Analysis of Manufacturing Cost-Structure in Australian Industries

This report analyzes the manufacturing cost structure in Australian industries, highlighting the challenges posed by rising production costs. It discusses the decline in the manufacturing sector's contribution to Australia's GDP and its impact on employment. The report examines the factors driving increased costs, including labor expenses, import tariffs, and the appreciation of the Australian dollar. It uses the collapse of the Australian car manufacturing industry as a case study to illustrate the consequences of high costs, including job losses in related sectors. The report offers policy recommendations, such as government subsidies or tax cuts, to mitigate the negative effects and ensure the survival of the manufacturing industry. It emphasizes the need for government intervention to maintain fair production costs and prevent further economic damage.

Running Head: Australian Manufacturing Costs
Manufacturing cost-structure in Australian Industries
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Manufacturing cost-structure in Australian Industries
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 it’s not possible for this economy to exploit full economies of
scale owing to the small size of the Australian market. The Australian domestic market

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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 Australian 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)

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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 economy’s unemployment
rate. Thus, the control of the rising manufacturing costs is the government’s 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 government’s
policies are not imposed immediately.

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