Globalisation and Australian Automotive Industry Essay

Globalisation and World Today globalization is essentially a synonym for global business. Globalization is changing the world we live in at a very increasingly rapid pace (Rodrik. , 1997). Changes in technology, communication, and transportation are opening up borders and markets at increasing rates. In any large city in any country, Japanese cars ply the streets, a mobile call can be enough to buy equities from a stock exchange half a world away, local businesses could not function without U. S. computers, and foreign multinationals have taken over large segments of service industries.

Impact of Globalisation, both theoretically and practically, can be observed in different economic, social, cultural, political, financial, and technological dimensions of the world. Globalisation has created a new world order and is gradually reaching new heights, incorporating all the fields to form a cohesive network. (Boyer & Drache, 1996) Most of the arguments against globalisation strike at one point: it benefits corporations and not people. However, it is not that way. It is possible for globalization to benefit both corporations and people.

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There are many points in favour of globalization i. e. it lowers prices. Food is cheaper, clothes are cheaper, cars are cheaper, and phone service is cheaper. Globalization lowers prices and raises income. Most importantly, free trade stops wars. One world, one peace, else can be fixed (Roberts & Hite, 2000). Globalization is good just not for the rich countries but especially for the poor countries. “The booming economies of India and China–the Elephant and the Dragon–have lifted 200 million people out of abject poverty in the 1990s as globalization took off, the International Monetary Fund says.

Tens of millions more have catapulted themselves far ahead into the middle class. ” (Meredith & Hoppough, 2007). Globalisation has significantly influenced the job market in developing countries. The most common concern is that cheap labour and ‘drive to the bottom through fierce competition’ may be the unwanted outcome of globalisation. With the rise of globalisation, many companies are shifting to either off shoring or offshore outsourcing and this has lead to a massive redistribution of work around the world (Khan, 2006).

Globalisation in manufacturing activity around the world has transformed China into a global factory as many industrialized countries are shifting their production activities partly or fully to different parts of China for gaining the benefits of China’s low labour costs. Globalisation and environment are intrinsically linked with each other. Environment provides the natural resources (Najam, Runnalls, & Mark, 2007). More and more industries around the globe result in high levels of carbon emission in the atmosphere giving rise to worldwide issue like global warming.

It also enhances the working conditions of nations in respect of technical know-how, better economical, political and social relationships (Jayasuriya, 2008). Impact of Emerging Global Economies on Australian Automotive Industry Australian Automotive industry has gone through an extensive reform programme especially after the Motor Industry Development informally known as Button Plan in 1985 when the industry was protected by the tariff of 57. 5 percent. The removal of quota and decrease in protectionism made imports more accessible to consumers, and the industry became more internationally competitive and export focussed.

For example: exports of automotive rose from almost nothing to around $4. 7 billion in 2007, establishing automotive one of Australia’s top ten export earners and the largest manufacturing export earner (Bracks, 2008). The industry has modified itself into more export oriented rather than focussing on just the domestic market especially after the collapse of 1980s (Smith & Sohail, 2005). The main reason for the existence of an automotive manufacturing industry in Australia is to provide a means for workers, communities and nation to prosper.

Australia has one of the most open automotive markets in the world. There are three major motor vehicle producers (MVPs) •Ford •GM Holden •Toyota There are 200 component, tooling, design and engineering firms in Australia. All three companies are the subsidiaries of major overseas producers. Mitsubishi Motors closed its production in March 2008, though it remains in the market as an importer of a full range of vehicles (AustralianGovernment, 2009). In 2007, the market recorded sales of over one million vehicles for the first time. The number of passenger vehicles sold increased by 1. % (on month to month basis) to 41,700 in April 2009. The rise was the largest monthly increase since November 2007, and is a sign of improvement instead of rising fuel prices and global economic turmoil. Total Australian Vehicle Production, Domestic Sales and Export Sales 200320042005200620072008 Domestic sales276,392274,537248,912201,622200,485171,432 Export sales120,178 131,474 142,022132,742140,243162,929 Total sales396,570406,011390,934334,364340,728334,361 Total domestic Production406,668407,537387,821328,512335,625 324,118

Source: VFACTS; DIISR Key Automotive Statistics; FCAI (AustralianGovernment, 2009) Emerging economies like China, India and Thailand are rapidly expanding their vehicle and automotive component production. At the same time, these and other emerging economies, apply various tariff and non-tariff barriers which serve as a hindrance on Australian automotive exports (Sturrock & McKellar, 2006). Imports have been rapidly growing in the past few years from countries like Japan, Thailand, Germany and Korea. Imports have dramatically increased from $ 18 billion in 2002 to 27 billion in 2007.

