A Pestel Analysis Of Australia Economics Essay

Australia is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania and numerous smaller islands in the Indian and Pacific Oceans. Neighbouring countries include Indonesia, East Timor and Papua New Guinea to the north, the Solomon Islands, Vanuatu and New Caledonia to the northeast and New Zealand to the southeast.

For at least 40,000 years before European settlement in the late 18th century, Australia was inhabited by indigenous Australians who belonged to one or more of roughly 250 language groups. After discovery by Dutch explorers in 1606, Australia’s eastern half was claimed by Britain in 1770 and initially settled through penal transportation to the colony of New South Wales, formally founded on 7 February 1788 (although formal possession of the land had occurred on 26 January 1788). The population grew steadily in subsequent decades; the continent was explored and an additional five self-governing Crown Colonies were established.

On 1 January 1901, the six colonies became a federation and the Commonwealth of Australia was formed. Since Federation, Australia has maintained a stable liberal democratic political system and is a Commonwealth realm. The population is 22 million, with approximately 60% concentrated in and around the mainland state capitals of Sydney, Melbourne, Brisbane, Perth and Adelaide. The nation’s capital city is Canberra, in the Australian Capital Territory.

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A prosperous developed country, Australia is the world’s thirteenth largest economy. Australia ranks highly in many international comparisons of national performance such as human development, quality of life, health care, life expectancy, public education, economic freedom and the protection of civil liberties and political rights. Australia is a member of the United Nations, G20, Commonwealth of Nations, ANZUS, OECD, APEC, Pacific Islands Forum and the World Trade Organization.

PESTEL ANALYSIS

There are many factors in the macro-environment that will effect the decisions of the managers of any organisation. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. To help analyse these factors we can categorise them using the PESTEL model.

Political factors. These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidising firms? What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail systems.

The federal government is separated into three branches:

The legislature: the bicameral Parliament, comprising the Queen (represented by the Governor-General), the Senate, and the House of Representatives;

The executive: the Federal Executive Council, in practice the Governor-General as advised by the Prime Minister and Ministers of State;

The judiciary: the High Court of Australia and other federal courts, whose judges are appointed by the Governor-General on advice of the Council.

Business in Australia has a high degree of certainty

Australia is a safe destination for investment. The country’s political and regulatory environment is stable, open and progressive, providing investors with a high degree of confidence and certainty.

Australia’s strength as an investment destination stems, in part, from a political system that has been assessed as being highly effective in responding to economic challenges and policy direction. The adaptability of Australian government policy to changes in the economy has been ranked in the top two countries in the region.

Similarly, the transparency and effectiveness of government are also rated highly .

Efficient and transparent legal framework

Australia also has an open, efficient and transparent legal framework. Corruption levels are judged lower than those in the US, the UK, Canada and most regional countries .

These results can be attributed to a strong system of checks and balances, and a highly respected judicial and law enforcement system.

Stable political environment

The benefit to companies of a stable political environment can flow right through to the bottom line.

‘Australia is one of the most important markets for MNCs in the Asia-Pacific region. Australia hosts a growing economy; a stable political and business environment; a skilled, well educated and multi-lingual workforce; a strategic time-zone and a competitive cost base. These factors provide a sophisticated market and the right environment enabling various MNCs to drive innovation and technology.’

ECONOMIC FACTORS

Property prices are generally high in relation to income levels in Australia, creating a great demand for rental properties. In fact this demand is so high in some major cities that rental prices are firmly set to increase, making any purchase into a buy-to-let property market potentially profitable. While the population grows and incomes rise, the demand for housing now outpaces supply, causing prices to continue rising.

Capital Growth

Australia still has certain areas offering great investment opportunity. For example, in 2006 Perth property prices rose by between 36.6% and a staggering 42% and commercial properties in cities such as Brisbane and Perth are also currently offering many excellent returns on investment.

Off-Plan

“Pure investment” strategies are viable options in many areas, enabling you to purchase off-plan property in Australia at the best possible prices. Investors purchasing as early as possible with a minimum “money-down” payment and then selling prior to completion are gaining substantial profits.

