Introduction
The articles under study in this essay
appeared in The Eco News and Go Auto(as well as other popular Australian
publications) on March 26th and 20th respectively. Appendix
1
The first article quotes John Rice the Vice
president of global conglomerate General Electric who described the Australian
government ‘gutsy’ as it held its ground on introducing a price of Australian
$23 per tonne on carbon. The vice president applauded the efforts of the
government in this direction as it will benefit people all over the world in
the long term.
The second article reads, Asutralian Motor
Industry Federation hits out at proposed cap on 457 visas.
The focus of the article is to analyse this
statement in context of its implications with regards to the Australian
government, Australian businesses and International businesses with the help of
international business concepts and theories studies in week 1-6 in class.
Implications
Before we discuss the implications of the
news on various components of the Australian economy, let us first delve into a
brief background analysis of the report. A carbon pricing scheme also popularly
known as the carbon tax was introduced in July 2012 by the Gillard government. The
legislation requires all businesses emitting over 25000 tonnes of carbon
dioxide equivalent emissions to pay Australian $23 per tonne as tax. The
legislation has been controversial and has been opposed by various businesses
in Australia. However, the aim of the government by implementing the policy is
to reduce carbon emissions which are ultimately going to benefit Australia in
the long run.
The second report registers that automobile
industrialists are protesting against the government’s proposal to cap number
of visas issued to skilled workers to 457. Since, a major strength of the
workforce of auto mechanics in Australia comes from off shores, the capping
will affect the industry negatively.
In the sections to follow we study some
direct implications of the move on the major constituents of the Australian
economy:
Australian Government
The Australian government’s approach to the
carbon pricing scheme is to implement the pricing scheme in stages. That is,
the government would increase the tax rate in stages; initially it will be A$23
per tonne, gradually increasing to A$25.40 and being determined by free market
forces thereafter.
The
policy has been controversial and the government has/had to handle a lot of
criticism while bringing the policy into implementation. Various businesses
(which are affected adversely by this move) have protested against the
government publically in order to lobby and halt the implementation of the
policy.
Regarding the second issue the government
wants to cap the number of immigrants coming to Australia in order to provide
jobs to the domestic workforce. However, a lot of sectors which employ skilled
workforce from overseas will be affected negatively.
The government’s take on these criticisms
is that, it will compensate the citizens (for the increased prices) by investing
back in the public at large by way of pension plans, education systems and the
like. Also, the government believes that the legislation will help improve the
environment and the general well being of the public, and create better
employment if sustained for some years.
Summing up, although the step has been
taken with all good intentions to improve the future of the country (and the
world); the effect on prices and industry can seriously jeopardize the future
of the government in future elections.
Australian Businesses
The effect of the policy on Australian
businesses has been two pronged. It has had a mixed effect on some businesses;
good for some and bad for others.
Australian businesses in general have
lacked the capital investing abilities which their American counterparts have.
This has held them from adapting to newer technologies (green technologies) or,
bear the losses during gestation period of establishing these new systems –
this has lead to an increased cost of production for these industries and hence
made their products unattractive for public. Since, efficient international
firms such as General Electric are also operating in the Australian market
competing against which is difficult for domestic firms coping with the burden
of carbon tax already.
However, not all Australian businesses find
the carbon pricing scheme unhealthy. Energy producing firms such as Energy
Australia and TRU Energy welcome this change. Although they do find it difficult
to adapt to greener technologies immediately; they are making an effort to
change – for the good. Firms committed to consumer’s welfare are already taking
pre emptive step in the right direction and hence making their systems
efficient for the future.
With regards the second report the industries
have been generally negatively affected especially those employing foreign
workforce. The processes in such firms will be halted or slowed since number of
foreign workers visiting Australia will decrease.
Multinational Firms
Like domestic firms, multinationals too
have experienced a mixed effect of carbon pricing scheme and the visa capping.
Several companies operating in the
Australian market or planning to enter it, are suddenly finding the market
unattractive due to increased cost pricing model. The levy of a carbon tax has
disturbed the pricing of such companies and has suddenly exposed them to
competition from various quarters, especially from companies which have fast
adapted to greener technologies and increased their efficiencies as well as
reduced their cost and prices (making their product lucrative to the customer).
Companies such as GE, which have taken pre
emptive steps in the direction of green
technologies so as to reduce their carbon footprint will be able to avoid the
carbon tax (to a great extent) and hence will be able to keep their prices
unaffected and efficient in comparison with companies still making a lot of
carbon emissions.
The carbon pricing scheme has opened up a
new window of opportunity for many international players who believe in eco
friendly technologies, to enter and dominate the Australian scene.
International car manufacturers such as Toyota (manufacturer of Prius - Hybrid
Car) will benefit from this move by marketing their product at a better price
than that of their competitors’.
On the other hand a lot of multinationals
operating within Australian shores and employing professionals from their
homeland will be affected negatively by the visa capping since now these companies
will be coerced to employ Australians and let go their original staff.
