Key Causes And Key Effects Of Australia's Manufacturing Industry Moving Offshore

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“Analyse the key causes and key effects of Australia’s manufacturing industry moving offshore”

The Australian manufacturing industry has been facing crisis for many years. There is a huge cavity in the fiscal transactions effecting the upliftment of manufacturing industry, resulting manufacturing industries moving offshore. The key factors which are causing Australia’s manufacturing industry moving offshore are, import competition, and high cost of production in comparison to low cost economies, especially China. Local manufacturers are finding it difficult to compete with imported goods, as these goods are proven to be a decent substitute at a lower price. “The Australian manufacturing industry is facing increased import competition, particularly from China, and the imperative of pursuing exports has never been more pronounced” according to the Australian Chamber of Commerce and Industry, (2007, p. 24). The high cost of production in Australia is a phenomenal constrain which is decreasing the profit and interest of manufacturers. In accordance with ACCI (2007, p. 65) “Outsourcing has become a necessity for business to maintain a competitive edge, high cost structures make it impossible to be successful domestically or internationally as trade increasingly finds less resistance”. The major effect of this shift is unemployment. As Industry is moving offshore, the low-skilled individuals will find it hard to get another job. This essay will analyse two key causes and one key effect of Australia’s manufacturing industry moving offshore.

Firstly, import competition is one of the major causes forcing Australian manufacturing industry moving offshore. Higher value of the Australian dollar has made domestically produced products significantly expensive than that of the imported substitutes originated from low cost economies like China and India. The Australian Food and Grocery Council & A. T. Kearney Australia (2011, p. 24) report that “The recent currency appreciation has yet to fully wash through in terms of displacing domestic production with imports. As a result we expect that industry imports will continue to increase at a faster rate than historically observed”. Various domestically produced products are seeing decline in sales due to cheaper imported substitutes. Australian mattress manufacturing industry is going through unstable international trade due to import competition. As cited by Kelly (2014, p. 7) “Import penetration peaked at 24.1% of domestic demand in 2007-08 before plunging over the next two years, to 14.8% in 2009-10. Since then, the import share of domestic demand has gradually climbed to an estimated 16.5% in 2013-14”. The customer base is constantly declining for domestically produced products as compared to imported products, which is a result of the abundant availability of substitutes at a much lower price. China, Malaysia, Thailand and New Zealand are major eatables and grocery exporting countries to Australia. The growth rate of imports from these countries has risen to very high levels. As per the findings of AFCG & A. T. Kearney Australia (2011, p. 25) “China, Thailand, Malaysia and New Zealand have recently been the fastest growing food and grocery exporters to Australia. Imports from these countries have grown at rates between 8 and 18 per cent per annum between 2004 and 2009”. Import competition is one of the key causes which is limiting domestic manufacturers’ profit and compelling them to move offshore for better business output and greater market presence in Australia.

Secondly, high cost of production is taking its toll on manufacturing industry. Skilled and un-skilled labour is a core component of most manufacturing industries. Australia being a high wage country is facing hard times in the manufacturing realm, and that is a result of liberal reforms and the system of trade unions. Manufacturing sector has another financial burden, which is age pension. Unlike low cost economies,
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