Low-cost Commercial Property

Australia’s cost-competitiveness has led to a growing number of foreign companies using Australia as a headquarters for their Asian operations. Between January 2002 and March 2003, 54 foreign companies established or relocated their operating centres in Australia, making it one of the most successful countries in the world in attracting such investment. Today Australia consistently emerges as a low cost base amongst developed nations.

Currency Exchange

Currency exchange rates against euros, dollars and sterling are very favourable in Australia today, making property investment an attractive option to foreign investors who avoid losing vast amounts of money in their exchange transactions against the Australian dollar. In addition, foreign purchasers are generally able to buy much more for their money than “back home”.

Cost of Living

The cost of living in large cities such as Melbourne, Adelaide, Brisbane and Perth is dramatically less than that of the world’s most expensive cities. At the same time, Australia’s major cities are all ranked among the world’s top 30 cities in terms of quality of life.

Economic Stability

Australia’s strong economic growth rates are higher than in most OECD countries including the US and UK. Currently the country’s GDP is higher than that of the UK, Germany and France for example. There is a low degree of risk in the Australian economy while it boasts consistently strong GDP growth, stable interest rates, rising exchange rates, relatively high levels of employment and a low rate of inflation.

In the main cities unemployment is relatively low and on average the national unemployment figures stand at around 5%. The country receives many applications each year from those wishing to immigrate to Australia and enjoy the high standard of living and general opportunities the country has to offer.

Mortgages

Repayment mortgages are available to purchase property in Australia, covering 75-80% of the valuation or purchase price (whichever is lower) and they are available for a period of between 5 and 30 years. Interest only mortgages are widely available in Australia and are on offer for 5 or even 10 year periods.

SOCIAL FACTORS

Changes in social trends can impact on the demand for a firm’s products and the availability and willingness of individuals to work.

SOCIAL STRATIFICATION

Classes and Castes. The three main social classes are the working class, the middle class, and the upper class, but the boundaries between these groups are a matter of debate. The wealthiest 5 to 10 percent are usually regarded as upper class, with their wealth derived from ownership and control of property and capital. The growing middle class is defined as individuals with nonmanual occupations.

Nonmanual workers typically earn more than manual workers, although upper-level manual workers such as tradespeople earn more than those in sales and personal service positions. The professions, which include such occupations as accountants, computing specialists, engineers, and medical doctors, have been one of the fastest growing sectors of the economy. Since the 1980s the number of manual workers has been in decline.

Manual workers form the nucleus of the working class; 20 to 40 percent self-identify with this category. Class consciousness includes the acknowledgment of class divisions, but there is also a broad commitment to an ethic of egalitarianism. Australians commonly believe that socioeconomic mobility is possible and exhibit a basic tolerance and acceptance of inequality associated with social class.

Symbols of Social Stratification. The upper-class can be signified by expensive clothes, motor vehicles, and homes. In particular, the economic value of housing and other real estate properties varies greatly across different suburbs in all cities.

However, class is not always evident from clothes, cars, and living circumstances. Middle-class people from economically wealthy backgrounds may mask their prosperity according to fashion, choice, or participation in particular subcultures. Young people such as students may dress to mimic imagined styles valued for their symbolic rejection of wealth, and some working-class families go into debt to purchase expensive cars and other commodities.

Patterns of speech, consumption patterns associated with entertainment and the arts, and participation in certain sports may be useful indicators of class.

SOCIALIZATION

Infant Care. Child rearing varies considerably with the country of origin, class background, the education and occupation of the parents, and the religious group to which a family belongs. While most practices are aimed at developing a responsible and independent child, Aboriginal and many migrant families tend to indulge young children more than do most Anglo-Celtic parents. Some ethnic groups supervise their young more strictly than the dominant Anglo-Celtic population, encouraging them to mix only with family and friends, be dependent on the family, and leave decision making to the parents.

Child Rearing and Education. Mothers are the preferred primary caretakers, although fathers are taking increasing responsibility for child care. In the past mothers were not as isolated in their child care responsibilities, receiving help from older children, extended kin, and neighbors. The reduction in family and household size in recent years has meant that the burden of care falls largely on mothers. There is significant variation in ideas about good parenting, reflecting the diverse cultural values and traditions of parents’ ethnic background.