Nevertheless exports are too expected to rise from 24. 2% in 2003-04 to 24. 5 % by 2008-09. The industry is very much reliant on exports to the Middle East, the United States and New-Zealand; there are huge opportunities for diversification and growth in emerging markets such as China, Russia and India. The strengthening of the Australian dollar especially against U. S. dollar and Japanese Yen has had a negative effect on the competitiveness of the Australian automotive industry. Australian vehicles have become relatively more expensive as compared to their import competition.

Though, some component producers always have a benefit of natural hedge against the rising Australian dollar, as they import inputs to production (Government, 2008) Impact on Jobs Australian automotive manufacturing industry is one of the most significant part of the Australia’s economy and society. The manufacturing industry employed around 63,000 people in 2008 whereas around 47,000 in 2009 (and accounts for almost 6 percent of the manufacturing employment) of which 93 percent are employed on full time basis (Department of Innovation, 2009).

According to the estimation, further 100,000 jobs directly or indirectly depends on the automotive industry in the industries like steel, plastic glass and services. The industry is a key driver for innovation and employs around 3200 staffs for the process of research and development (R). All the three MVPs have R capability within Australia. GM Holden’s regional design and engineering centre employs around 1000 staffs. Toyota’s regional technical centre employs around 100 staff whereas Ford’s design and engineering ‘Centre of Excellence’ employs over 1300 staff (Government, 2008). Over the longer term, total employment in the sector has fallen by 25. 3 percent since the peak of 86,800 people in November 2002, but risen by 17. 3 percent since a long-term low of 55,200 people in august 1999” (Government, 2008). The closure of Mitsubishi manufacturing plant in March, 2008 has directly axed out 930 workers from their job and has impacted thousands of jobs of the people (component suppliers, dealers, transporters) directly or indirectly related with the plant (Cook, 2008).

The department of education, employment and workplace relation estimates that, “over the five years to 2012-13, employment is expected to decrease at an average rate of 1. 5 percent per annum” (about 4600 jobs in total). Most of the service jobs relating to component designing have been re-allocated to other emerging economies for gaining the benefits of their low labour costs. The globalisation has made labour like a commodity, for multinationals corporations to manufacture their identical lines in Brazil, Russia, India and China (BRIC Nations) and other low wage countries with the cheapest labour (Dr Baker, 2008). A trend confirmed by senior Australian Treasury official Dr Martin Parkinson, who says the gradual global shift of manufacturing production to low-cost countries, including China will continue to place competitive pressures on parts of Australian manufacturing” (Greg, 2006). Impact on Wages Recent studies of Australian automotive industry have shown an increase in the gross wages over a period of time. The gross wages and salary in the Australian automotive industry rose by 24% from around $44,000 – $55,000 in the five years to 2006.

The corresponding increase for manufacturing was 17 percent from $41,000 to $48,000. The wages and salaries in the Australian automotive industry in the year 2006 were 14 percent higher than in manufacturing as a whole (ABS, 2006). Though wages and salaries were higher overall there were some significant differences in the industry itself. For example, the wages and salaries were: highest among the motor vehicle manufacturing employees and 32 percent higher than the average for manufacturing generally; lowest amongst motor vehicle body manufacturing employees i. . $38,000 in 2006, or 31 percent lower than the broader automotive industry and 21 percent lower than manufacturing (AustralianGovernment, 2009). The reason for poverty of labour market in Australia is low wages. “In Australia, ‘fair wages’ were established at the turn of last century through trade union negotiations and were generalised to all similar workers throughout the country”. Wages only rise when government want them to rise, yet some big employers continually lobby to keep wages low (John, 2000).