Analysis of the Case
In this section the researcher will analyse
the news reports using the theories detailed in the class between week 1 and
week 6.
Market Economy
As learned in the lectures in the recent
weeks, the Australian economy can be termed a market economy; that is, all
economic decisions in the economy are taken by free market forces – this is
also known as a laissez faire economy.
In the Australian economy all economic
decisions are taken by the free market forces however, the government’s role is
to ensure the welfare of the people hence, the government’s role sometimes
tends to overlap the functioning of the market forces.
The carbon pricing scheme and the visa capping
is a classic example of the same. In this case the free market forces act to
determine the prices of various products in the market however, the government
imposes a tax on carbon emissions to promote ecologically conscious business
processes. This although done for the welfare of the nation, suddenly makes
certain industries inefficient (those using polluting techniques) vis-à-vis
those embracing green technologies; this government function has disturbed the
equilibrium of the market forces and represents a rare situation when such an
overlap happens. Similarly, the visa capping although done to ensure employment
for Australian citizens, negatively affects the processes of certain firms
employing foreign skilled workers.
However, the Australian government has
strong beliefs in the market mechanism hence, it has resolved to let market
forces decide the price of making carbon emissions, post 2016 (in a controlled
environment regulated by the government).
Political, Economic, Technological, Social Situation
Political
The federal government in Australia has
taken a strong resolve against carbon emissions and may also materialise the
457 visa scheme; hence the carbon pricing scheme is strictly implemented and
adhered to in the business community. This legislation has affected the
businesses, the operations of which cannot be sustained without emitting
pollutants (at least these businesses cannot make a sudden shift in
technologies). For example Virgin Australia has increased its air fare in lieu
of the carbon tax.
The legislation/ political stand has
acted as a barrier to entry for various firms eyeing to foray into the
Australian market; since the policy now changes the economics to operate in
this market as it heavily influences pricing and thereby affecting appeal to
the consumer.
Economic
As explained above the carbon tax and
the visa scheme has changed the financial dynamics of operating in the
Australian market. Suddenly various industries have become lucrative for some
firms and unattractive for other; depending upon the technologies employed by
the various firms.
The carbon tax has changed the financial
dynamics for various firms. For example domestic companies like Energy
Australia and TRU energy had to merge in order to sustain themselves with
combined resources in face of stiff competition from technologically advance
and capital rich foreign firms.
Due to the visa capping, processes of
certain companies will be slowed down reducing supply and increasing prices;
also the labor prices will also shoot up given the decreased supply of skilled
labor.
Technological
On the face the carbon pricing scheme presents a political
and an ecological issue; however, if we look at the dynamics that regulate the
issue, are that of technology. Since, the businesses employing the old
technologies which are polluting and result in carbon emissions are the ones
that bear the cost imposed by the taxation scheme. On the other hand firms
which have taken pre emptive steps to switch to greener technologies have saved
the cost of tax.
This advantage has specially come to companies from the
developed world (or from nations which support technological development). For
instance firms from the USA and some European countries or companies like
TOYOTA which pay specific attention to research and development stand a chance
in the Australian market vis-a-vis domestic firms which are either not
technologically advance or lack the resources to make a shift to new
technologies.
Social
The carbon tax also has a social implication. If we look at
the broader view of the policy, the legislation is in effect in order to
benefit communities by way of reducing carbon emissions and promoting cleaner
and greener communities.
Hence, it is quite obvious that firms using ecologically
responsible methods (and pricing competitively) are perceived positively by the
end consumer vis-a-vis firms using polluting methods (at inefficient costing).
The 457 visa scheme to also has a social cause at hand. The
scheme has been proposed in order to generate employment for the Australian
citizen against cannibalisation of skilled job opportunities by foreigners.
Comparative Advantage
The theory of comparative advantages
states that nations will benefit from trading in goods and services in which
they have a relative advantage in production over the other country. For
example a country A can produce shirt for $4 and shoes for $8 and country B can
produce shirt for $10 and shoes for $2. In such case country A will benefit by
trading its shirts with shoes from country B. Thereby trading on the basis of
their comparative advantage in order to gain mutually.
In context of the news report, the
multinational firms from developed nations stand to gain in terms of superior
technology and capital investment vis-à-vis domestic firms which control
resources and pre established market share.
The multinational firms are establishing
subsidiaries or acquiring domestic firms in the Australian market in order to
bring in technology from the homeland and gain by combining it with natural
resources and pre established market share thereby ousting the domestic firms.
Thus, it may be said that the nature of
legislation is such that it is working to the gain of multinationals at the
peril of domestic firms and hence, GE’s vice president’s applaud of the
government’s move is quite obvious.
Conclusion
By way of the report the researcher has
established the significance and implication of government legislation on
international business and its relation to the domestic market in Australia.
The researcher has also established relevance of certain theories in
international business in context of the issue.
The essay is specifically focused on
explaining the role and impact of the government in a laissez faire economy and
to establish the political, social and economic effect of even the slightest
move in the international markets or an action in the domestic market having an
international implication.