Higher Education. Higher education is considered to offer the best employment opportunities. Consequently, tertiary education has become more widely available and is undertaken by an increasingly larger proportion of the population. It is available in two forms: universities and institutions of technical and further education (TAFE). In 1992, 37 percent of women and 47 percent of men received post-school qualifications, and 12.3 percent of the labor force held university degrees in 1993. Universities also attract substantial numbers of overseas students. The government is responsible for funding most universities and institutions, with increasing contributions being made by students in the form of fees and postgraduation tax payments.

TECHNOLOGICAL FACTORS

New technologies create new products and new processes. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products.

Two organizations support most of Australian government research and development. The Commonwealth Scientific and Industrial Research Organization (CSIRO), headquartered in Melbourne and founded in 1926, is an independent government agency that supports research and development in all fields of the physical and biological sciences except defense science, nuclear energy, and clinical medicine. The Defense Science and Technology Organization (DSTO), headquartered in Canberra, supports military research and development by providing scientific and technological assistance to the Australian Defence Force and Department of Defence.

Several issues dominate current Australian science and technology policy: the concentration of research and development in national research centers; tensions among and between university researchers over allocation of research and development funding resources; effective communication between industry, government, and university researchers; the growing role which industry is playing in support of national research and development; and the role which Australia is playing in international science and technology collaboration. High-technology exports totaled $1.5 million in 1998.

Government funds about 55% of all research and development and industry about 40%. In 1996, there were 73 agricultural, medical, scientific, and technical professional associations and societies, the foremost of which is the Australian Academy of Science, founded in 1954 by royal charter. The Australian Academy of Technological Sciences and Engineering was founded in 1976. The Australian Science and Technology Council (ASTEC) provides an independent source of counsel for the Australian Prime Minister; it’s role was augmented in 1986 by the creation of a post for a Minister Assisting the Prime Minister with portfolio for science and technology.

Environmental factors:

Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.

The Environment Protection (Impact of Proposals) Act of 1974 establishes procedures for ensuring that environmental impact is considered in governmental decision making. The Whale Protection Act of 1981 prohibits killing, capturing, injuring, or interfering with a whale, dolphin, or porpoise within Australia’s 200 mi economic zone or, beyond the zone, by Australian vessels and aircraft and their crews. The Environment Protection (Nuclear Codes) Act of 1978 mandates the development of uniform safety standards for uranium mining and milling and for the transport of radioactive materials. The Protection of the Sea (Discharge of Oil from Ships) Act of 1981 and the Protection of the Sea (Prevention of Pollution from Ships) Act of 1983 prevent or limit pollution from oil or noxious substances.

Water being a scarce resource in Australia, problems of water quality and availability are a constant concern. As of 2001, the country had only 352 cu km of renewable water resources, although safe drinking water was available to all urban and rural dwellers. A cause for concern has been the increased salinity in the Murray Valley, caused by diverting water inland from the coast for irrigation, as well as the rise in saline water tables in Western Australia, due to excessive land clearing for dry-land farming.

Another significant environmental problem is inland damage due to soil erosion. The quality of the soil is also affected by salinization. As of 1993, Australia had 145 million hact. of forest and woodland and had the third most extensive mangrove area in the world, covering over one million ha.

LEGAL FACTORS

These are related to the legal environment in which firms operate. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organisation’s actions. Legal changes can affect a firm’s costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service.

Contractual issues

Contracts do not have to be in writing on a formal document and signed to be legally binding. The major elements of formation of a contract are offer and acceptance; consideration; intention to create legal relations and certainty of terms. Thus, provided these elements are met, a contract may be construed via exchange of e-mails, scribbling on the back of a docket or even verbal exchanges.

Compliance with government sanctions and regulations

Exporters should be aware that Australia maintains United Nations Security Council sanctions and bilateral sanctions in respect of a number of countries. These sanctions require Australian organisations and individuals to comply with a range of measures and, in general, also apply extraterritorially to Australian nationals overseas. Sanctions may include export and import restrictions, prohibitions of technical assistance, training and financing, travel sanctions, and financial sanctions against specific persons and entities.

Dealings with terrorists – what the Australian business community should know 

The Government has passed laws making it a criminal offence to hold assets that are owned or controlled by terrorist organisations or individuals, or to make assets available to them, punishable by up to five years imprisonment.