Due to globalization, the demand for more skilled labour in the advanced countries has increased at the expense of the less skilled labours. This trend has led to increase in wages and salaries of the skilled labours and thus the income gap between the two groups has grown. The automotive industry in the year 2008 was the main focus since a thorough study says that the cities endowed with the natural resources grew faster than the other cities which eventually raised the gap between the groups of people (Preston & Jefferson, 2009).

Freer trade and loss of government subsidies in vulnerable industries also encourages low wages. The above mentioned statistics shows that the wages in the Australian automotive industry have gradually increased over a period of time, but the gainers of this rise were the high skilled labours at the cost of low skilled labours. Though the technological and skill capacities are very high in Australia, the wage distribution gap between the skilled and unskilled labour still remains very high as compared to other advanced countries (Williams, 1999). Impact on Environment There were 15. million motor vehicles registered in Australia at 31 March, 2008. This is 3. 5% higher than the number of registrations from the 31 March 2007, and an increase of 16. 2% since the 2003, when there were 13. 2 million vehicles registered. This led to 719 motor vehicles per 1,000 resident population in Australia on 31 March 2008, an increase of 56 vehicles per 1,000 residents since March 2003 (ABS, 2008). The growing number of vehicles is adversely affecting the environment as vehicle emission contributes in the climate change through the emission of green house gases and increased number of air pollutants.

To some extent degree of carbon emission also depends on the age of vehicle, size of engine, fuel quality and adopted technology. The concern of global warming, continuous rise in pollution, increasing oil prices and world recession has seen a shift of consumer demand towards the small and environmental friendly cars. The world consumption of oil, coal and natural gas has gone up due to population increases, greater affluence and the fast pace of development in emerging economies especially China and India (Dr Mudd, 2007).

Government has become proactive considering the adverse effect on environment. On 3 December 2007 Prime Minister Kevin Rudd signed the instrument of ratification of Kyoto Protocol, and on 11 march 2008, Australia’s ratification came into effect. Australia has signed up to cut greenhouse gas emissions to 108 percent of the levels they were in1990 (Government, 2009). Prime Minister Kevin Rudd and Industry Minister Kim Carr on 10 November 2008, announced a New Car Plan For a Greener Future, worth up to $6. billion, to make the Australian automotive industry more economically and environmentally sustainable by 2020. The green car plan provides an opportunity to Australian car companies to receive government funding to design and manufacture environmentally friendly cars, which will certainly boost up the sales and make the industry more globally competitive (AustralianGovernment, 2008). On 24 April 2009, the Australian government launched a Green Car Innovation Fund (GCIF). The GCIF is part of the Government’s New Car Plan for a Greener Future. The $1. billion GCIF will provide funds to Australian companies, for the projects that enhance the research and development and commercialisation of Australian technologies that significantly reduce fuel consumption and greenhouse gas emissions of motor vehicles. Grants are provided at a ratio of $1 of government funding for every $3, of eligible expenditure, contributed by the grantee. This is critical and strong action to protect the Australian economy during the global financial crisis (AustralianIndustry, 2009). Impact on Working Condition Flexible working conditions and a stable workplace are very important for an automotive industry.

Australia is one among the 15 countries which has the capability to take a car from concept all the way to full production. Australian automotive manufacturing industry has a big threat from the emerging economies especially China (already the third largest motor vehicle market in the world), as China seeing the open market of Australia planning to flow its bulk of relatively cheap, quality made cars & car components into Australian market in the next few years. Japan has a healthy automotive manufacturing industry reason being the high level of protectionism (Baker, 2007).

There would be very few automotive companies in the world who are not trying to evaluate what the impact of Chinese automotive production will eventually have, not only into their own business, but on the global industry as a whole (DFAT, 2004). The Chinese city Chongqing is producing more vehicles than the whole of Australia’s auto industry does. The Chinese company Chang’an Ford, founded in 2001, is producing cars like Fiestas and Mondeos to the world quality standards and plans to produce at least one new car model every year in china.

