Factors Contributing To Holden’s Shutdown In Australia

Background of the Study

Business environment has changed all across the globe and so is the case in Australia. Such a change in the environment has affected the business operations. In the last few decades many car manufacturing companies have come out of Australia. There were many reasons for such downfall in the automobile industry (Lee, 2011). This has created a negative image in the minds of investors who wants to invest in Australia. It is crucial that companies in the manufacturing industry do a market analysis so as to understand the reasons that are stopping their growth as a manufacturer in Australia. This is also a challenge for the Australian government as this industry is one of the biggest contributors to the GDP of the nation. This is the trend when the Australian government is providing them subsidies from decades. This report explains about the situation of the industry as well as the competition present in it. Apart from this it also describes about the factors that are creating such situation for the car manufacturers.

Holden, which was previously known as General Motors-Holden is one of the big car manufacturers in Australia. It has shut down its manufacturing centre in Australia after so many years of government aid. The international competition has played the major role in it. Previously other big companies like Nissan have come out of Australia two decades back. In 2016 ford did the same thing. This shows that from the past few decades the performance of automobile manufacturers in Australia has not been good. Manufacturers are facing many types of challenges from the international competitors as well as there are many internal factors that are making the issue even bigger (Maxcy and Silberston, 2017).  New investors and existing companies had to face different kinds of situations which are confronting their business. Strategic tools can be used by the companies so as to understand the factors that making the situation worse. It is also essential for understanding the factors that are making the situation worse.

It was not the same all the time Australian manufacturing of car rose to half a million in 1970. Australia was best known for designing and producing vehicles that larger in size. By 2015, many companies closed their manufacturing units in Australia.

Five force models is a very effective tool for understanding the condition of any industry. It is also crucial that companies evaluate each and every factor that is restricting the growth of the manufacturing sector in the country (D’Netto, et. al. 2014). Five force models for Australian car manufacturing industry are as follows:

• Bargaining power of suppliers: Car manufacturing industry needs many types of raw materials like glass, outer body etc. There are many small and big suppliers present in Australia that increases the rivalry among the suppliers. This increase in the competition among the suppliers has reduced the bargaining power of suppliers (Samson and Gloet, 2014). This situation is worse for the small suppliers especially the ones that are selling smaller parts to the companies.
• Bargaining power of Buyer: There are many big companies in Australia that are from international and national market. This has increased the bargaining power of Buyers. There are many companies operational in Australia which manufactures the products in relatively lower cost market. With the easing of trade barriers and lowering down of cost of productions in other parts of the world, most of these companies are trying to import products from these nations (Beaumont, Sohal and Terziovski, 1997). This has provided users with long range of products to choose from. This has strengthened the bargaining power of buyers.
• Rivalry: The rivalry in the industry has reached to cut throat level. Both international and national players are giving tough competition to each other. By 2009, total production of cars in Australian market has fallen down to approx. 175,000 and the market was now dominated by the cars that are manufactured in Europe and Asia.
• Threat of new entrants: There are so many manufacturers operational in the industry. Along with this the history of the car manufacturers has also been poor especially in terms of growth. This will restrict the new investors to come in this industry. Apart from this there are huge amount of investments needed to set up production unit in Australia. Gaining profits from is a further big challenge for car manufacturers (Redshaw 2017). This makes this threat less dangerous for the car manufacturers. Innovation can be the only way in which companies can enter into the market and gain profits.
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• Threat of Substitute: There are many new kinds of vehicles available in the market which is having the capacity to substitute cars and hence this threat is on the higher side. Substitutes such as trains, bus services and many other vehicles provide options to the people to replace cars. With the increasing innovation activities it is easy that cars can be easily replaced by some other kind of vehicles. This industry will also have to put investment in developing new kinds of product.

Holden has so many competitors in the market and all of them have the capacity to take the market share of others (Car guides, 2018). Some of the big competitors of Holden are Toyota, BMW, Mercedes Benz, Audi, Mazda, Hyundai etc. It is crucial that any company does its market analysis to understand its competitors. Number of car manufacturers within Australia is lower than other regions like Asia and Europe.

The car manufacturing industry in Australia is facing many kinds of challenges. There are many factors that are affecting the business of the car manufacturers. In order to understand the situation of the industry, it is crucial that company analyses the factors that are affecting their business (Teo, Le Clerc and Galang, 2011). Situational analysis is as follows:

• Political: The government of Australia has taken several steps that would promote manufacturing within the industry. In the time, when the companies were facing challenges related to business government aided them with some kind of financial support so that they may not face challenges related to profits. The taxes on the manufacturing have also been lowered by the government so as to promote the company’s operations (Samson and Gloet, 2014). This is also due to the fact that automobile manufacturing units give employment to large numbers of people. On the other hand Governments in Asian and European region is accepting FDI. This has promoted the companies like Holden to come out of Australia and invest in these countries. These Asian and European countries also provide tax benefits to the manufacturers hence they also get attracted towards such location.
• Economic: Australia is a developed economy and its economy is highly strong. The high per capita income of Australia gives their people a high purchasing power. Such a high purchasing power benefits the car manufacturers as their chances of selling different types of products in the market also increases. Downfall in the European economy is not a good sign for the Australian car manufacturing industry. This is due to the fact that European manufacturers may not come to Australia for setting up the manufacturing unit. With other parts of the world like Asia is having a workforce that work at lower cost as compared to Australia. This is an excellent opportunity for the car manufacturers. The overall production cost in European and Asian region is low and hence Ford and other companies are coming out of the country. Companies in Australia believe on empowering their supply chain so as to gain competitive advantage over the rivals (Wright, Clibborn and Lansbury, 2011).
• Social: The Australian society has changed and so is its demand. The change in the demand is also reflected back in purchase of vehicles. Improving ease of doing business in other parts of the world which has less operational cost promotes such big companies to come out of the Industry. In Asian region the population density is also high which acts an excellent market for these car manufacturers. Educated, highly skilled and low cost labourers have attracted the companies. On the other hand the wages and other demands of the employees in Australia are very high which has effect on the motivation level of the organisations (Ladd, 2017).
• Technology: The technology in the Asian and European is also same that is utilised in Australia hence so specific benefits is provided by the Australia so that manufacturers can stay in the country. Along with this there are many technologically skilled people available for working at lower cost (Bainbridge, 2013). This attracts the manufacturing companies to come into Asia. On the other hand the cost of the technology in Australia is also high as compared to the Asian and European market hence car manufacturers are disinvesting in the country.

Conclusion: 

From the above based report, it can be said that Holden and many other big car manufacturers are coming out of Australia. There are many factors responsible for it and it is crucial for the car manufacturers to reasons due to which this situation has arisen. Threat of new entrant is on the lower side but the rivalry in the industry is on the higher side. With the changing political, social, technological, economic factors in both Australia and other parts of the world, business dynamics have also changed. With other lower cost markets getting developed in other parts of the world, companies are moving out of Australia which burdens them with higher operational cost. Asia is having skilled labourers at lower cost which attracts companies to come out of Australia.

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