In addition to the Consolidated List, the Australian Government also maintains a list of groups that are proscribed as terrorist organisations under the Criminal Code.

Australian companies need to ensure that they have checked the credentials of overseas partners and buyers. Australian companies also need to be aware that there are scam operations working in some markets and again this emphasises the need to conduct background checks. Before signing or accepting contracts, it is in your interests to seek professional legal advice from legal firms specializing in international work.

PORTER’S DIAMOND MODEL

Porter’s Diamond Factor Model (DFM) is a theoretical framework that achieved prominence in Australian economic policy development since its inception in 1990. Despite its widespread adoption, however, Australia has remained significantly below the OECD average in terms of its industrial clusters’ contributions to innovation and real wealth creation. In order to conceptualise the specific role that Porter’s DFM might play in the Australian policy development context, this paper analyses the 25-year history of the interaction between the Tasmanian state government and the Tasmanian Light Shipbuilding Industry cluster. This analysis provides an insight into the set of government roles that facilitated the development of one of Australia’s most internationally competitive industry clusters, and proposes a reconceptualisation of Porter’s DFM that will potentially increase its value as a predictive tool for regional economic development

Factor conditions: These are the economists’ traditional factors of production: land, labor, capital, and infrastructure.

Demand conditions: The characteristics of the domestic market, including the size, demand, value, and sophistication.

Related supporting industries: The presence of suppliers and supporting industries that are equally competitive and of high quality.

Firm strategy, structure, and rivalry: The regulatory and other governmental environment in which companies are created, organized, and managed, including the nature of the domestic competition.

Since the 1970s, the onrush of globalisation in Australia’s markets has presented significant economic policy challenges to the country’s federal and state governments. A major concern for Australian legislators was the question of making a nation previously protected by a ‘fortress’ of tariffs and subsidies more productive and competitive in world markets. One theoretical framework that achieved prominence in Australian economic policy development was Porter’s Industrial Cluster Theory (ICT). Porter’s ICT proposes that for a region to increase its innovative capacity and export earnings, its government must interact to develop a sustainable array of internationally competitive industry clusters . Porter’s ICT argues that a nation’s industry clusters will likely be internationally competitive if a synergistic interrelationship exists between four Diamond Factor variables (i.e. ‘Factor Conditions’, ‘Local Demand Conditions’, ‘Related and Supporting Industries’, and ‘Firm Strategy, Structure and Rivalry’) and the two influencing roles of ‘Chance Events’ and ‘Government’ for a discussion of the Diamond Factor Model (DFM) that underpins ICT.

The role of government in the stage of cluster life cycle:

The first was the state government’s initial non committal stance towards the development of the state’s burgeoning shipbuilding industry. At the time, the government’s policy focus was primarily on the macro-economic restructuring of the state’s economy away from its dependence on hydro-industrialisation , and not the growth requirements of the potential industry cluster.

The second key role was the state government’s development of the region’s reputation within the broader domestic maritime market as a national centre for maritime research. The Tasmanian government implemented a series of lobbying initiatives that resulted in the federal government providing additional funding to the Australian Maritime College and relocating its national maritime research institute (the CSIRO) to Hobart. These state government lobbying efforts were largely aimed at the federal government rather than the private sector, but their success had implications for the region’s ‘Factor Conditions’, ‘Related and Supporting Industry’, and ‘Local Demand Conditions’. The regional economy’s factor conditions were advanced by developing the region’s supply of human capital through both the generation of specialised employment and education within the broader industry.

The Tasmanian government’s enhancement of the region’s reputation helped to develop the demand conditions faced by the private sector shipbuilding firms, most significantly in the from of customers ready to import their products from interstate.

Competitive advantage of Australia:

Instant access to high technology

Given the proven track record of Future Materials’ partners, together with our highly skilled, experienced team of professionals, Australian companies now have easy access to the kind of services and equipment previously difficult to attain. For instance:

Materials characterization and evaluation

Problem solving, such as investigating contaminants and materials failures.

Studies and testing on coatings, thin films and surface modifications.

Expert and independent opinion in litigation and IP matters.

Collaborative research aiding the development of new products and processes.

Also,

The government’s policy focus was primarily on the macro-economic restructuring of the state’s economy away from its dependence on hydro-industrialisation , and not the growth requirements of the potential industry cluster.