Some of the car factories in the city of Shanghai are big as of those in Detroit and are still expanding. The factories in China are set up with western knowledge and technology, and in fact many are more modern than Australian assembly lines which were established decades ago. Some analysts whose studies suggest that there are already negative impacts from the growing Chinese car industry into world trade (Dr Baker, 2008). “The chance for Chinese original equipment manufacturers (OEM) to enter the Australian market is clear.

The investment needed to meet or exceed the emission standards is the same as their European export push. The only hurdle is their ability to produce a right hand drive vehicle and several have already built these vehicles” (Comengine, 2007). The global competitive pressure that the industry is facing, more importance on improving productivity, changing work management practices and a productive workplace culture will be required if the Australian automotive industry has to survive in the longer term. Impact on National Sovereignty Sovereignty means supreme authority in a political community.

The role of state in the modern world is changing. “Environmental exigencies have highlighted the vulnerability of every state to the actions of others in the system”. The expansion of trade connections and international movement of trade and labor have reduced the level to which countries may impose the independent economic policies, as both large and small countries submit to the demands of global integration as developed, developing and under developing countries follow up to the demand of national integration (HarvardInternational, 1995).

Globalization has made way for the foreign companies (MNEs) to enter into Australian market which has led to the cutthroat competition and certainly lowered the domestic demands to some extent which would have otherwise fulfilled by the Australian car manufacturing companies. Foreign companies can also influence the local government policies and threaten to leave if their demands are not met.

For example: All the three major motor vehicle producers in the Australian automotive industry being the subsidiaries of overseas producers can pressurize government for favored policies and various other subsidies for their own betterment regardless of the nation and its people Australia being a developed country is sometimes being pressured by the developing ones to reduce social benefits to reduce tax rate. The impact of globalization on Australian Automotive industry in relation to Australian sovereignty also has some positive side linked to it (Saber, 2009).

Globalization has helped Australian automotive industry to be more technological and economical advanced. Massive expansion of infrastructure, increasing foreign reserves, higher living standard and overall betterment of country and country men are the outcome of globalization. Conclusion Australian Automotive industry has travelled a long journey from a protected economy’s industry to an open economy’s industry.

To some extent globalisation has negatively impacted the industry in accordance with the wage distribution gap, cut throat competition, environmental issues but despite the flaws of globalization, the industry has shown dramatic growth, especially after the reforms of 1980s. The three major car manufacturing companies in the industry are the subsidiaries of the foreign companies which provides livelihood to thousands of people. Due to global pressures, the industry has become more specialized, competitive and technologically advanced.

The industry holds a big place in the country’s sovereignty and generates huge revenues to the government treasuries. “The development of a skilled workforce in Australia protects our sovereignty and reduces national dependence on imports” Save Geelong Manufacturing Committee (SGMC). Australian automotive industry has a big threat from the emerging economies, particularly from China as it is suspected that huge Chinese high standard cheap cars and car components will flow into Australia’s market in the coming years.

Thus, increased efforts by the government in promoting the industry and its outputs would only help in bringing a balance to the industry. While, government policies, tariff’s etc need to be addressed, mutual relationship building exercise would help in taking the industry further into the middle-eastern markets and exploring it. Small cars are the way to the future and further development in this segment would help in stabilising the industry and its needs. References ABS (2006). Manufacturing Industry. Retrieved 16-08-2009. from http://www. ausstats. abs. gov. au/ausstats/subscriber. sf/0/8A44F619754A8A2FCA2573AA000F5595/$File/82210_2005-06. pdf. ABS (2008). Motor Vehicle Census, Australia. Retrieved 19-08-2009. from http://www. abs. gov. au/AUSSTATS/abs@. nsf/mf/9309. 0. AustralianGovernment (2008). A New Car Plan For a Greener Future. Retrieved 18-08-2009. from http://www. innovation. gov. au/automotivereview/Documents/NEWCARPLANGREENERFUTURE. pdf. AustralianGovernment (2009). Outlook for the Automotive Manufacturing Industry Fact Sheet from http://www. innovation. gov. au/Section/AboutDIISR/FactSheets/Pages/OutlookfortheAutomotiveManufacturingIndustryFactSheet. aspx. AustralianIndustry (2009).

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