Business Decision Analysis: Private Sector Assessment Answer
Answer:
Introduction:
The automotive industry in Australia is one of the largest private sector investors concerning investment which scales over USD 5 billion posts 2002 (Lynch & Hawthorne, 2016). It entails over the comprehensive understanding of the basic need for globally comparable policies and efforts to make investments in a turbulent era which is characterized by low market entry costs and mobile capital. Australian automobile industry would be able to enjoy the national benefits of being a lone state that is capable of designing, manufacturing and engineering top-notch products and services. Various policy setting facilitates in realizing the maximum value of investments in Australian auto companies. The submission in this regard is made by Ford Australia a prominent Australian entity. This report provides an investment debate, whether it is favorable or futile to invest in car manufacturing plant in Australia. The further analysis puts forth challenges that the industry is plagued with, Ford Australia in particular. The following segments discuss various strategic moves that aim to solve the crisis and enhance growth and development of the industry. The automobile domain of the country is also competitive in nature with many players striving to gain a competitive advantage over the other.
Discussion and Analysis:
Brief overview of Ford
Ford Australia is a prominent automotive manufacturer which comes with extensive design, manufacturing and engineering facilities located in Lara and Geelong regions in Victoria. The world class facilities portray an organization with a substantial investment in technology and infrastructure. Ford Australia is an integral segment of Ford Motor’s Asia Pacific operations. The unit’s flagship products are mainly, Ford Territory and Ford Falcon. The entity has high levels of local content along with linkages of widespread local suppliers. Ford Australia distributes its products, technical service, and competence through a network spanning across more than 250 locations across the nation. The entire scheme of operation employs more than 7000 resources located in regional and rural centers. In 2013, Ford Australia announced a plan to cease local vehicle manufacturing by 2016. The company has been incapable to identify and uphold a sustainable and profitable business model in Australia. The company announced its objective to proceed with development by launching Ford Territory and Ford Falcon models. Post-2016, the organization, anticipates employing around 1,500 skilled resources along with the addition of specialist contractors for its ongoing operations (Briggs et al., 2015).
Literature Review
The automotive industry in Australia is a multitude of economic activity, which encompasses a range of skills, competencies and technologies along its need to constantly create and utilize innovative technologies. One of the important challenges in this regard is achieving adequate scale to be profitable. Exchange rates play a significant part far as the profitability of automobile manufacturers is concerned. The automotive sector operates in a global parlance with various manufacturers having a reliance on exports mainly to attain desired results. On the other hand, manufacturers can negate the risk associated with exchange rate by locating the manufacturing unit in proximity to the place where vehicles are sold. Global demand is likely to perk up significantly in near future with the increase in demand in economies. Due to the strength of Australian dollar, it is rather tough for the Australian manufacturers to stay afloat in the competitive market. The competitive nature of domestic market condition means exports are imperative for domestic producers for achieving satisfactory scale. They have indicated that to endure during this time, some level of government intervention is required. On the other hand, many developed states construe automobile industry as one of the economically strategic sectors. An automobile industry of Australia has undergone significant change in recent past. The sector’s scale and composition along with economic activity and employment have been affected. Ford Australia is a foreign-owned subsidiary which spans across four market segments mainly, large car- Ford Falcon and SUV- Ford Territory. Various analysts considered competitive cost scale for various vehicles manufactured in Australia. In 2012, Ford produced near about forty thousand vehicles which are less in comparison to global players. The structural change made an effect on employment in the industry wherein, employment in the sector suffered a fall by forty percent from 2006 to 2013. Ford announced that the closure of their manufacturing units in Australia would have direct effect on a large number of employees across the nation. This along with other factors caused a decline in employment index by nearly thirty percent over the period. Loss of jobs about Ford relates to manufacturing employees so that a large number of reductions of expenditure could be made in keeping with a reduction in various positions of the firm (Dwivedi, 2016).
