Discuss about the Economics for Global Decision Makers for Mining Industries.
Trading partnering countries of Australia have immensely helped Australian manufacturing and mining industries. Currently, copper wire manufacturing in China and India has reached to a significant level to say the least. In this particular case scenario, the identified copper wire manufacturing company has to select the most suitable market for production output and exporting. In the existing trade relationship with both the countries, both the Chinese market as well as developing Indian market can be the perfect choice. The research study has been developed to select one of the best markets out of the two based on nature of trade, trading status, export and trade agreements as well as the exchange rates between the countries (Cho and Yoon, 2013). Meanwhile, urbanisation and growth in the different sector in China has largely contributed towards the export as well as import relationship with Australia. As far as the statistics, China is the largest trading partner of Australian economy leading to significant exports.
In order to select the most suitable international market for the copper wire manufacturing firm, a comparative study between the trade relationship of both the countries with Australia has been discussed in the paper. Moreover, the export status of the two trading countries of Australia has been mentioned in the discussion to make the right selection of target market (Siriwardana, 2008).
China has been identified as the leading economy to receive the shipments of Australian export items. Meanwhile, 32.3% of the entire Australian exports worth US$61.8 billion were received by the Chinese economy during 2015-16. From continental perspective, the Chinese market is the largest economy for Australian exports (Holmes, 2017). Moreover, the growth in the Chinese economy and development of the industry has increased the demand of copper wire output. Herein, the trading relationship of the two economies will largely help the mining firm to sell the products in the Chinese market (Dixon, 2017). Also, the availability of semi-skilled labours will be effective to attain more profitability. More importantly, the China-Australia Free Trade Agreement will also influence the direct sales of copper wire manufacturing in the Chinese economy. As a result of the agreement, the firm will enjoy the tariff free export policy that will eventually increase the profitability of the organisation (Broadbent, Rickard and Steven, 2013). Such bilateral free trade agreement between the two economies will ensure copper wire manufacturing companies to pay low tariffs as low as 3-10 percent with 2-4 years (ABC News, 2015). Clearly, the trade policy and exporting relation of the two countries will directly increase the sales margin as well as profitability of the copper wire manufacturing firm in the Chinese market.
Australia-India bilateral trade relationship can be identified as one of the leading agenda to select India as the most suitable international market for the copper wire manufacturing firm. The strategic trade partnership and trade agreement between the two countries have made exports and imports easier. India is the fifth largest trading partner of Australia to say the least (Alam, Islam and Mukhopadhya, 2013). According to the statistics, US$8.2 billion export value has been shifted from Australia to India which is 4.3 percent of the overall exports of Australia. As far as Free Trade Deal of Australia and India is concerned, the deal offers significant support to the largest Australian exporters (McGillivray and Smith, 2016). Precisely, in the recent years, the trading between the economies has reduced to a significant margin. Therefore, identifying trading agreements, policy, demand and supply outlook of copper products, China can be chosen as the best international market to achieve the target of sales.
On the basis of the bilateral agreements and free trade deals with the two economies, China can be selected as the most appropriate international market to sell the output products of the copper wire manufacturing firm. Alternatively, the reducing trade relations can also be a negative factor that is barring to select Indian market. Furthermore, the growth rate and demand of the copper wire can be influential for the wire manufacturer to sell the products in China.
The exchange rate is an important factor that determines the success of a business in the foreign market. On the other hand, the demand and supply of currency are two key factors that control the exchange rate (Gani, 2010). Furthermore, the higher the exchange rate, the higher will be the profitability of the Australian organisation in the foreign market. A diagram has been presented herein below for better understanding:
Figure: Exchange Rate
Source: (Yu, 2010)
It can be seen from the above figure that the shift of the manufacturing unit of Australian organisations will increase the demand of foreign currency in the upcoming future. In other words, the increase in export of Australian goods in the foreign market will increase the demand for the foreign currency, that will shift the demand curve from D to D1 resulting in an increase in the value of foreign currency (Yu, 2010). Hence, the products in the foreign market will become cheaper; assuming that the price in the Australian dollar of the organisation remains constant. On the other hand, the demand and sales of the products will increase that will enhance the profitability of the organisation (Jayasuriya, MacLaren and Magee, 2009). The prediction of exchange rates between Australia and two selected countries that are China and India has been presented herein below:
According to the current scenario, the price of one Australian Dollar is equal to 5.25 Chinese Yuan. It can be seen through the previous data that Chinese Yuan has become stronger in the last 10 years as compared to Australian Dollar (Broadbent, Rickard and Steven, 2013). But, the recent volatility in the foreign exchange market has resulted in the fall of the Chinese currency’s value. On the other hand, it is expected that the value of Chinese Currency will fall further by the second half of 2017. Prediction says that it may fall to 5.62 Chinese Yuan for 1 Australian Dollar (Tradingeconomics.com, 2017). But, considering the economic growth perspective of China in the long run, it can be expected that the Chinese Yuan will become stronger in the upcoming future.
