on their on volition. The government may also be against abrupt exit. The company needs to sell off its Australian operations and make an exit in the Australian market after clearing with the Clothing workers Union. The best strategy is to start by upgrading its production functions. The overall strategy is to reduce spending and upgrade the quality of production. Any more borrowing from financial institutions should have a clear agenda like upgrading production machinery (Nicholas, 1998). If the company becomes profitable again and maintains a few productive workers, the government will relate well. The Workers Union may not be happy with the reduction of its members but a company cannot continue operating at a loss. Upgrading of Oz Clothing company products will increase competition even in the international market. Suppliers and customers will be happy if the production of the company is upgraded. Competitors will have to look for new strategies in order to stay ahead. International community will experience increased competition. References Arup, C. (2006). Labour law and labour market regulation: essays on the construction, constitution and regulation of labour markets and work relationships. New Jersey: Federation Press. Case study Oz Clothing company Coghlan, T. A. (2011). Labour and Industry in Australia: From the First Settlement in 1788 to the Establishment of the Commonwealth in 1901. Cambridge: Cambridge University Press. Fine, B. (1998). Labour market theory: a constructive reassessment. New York, NY: Routledge. Lechner, M., & Pfeiffer, F. (2001). Econometric evaluation of labour market policies. New Mexico: Springer. Nabi, I., & Luthria, M. (2002). Building competitive firms: incentives and capabilities. New York, NY: World Bank Publications. Nicholas, J. M. (1998). Competitive manufacturing management: continuous improvement, lean production, customer-focused quality. Melbourne: Irwin/McGraw-Hill. Nolan, L. J. (1996). Australia business: the portable encyclopedia for doing business with Australia. Sidney: World Trade Press. Peltzman, S. (1998). Political participation and government regulation. Chicago: University of Chicago Press. Proud, J. L. (2007). Master scheduling: a practical guide to competitive manufacturing. London: John Wiley and Sons. Rubery, J., & Wilkinson, F. (1994). Employer strategy and the labour market. Oxford: Oxford University Press. Sabillon, C. (2000). Manufacturing, technology, and economic growth. London: M.E. Sharpe. Read More