Avenues of employment in Ford
The company currently provides employment for nearly 1000 design and development engineers along with competent contractors. They comprise of vehicle engineers, clay modelers, program planners, safety engineers, to name a few. The staffs are involved with various stages of product development cycle, testing, styling, research and advanced engineering. The recent vehicle development initiatives are completed by these resources which include various models. The critical and commercial success of various products and services enhanced the reputation of Australia’s product development team which assumes to be creative, competent and competitive in nature. The company recognizes the importance of proficient employees and expands its scale of employees through collaboration with esteemed Australian universities. The firm has an illustrious legacy of working with universities which resulted in Ford-funded university research projects in pursuit of latest vehicle efficiencies and modern technologies that would benefit the clients (Lawson et al., 2016).
Issues in investing
At the outset, it is important to explain the reason of downfall of Australian car industry. High currency is not a factor behind the collapse. Car prices in the region fell by 2.8 percent last year, and the tyrant of deflation made the situation worse. This will result in joblessness of a large number of populations due to the closure of the industry. Due to inflation and debt, lower prices increase the value of money. This result in less demand and more production followed by more deflation and so on and so forth. Ford is striving to operate in Australia. The Ford 2020 strategy as promulgated in 1996 envisaged various regional production centers (Shaheen & Cohen, 2013). With the change in the policy of the firm the management of the firm saw a prospect for the firm’s automotive manufacturing in Australia which would require exorbitant government subsidies and protective tariffs. The pertinent issues which an investor may find while investing in the automobile sector, Ford, in particular, are laid below.
De-industrialization: Australia had witnessed a paradigm shift from labour-intensive industry, which resulted in de-industrialization in the entire region. In 1950 and 1960, the country’s auto industry expanded substantially leading to Ford making large investments in the Australian market. Here, it is important to mention the aspect of political support for Australian automotive industry. Although the industry has been the recipient of political backing from different quarters, mostly the support has been bipartisan. Thus the sector has been subjected to political whims, and fancies and Ford had its share of misfortune in this regard.
The Button effect: The oil crisis in keeping with import penetration landed the automotive industry in Australia in soup. The 1980s witnessed Australian automobile industry running into crisis due to poor productivity and Ford was not immune to that. John Button was the minister who proposed Automotive Industry Authority and made tariff reductions around 2.5 percent per annum. Subsidies existed under Button regime which helped Ford’s model namely, Falcon developing new models. However, the firm was bound to cease its operations local Laser productions. The political disjuncture made investments hard to come by. The level of hazards increased and thus affected investment in automotive industry (Cucchiella et al., 2016).
Lack of essential skill base: The factual reality is no states had ever assumed to be an industrial economy devoid of auto industry. Australia is one of the thirteen nations that can manufacture a vehicle from the ground up. The industry generates a specialized skill set, which comprises material engineering, designers, along with specializations in lubrication and other avenues. Furthermore, there is a lack of sufficiency robust and detailed business planning that is present across the sector. Thus, it is clear that dearth of competent resources which may not draw substantial investments from different quarters (Timmer et al., 2015).
Solution of investment crisis
Australia’s existing policies are not well enough to draw investments from prospective quarters. However, the solutions elucidated below portray various facets that would attract investments. The details are mentioned below.
First, subsidies would be tilted away from established industries that fail to create employment opportunities. Here, the existing scenario may be likened to that of the mining industry which pays less for fuel than others. On the other hand, Treasury approximates the total cost annually to USD six billion which comes with the rebate. Now with the absence of local car industry, the tax concessions for company cars like Ford Motors, which estimates around USD 800 million annually, may be scrapped. This type of savings may be deemed as seed funding (Dalla Chiara & Pellicelli, 2016).
Secondly, infrastructure support may be offered to those who intend to build considerable manufacturing capacity concerning automotive industry in Australia. Investments in Ford Motors would heighten given the state willingness to develop well-connected roads, energy supplies and ports to industrial regions of the nation. It makes business easy since everyone prefers state-of-the-art infrastructural facilities. Automobile industry falls under the spectrum of manufacturing industry. The sector is expected to receive various tax concessions which are offered to oil and mining industries. One instance may be accelerated depreciation as offered to new factory units (Lynch & Hawthorne, 2016).
Thirdly, the country has the competence to concurrently assist citizens and new investors by aligning its focus of providing premium training and education facility to cater to the needs of new factory units. The highly regarded universities of the state should join hands with manufacturers who aim to play a central role in drawing investment for the industry. Thus Ford Motors should collaborate with manufacturers and dealers who would impart necessary training for the upgrading of existing skills and competence (Naor et al., 2015). In simple words, the ploy of attracting new investments would take a long time to consolidate and reap results. Tax break scheme needs to be provided along with training of workforce for new units and facilities of Ford Motors should be effective in long term scheme of things.
