Cost-Structure in Australian Industries-Free-Samples for Students

Question: Discuss about the Manufacturing Cost-Structure in Australian Industries. Answer: Introduction Manufacturing is the process of transforming various raw material into finished goods (Britannica.com, 2017). The industry manufactures many goods such as equipment, food, chemicals, tools, etc. In Australia, this industries contribution to its national GDP has been high and increasing over the years. However, the contribution have been on a steady decline (Langcake, 2017). The industry is a major source of employment for the Australians and thus an important industry to this economy (Business.gov.au, 2017). Despite the fair performance, this industry has been faced by many challenges that undermine its production capacity. One of the important challenge is that of increased production costs. The manufacturing costs have risen to greater levels which makes it more expensive to produce in Australia. Accc.gov.au (2017) noted that costs of production are calculated by summing the labor costs, material costs and the overheads. Some of the companies in this industry have closed down owing to their inability to continue operation at the increased costs. Other companies are still running at a risk of closing down. This paper will highlight some of the firms that are nearly closing down as an impact of the risen manufacturing costs. Since the paper will also point out some of the factors that are responsible for the rising costs, the paper will offer assistance to the policy makers in making development decisions. The need for the government to intervene in lowering the manufacturing costs will rise after an analysis on some of the important benefits of this industry. Analysis Abbas Valadkhani (2016) wrote an article Collapse of Australian car manufacturing industry which represented the impact of rising manufacturing costs. He noted that car manufacturers Ford, Mitsubishi, Toyota and Holden were projected to exit their operations in Australia by the end of 2017. This was a shift to overseas economies where the manufacturing costs are lower; this is a great loss to the Australian economy. The direct impact of this will be felt in the change in output and hundred thousands of job losses both in the upper stream and downstream industries. According to the Australian Bureau of Statistics (ABS), the percentage of total workforce employed in this sector is 8.5% which accounts for more than a million workers. There are many reasons that explains why the Australian motor industry are ceasing their operation in Australia. One is that its not possible for this economy to exploit full economies of scale owing to the small size of the Australian market. The Australian domestic market conditions has become unbearable; this has been contributed by; the elimination of tariffs on imports and the Free Trade Agreements (Robbins, Bergman, Stagg and Coulter, 2014). The pressure by unions to demand good working conditions and increased wages to the workers has made labor to be more expensive in comparison to overseas (Milne, 2010). The Australian dollar has also appreciated which have made exports to be cheaper. Elaine (2014) pointed out that manufacturing cost structure in Australia is higher than that of the United States by around 30%. Valadkhani (2016) noted that costs of manufacturing in other Asian economies is a quarter of that incurred in Australia which is reducing the competitiveness of the A ustralian manufactured products in the international markets. Goods produced at a lower cost raises the competitiveness in that the supplier may be able to offer a lower attractive price. The employment loss in the interrelated sectors varies as below; Fig: Ten sectors that will be hit greatly by the closure of car industry Source: Valadkhani (2016) The graph is plotted on the assumption that the whole car industry closed down. And it gives result in a descending order on the rank of sectorial linkages. The variation in the number of jobs lost is dependent on the extent at which the sectors are interrelated. The linkage is higher for the professional, scientific and technical services and thus the greater full-time job losses. Recommendations This economy is swimming in a pool of rising unemployment as a result of low jobs supply from the manufacturing sector. The government should strive to ensure that various production costs are lowered; this would enable the firms to expand and subsequently will employ more people and thus the unemployment rate would fall. The government should ensure that it either give subsidies to the manufacturing companies or rather it should employ a tax cut strategy for this firms. Since after closure the firms will incur huge costs to resume operation, the government should impose policies the soonest time possible to avoid such closures. The closure of this industry will have a great impact on the other remaining industries as it would create a need for increased funding in this sector. The government should ensure that unions do not instill much pressure on the companies and make wage rates more flexible. Conclusion The increased costs of manufacturing does not only affect the involved companies but the economy as a whole. Based on a fact that contribution of this industry to the Australian GDP is high, it creates a need for the government to ensure survival and development by ensuring fair costs of production. If the manufacturing companies were left to adjust on their own to the increased costs, they would negatively impact the whole economy. For instance they may consider raising the prices of the finished goods which could be inflationary or rather they may decide to cut the size of the labor they employ which would raise the economys unemployment rate. Thus, the control of the rising manufacturing costs is the governments responsibility. If the costs are not reduced, some firms will end up closing down or pausing their operation. This will create a demand deficiency for the manufactured goods and this could also result in higher prices for the available goods. Some companies may not be able to operate for long if the governments policies are not imposed immediately. References Accc.gov.au. (2017). Country of origin claims and the Australian Consumer Law. [Online] Accc.gov.au. Available at: https://www.accc.gov.au/publications/country-of-origin-food-labelling-0/country-of-origin-claims-and-the-australian-consumer-law/safe-harbour-defences/general-country-of-origin-safe-harbour-defence/cost-of-production-manufacture-test [Accessed 18 Aug. 2017]. Britannica.com. (2017). Manufacturing. [Online] Britannica.com. Available at: https://www.britannica.com/technology/manufacturing [Accessed 18 Aug. 2017]. Business.gov.au. (2017). Manufacturing Industry Fact Sheet. [Online] Business.gov.au .Available at: https://www.business.gov.au/info/plan-and-start/develop-your-business-plans/industry-research/manufacturing-industry-fact-sheet [Accessed 18 Aug. 2017]. Elaine. (2014). Australia has the highest manufacturing-cost structure among largest goods-exporting countries: study. [Online] Australianmanufacturing.com.au .Available at: https://www.australianmanufacturing.com.au/15915/australia-has-the-highest-manufacturing-cost-structure-among-largest-goods-exporting-countries-study [Accessed 18 Aug. 2017]. Langcake, S. (2017). Conditions in the Manufacturing Sector. [Online] Rba.gov.au. Available at: https://www.rba.gov.au/publications/bulletin/2016/jun/pdf/bu-0616-4.pdf [Accessed 18 Aug. 2017]. Milne, C. (2010). Manufacturing in Australia; does it have a future? [Online] Ausinnovation.org. Available at: https://www.ausinnovation.org/publications/vision-2020/advancing-australia/manufacturing-in-australia-does-it-have-a-future.html [Accessed 18 Aug. 2017]. Robbins, S., Bergman, R., Stagg, I., and Coulter, M. (2014). Management VS. Sydney, Pearson Education Australia. Valadkhani, A. (2016). Collapse of Australian car Manufacturing Industry. [Online] swinburne.edu.au. Available at: https://www.swinburne.edu.au/news/latest-news/2016/10/collapse-of-australian-car-manufacturing-industry-.php [Accessed 18 Aug. 2017]