Manufacturing Industry in Australia-Free-Samples for Students

Question: Write a report on the Topic "Costs of production in Manufacturing Industry in Australia". Answer: Introduction One of the critical manufacturing industries based in Australia is the car manufacturing which is currently reeling under pressure as the government announced way back in 2014-2015 about the decision to stop all aid being extended to the industry by 2017. This announcement has negative impact not only on the car manufacturing industry but the manufacturing sector on the whole in Australia as the economy is dominated by tertiary and primary sectors, The withdrawal of support by the government had led to withdrawal of General Motors and Ford from their Australia based manufacturing facilities. The key issue with the car manufacturing industry is in the form of high labour cost which makes it difficult for Australian car manufacturers to compete with other global car manufacturers. As a result, the imported cars are emerging as lucrative option to Australian customers and this trend has accelerated in the recent times as the Australian currency has appreciated making imports cheaper (Je richo, 2014). In this background, the objective of the current report is to highlight the woes of the car manufacturing industry along with role of government and possible options for the industry in wake of economic theory. Discussion With regards to manufacturing industry cost is significant so that competitive edge can be maintained against other manufacturers. One of the key costs with regards to car manufacturing is labour cost which despite automation still remains significant. In Australia on account of limited supply of labour, availability of other avenues and minimum wages, the labour costs tends to be significantly higher in comparison with the low cost manufacturing hubs based in South East Asia particularly India and China. These countries have huge supply of skilled and semi-skilled manpower who are willing to work for a fraction of wages prevalent in Australia. In this regards, the Australian car manufacturers tend to lag which is a matter of grave concern. In the last four to five decades, this situation has not dramatically altered and the industry along with the government has not taken innovative measures to reform the industry and make it self-sustaining. Instead, the government policy has been content with following the managed decline policy where the government has continuous provided state support to ensure that the industry remains viable and has progressed aimed to lower the state support without actually making attempts to make the industry sustainable (Conley, 2014). Even though the Australian economy may seem to be dominated by services and mining, but manufacturing also has immense utility to the economy not only in terms of GDP but also creation of jobs. The manufacturing industry contribution to the economy of Australia is reflected from the following table (Jericho, 2014). Further, the contribution of the car manufacturing industry and allied firms to the overall employment in manufacturing sector is captured by the following graph which reflects the potential impact of closure of car manufacturing facilities in Australia (Jericho, 2014). In the light of the current government policy and the subsequent decision to withdraw the state support, it is essential to explore if any option is available to this crucial industry so as to survive without government support. Globally, there are two major business models that area adopted by the car manufacturers based on their respective core competency. One of these relates to the low cost based manufacturing model which is opted by countries based in Asia which have easy access to cheap and skilled labour and thus have a cost advantage against their western peers. As a result, mass car manufacturing is being practiced in these countries which are meant not only for satiating the domestic demand but also for exports to western nations and Africa (KPMG, 2014). Clearly, this is a model which Australia cannot model based on the factors of production. Another model worth mentioning is the one which is followed by the Western nations based mostly out of Europe. These manufacturers also cannot compete with the low labour cost of the Asian nations and hence have ventured in high end cars where high level of skill, technology and expertise is desired. These nations tend to be have these factors of production which provides them edge in this segment as compared to the low cost manufacturing hubs which lack the technological abilities and high skilled manpower. Further, these manufacturers also tend to have easy availability of markets in the form of other developed neighbouring countries and hence this model has served them well which has helped in development of a niche for these. Even though Australia also has the requisite factors of production for luxury cars manufacturing but it seems unlikely that the Australian car manufacturers can pursue this model. This is primarily on account of the geographical location which is isolated an d hence makes exports unviable (KPMG, 2014).Thus, the above discussion indicates that for Australia neither of the two prevalent models seems to be suited. Even though the factors of the production present in Australia are similar to the other western nations but geographical constraints defeats any attempt to move into this segment. Additionally, the demand in Australia and the only significant neighbour in the form of New Zealand would be modest at best and hence would not be able to justify the high capital expenditure required in setting up shop. However, the failure of the car industry does not imply that the manufacturing sector is not significant or the demand for these goods can be met with imports with no implications for economy (Toner Stilwell, 2014) Conclusion It is imperative that the cost issue which remains a problem not only in car manufacturing but also in other sectors needs to be resolved through government support. While it seems quite obvious that considering the high labour cost and low demand, economies of scale cannot be reaped by the Australian manufacturers, but the government shall still continue to provide support to these industry considering the contribution to employment. Further, before drawing support from this industry, it makes sense that the government takes proactive measures so as to adjust those employed in manufacturing sectors currently can be absorbed by other sectors where Australia has a competitive edge based on the inherent factors of production (Barbaro, Spoehr NIEIR. 2014). References Barbaro, B., Spoehr, J. NIEIR. (2014). Closing the Motor Vehicle Industry: The Impact on Australia, University of Adelaide, Retrieved on August 23, 2017 from https://www.adelaide.edu.au/wiser/research/development/automotive%20industry/Closing_the_Motor_Vehicle_Industry_-_The_impact_in_Australia.pdf Conley, T.(2014). Managed decline to rapid demise: Abbotts car industrygamble, The Conservation, Retrieved on August 23, 2017 from https://theconversation.com/managed-decline-to-rapid-demise-abbotts-car-industry-gamble-23124 Jericho, G. (2014). Car industry exit: manufacturing is declining but it is still a vital cog, The Guardian, Retrieved on August 23, 2017 from https://www.theguardian.com/business/grogonomics/2014/feb/13/car-industry-exit-manufacturing-declining-but-still-vital (Accessed on November 22, 2015) KPMG (2014), The UK Automotive Industry and the EU, KPMG Website, Retrieved on August 23, 2017 from https://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market%20Sector/Automotive/uk-automotive-industry-and-the-eu.pdfToner, P. Stilwell, F. (2014). Why does Australia need manufacturing industry?, Australian Options, Retrieved on August 23, 2017 from https://www.australian-options.org.au/2014/02/why-does-australia-need-manufacturing-industry/