All the above mentioned policy changes strive to portray Australia as an investment-friendly nation, especially in the manufacturing sector, automobile domain to be more precise. Not only Ford Motors can benefit from large industrial areas which come with accessibility to energy but also adept and skilled workforce in the region with an unwavering polity and good investment prospects. It may take several times for the results to show up but with necessary attention and support from various quarters Ford Motors Australia would surely ride on investments and assume to be a force to reckon with in Australian region (Drauz, 2014).
Literature review summary table
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Source |
Description |
Results |
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Dwivedi, A. (Ed.). (2016). Innovative Solutions for Implementing Global Supply Chains in Emerging Markets. IGI Global. |
The article provides an analysis of Australian market with respect to the automotive industry. |
Australian Automotive industry is highly competitive. Therefore, any new entrant has to incur heavy investment to compete in the market and to achieve economies of scale. However, the infrastructural facilities for the industry as well as rising economic condition suggests that there is huge opportunity for the Ford Motors to grow in the Australian market. |
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Lawson, G., Salanitri, D., & Waterfield, B. (2016). Future directions for the development of virtual reality within an automotive manufacturer. Applied ergonomics, 53, 323-330.
|
The literature presents the evaluation of the Australian labour market and the highlights the skills and competency levels of the Australian human resource. |
Automobile manufacturing units require large number of skilled and semi skilled employees. In this context, Australian work force exhibits greater skills and competency levels. The work force is skilled, competent and creative. Therefore, it is beneficial for the organization to employ people from the local market |
|
Shaheen, S. A., & Cohen, A. P. (2013). Carsharing and personal vehicle services: worldwide market developments and emerging trends. International Journal of Sustainable Transportation, 7(1), 5-34.
|
The literature discussed the issue that an organization has to face when investing in the Australian automotive market. |
The Australian economy is thriving at present and has been able to bounce back from the global economic crisis of 2008. However, the AUD value has deflated that presents threat for the investors as it implies that the economy will slide back to recession. However, to encourage investments government provides subsidies to foreign companies. Therefore, it is appropriate time for Ford Motors to undertake investment decisions, as it is long-term business decision and the economy great potential to grow. |
|
Cucchiella, F., D’Adamo, I., Rosa, P., & Terzi, S. (2016). Scrap automotive electronics: A mini-review of current management practices. Waste Management & Research, 34(1), 3-10. |
The literature discusses and evaluates the effect of decentralization and Motor Industry Development Plan (Button Effect) on the Australian motor manufacturing industry. |
The de-industrialization of Australian Motor Industry and the motor industry development plan has significantly affected the operations of all car manufacturers in Australia. These events have led to significant reduction in the investment opportunities in the motor industry as the objective of these measures was to protect the interests of domestic car manufacturers and to make the industry more competitive. However, the impact of these measure on the investment decision of Ford Motors would be minimum as the company has already been established in the market and is backed by the government (bi-partisan). |
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Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R., & Vries, G. J. (2015). An illustrated user guide to the world input–output database: the case of global automotive production. Review of International Economics, 23(3), 575-605.
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The literature discusses the industry specific competency levels of the Australian workforce. |
The auto mobile industry requires human resource with certain competency levels such as materials engineering, designing, specializations in lubrication and other skill sets pertaining to different specialized function that a manufacturing units requires. In this regard Australian work force may lack certain essential qualities as the industry altogether lacks sufficiency robustness and detailed business planning. |
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Dalla Chiara, B., & Pellicelli, M. (2016). Sustainable road transport from the energy and modern society points of view: Perspectives for the automotive industry and production. Journal of Cleaner Production.
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The literature here suggests various factors that would be beneficial for the company if it proceeds with the investment decision.
