Problem 1
a.) Impact of globalisation on Australia’s automotive industry:
The industry has access to major world markets like the U.S.A and Europe. This presents an increased market size to which the industry can participate by selling their products. This means that globalisation is providing more opportunities to the Australian automotive industry.
Globalisation provides major vehicle producers with a grater choice as to the locations for designing vehicles, obtaining supplies of a particular model they produce and a choice as to where they obtain components for their various models. This has resulted in an increased competitive pressure for the Australian automotive industry since it has to compete with more efficient industries in other markets. This kind of competitive pressure has an effect of encouraging efficient performance by the Australian automotive industry.
Globalisation implies that since production by major world vehicle manufacturers can be spread in different locations in the world, local assemblers are subject to strategic decisions of their foreign parent companies.
b.) Efficiency of Australia’s automotive industry
Australia’s automotive industry is not efficient. The scale of the industry’s annual production is low compared to the rest of the world, with the industry producing between 40000 to 110000 vehicles per assembler annually compared to a production rate of more than 150000 per assembler per annum in other parts of the world.
The implications of the industry’s inefficiency are high prices and low productivity. Since the industry is an imperfect competition with only a few sellers, the industry sets prices which are higher than the marginal cost of production and a production level lower than that would be in place in a perfectly competitive market. This results in inefficiencies in the industry and the competitiveness of its products against products from other industries declines and thus negatively affects the ability of the industry to trade competitively with other industries producing a similar product.
c.) Labour productivity
The labour productivity of the industry has improved over the last few years, with the number of vehicles produced per employee on the increase. However, these improvement rates are low at 14% as compared to industries in other foreign automotive industries which have recorded improvements in labour productivity of 30% and more.
This increase in labour productivity is as a result of introduction of new production processes in the industry and the contracting of many processes by assemblers to component producers.
d.) Role of tariff assistance and its effects
Tariff assistance is meant to cushion the industry from some import competition. It seeks to provide an incentive to local automotive producers by imposing taxes on competing automotive imports and thus give the local industry some advantage over vehicle importers.
Tariff assistance has detrimental effects on consumers, the industry itself and the economy in general. It imposes high costs on consumers since it raises costs on all producers using locally assembled cars to conduct business and these costs are ultimately transferred to the consumer. It also provides a scope for industry inefficiency since it gives an incentive for producers to delay adopting more efficient production processes and thus raises production costs indirectly. It also reduces the size of the national economy.
e.) Microeconomic reform
Economic reform refers to economic policies that are directed towards removal and elimination of economic inefficiencies in individual industries or on the economy as a whole. It is a process that emphasizes on the removal economic inefficiencies rather than employment or capital growth. It mainly involves removing economic inefficiencies caused by government regulation.
The effects of microeconomic reform are increased efficiency in production in the industry involved. This increased efficiency results in the increased competitiveness of the industry, lower production costs and an expansion in the country’s economy.
Problem 2
a.) Government support can distort the way farmers work by:
Making farmers oblivious of market conditions which should dictate their production. This misinformation leads to inefficient production where farmers’ production does not correspond to the needs of the market.
Cushioning farmers against market volatility and making them lack a commercial perspective to agricultural production and reducing their competitiveness against other global farm producers.
b.) Protection of farming for social, cultural or political reasons
The protection of this type of farming is not efficient because its production is not guided by commercial guidelines. The production in this type of farming does not take into consideration the need for efficiency in production to meet market demands.
Continued protection of this type of farming leads to long term production inefficiencies which may be expensive in the long run and which will be expensive to do away with.