In the case of India, the price of one Australian Dollar is equal to 51.37 Indian Rupees. The economic forecast shows that the exchange rate will remain between 50.77 Indian Rupees and 52.16 Indian Rupees by the end of the year (Longforecast.com, 2017). On the other hand, some prediction says that the value of Indian Rupee will become stronger in the upcoming months due to the fast growth of economy of the country.
By considering the above analysis, it can be said that both the countries have emerged to be the fast growing economies of the world. The foreign exchange rate is more preferable for India in the short run as compared to China. On the other hand, in the long run the Chinese market is more suitable for the Australian organisation to transfer its business in terms of foreign exchange rate (Holmes, 2017). Now, considering the nature of trade and trade relationship between Australia and China, it can be seen that China is the one number importer of Australian goods. On the other hand, China is a fast growing nation with a higher GDP as compared to India. The standard of living of the people in China is much better than that of India (Dixon, 2017). In terms of technology, China is much developed as compared to India (Koutsoukis and Srivastava, 2016). On the other hand, the availability of labour is quite cheaper in India as compared to China. But, when the long run perspective of doing business is considered in the foreign market, China is much better choice as compared to India for a copper wire manufacturer of Australia. Hence, Chinese market is recommended for the organisation to shift its business in the foreign market.
Conclusion
In the recent years, the trading agreements and export to the China have created a long-term trading relationship between the two economies. Hence, the trading policy and exchange rate will support the sales as well as exports. Rapid expansion in the Chinese market as well as housing industry has automatically increased the demand of metal wire in the country. On the other hand, the decreasing exports to India will not be effective for selecting India as the suitable marketplace for the mining outputs. Conclusively, Chinese market will provide large business security and massive demand contributing to low risk. Also, the cost of production will be reduced to a significant contributing towards the profitability to repatriate 80 percent of the entire profit to Australia.
References
ABC News. (2015). China-Australia Free Trade Agreement: Pros and cons. [online] Available at: https://www.abc.net.au/news/2015-06-17/china-australia-free-trade-agreement-pros-and-cons/6553680 [Accessed Feb. 2017].
Alam, S., Islam, M. and Mukhopadhya, P. (2013). The Australia India Proposed Free Trade Agreement and Trade in Agriculture: Opportunities and Challenges. The Journal of World Investment & Trade, 14(1), pp.167-197.
Broadbent, J., Rickard, S. and Steven, M. (2013). India, China, Australia. 1st ed. [Glebe, NSW]: Historic Houses Trust of New South Wales.
Cho, S. and Yoon, G. (2013). Sectoral analysis of an Australia–India free trade agreement. Journal of the Asia Pacific Economy, 19(2), pp.205-229.
Dixon, P. (2017). The Australia China Free Trade Agreement: Some Modelling Issues. Journal of Industrial Relations, 49(5), pp.631-645.
Gani, A. (2010). Some Aspects of Trade between Australia and Pacific Island Countries. World Economy, 33(1), pp.89-106.
Holmes, A. (2017). Australia’s economic relationships with China – Parliament of Australia. [online] Aph.gov.au. Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/China [Accessed Feb. 2017].
Jayasuriya, S., MacLaren, D. and Magee, G. (2009). Negotiating a preferential trading agreement. 1st ed. Cheltenham, U.K.: Edward Elgar.
Koutsoukis, J. and Srivastava, S. (2016). Australia Says First Trade Deal With India’s Modi Is Very Close. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2016-04-12/australia-says-first-trade-deal-with-india-s-modi-is-very-close [Accessed Feb. 2017].
Longforecast.com. (2017). Australian Dollar To Rupee (AUD/INR) Forecast For 2017 and 2018 – Long Forecast. [online] Available at: https://longforecast.com/fx/australian-dollar-to-rupee-aud-inr-forecast-for-2015-2016-and-2017.html [Accessed Feb. 2017].
McGillivray, M. and Smith, G. (2016). Australia and Asia. 1st ed. Melbourne: Oxford University Press.
Siriwardana, M. (2008). The proposed Australia-China Free Trade Agreement: global and country-specific effects. International Journal of Trade and Global Markets, 1(4), p.392.
Tradingeconomics.com. (2017). Chinese Yuan Forecast 2016-2020. [online] Available at: https://www.tradingeconomics.com/china/currency/forecast [Accessed Feb. 2017].
Yu, Y. (2010). Trade Remedies. 1st ed.
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