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First factor that presents a favorable condition for the business is that the Australian market does not have a major domestic motor manufacturing unit. Therefore, in the absence of such domestic industries, Australian government has scrapped the concessions for the motor industry that is estimated to be around AUD 800 million that would be used as seed funding for development of auto motor industry and to attract foreign players. |
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Lynch, J. & Hawthorne, M. (2016). Australia's car industry one year from closing its doors. www.smh.com.au. Retrieved 18 August 2016, from https://www.smh.com.au/business/the-economy/australias-car-industry-one-year-from-closing-its-doors-20151012-gk7ip0.html
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The article discusses the investment infrastructure and general market outlook of the motor manufacturing industry in Australia. |
The government is concerned with developing considerable infrastructure to support those who intend to build considerable manufacturing capacity concerning automotive industry in Australia. Investments in Ford Motors would heighten given the state willingness to develop well-connected roads, energy supplies and ports to industrial regions of the nation. |
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Naor, M., Bernardes, E. S., Druehl, C. T., & Shiftan, Y. (2015). Overcoming barriers to adoption of environmentally-friendly innovations through design and strategy: learning from the failure of an electric vehicle infrastructure firm. International Journal of Operations & Production Management, 35(1), 26-59.
|
The literature discusses the training and development facilities that Australian manufacturing industry provides to the employees to align their competency skills with the industry requirements. |
The competence to concurrently assist citizens and new investors by aligning its focus of providing premium training and education facility to cater to the needs of new factory units. The highly regarded universities of the state should join hands with manufacturers who aim to play a central role in drawing investment for the industry. Thus Ford Motors should collaborate with manufacturers and dealers who would impart necessary training for the upgrading of existing skills and competence. |
Literature summary table
(Source: As created by author)
Decision tree
Conclusion:
This report delved in the state of Australian automobile industry with particular emphasis over Ford Motors Australia. The exhaustive discussion coherently explains the literature review or preface of the given proposition. The issues or concerns highlight challenges that the company and overall industry faces in present times. Despite the challenges, Australian automotive industry is expected to thrive due to a number of solutions as proposed in the above segment. If the schemes are implemented, the exports of cars will increase by 2018. Notwithstanding of challenges and impediments, Ford Australia foresees a significant and substantial role for its extensive product development. The company is slated to retain Australian based product development capacity which may be a primary source for the development of future global automobile programs. In other words, the firm is willing to make its presence felt in the global corporate parlance as a destination of investments along with provider of Research and Development, design and advanced engineering services and solutions.
Reference list
Briggs, M., Webb, J., & Wilson, C. (2015). Automotive Modal Lock-in: The role of path dependence and large socio-economic regimes in market failure. Economic Analysis and Policy, 45, 58-68.
Cucchiella, F., D’Adamo, I., Rosa, P., & Terzi, S. (2016). Scrap automotive electronics: A mini-review of current management practices. Waste Management & Research, 34(1), 3-10.
Dalla Chiara, B., & Pellicelli, M. (2016). Sustainable road transport from the energy and modern society points of view: Perspectives for the automotive industry and production. Journal of Cleaner Production.
Drauz, R. (2014). Re-insourcing as a manufacturing-strategic option during a crisis—Cases from the automobile industry. Journal of Business Research, 67(3), 346-353.
Dwivedi, A. (Ed.). (2016). Innovative Solutions for Implementing Global Supply Chains in Emerging Markets. IGI Global.
Lawson, G., Salanitri, D., & Waterfield, B. (2016). Future directions for the development of virtual reality within an automotive manufacturer. Applied ergonomics, 53, 323-330.
Lynch, J. & Hawthorne, M. (2016). Australia's car industry one year from closing its doors. www.smh.com.au. Retrieved 18 August 2016, from https://www.smh.com.au/business/the-economy/australias-car-industry-one-year-from-closing-its-doors-20151012-gk7ip0.html
Naor, M., Bernardes, E. S., Druehl, C. T., & Shiftan, Y. (2015). Overcoming barriers to adoption of environmentally-friendly innovations through design and strategy: learning from the failure of an electric vehicle infrastructure firm. International Journal of Operations & Production Management, 35(1), 26-59.
Shaheen, S. A., & Cohen, A. P. (2013). Carsharing and personal vehicle services: worldwide market developments and emerging trends. International Journal of Sustainable Transportation, 7(1), 5-34.
Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R., & Vries, G. J. (2015). An illustrated user guide to the world input–output database: the case of global automotive production. Review of International Economics, 23(3), 575-605.
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