This essay will discuss government industry policy and argue that Japan automotive industry is better than Australia. Through the academic research and cases comparison to investigate how governments develop industry policy in the automotive industry. Which country has the most powerful interest groups in this industry and why? This study takes a systems approach and analyses the government industry policies. The market support policies is analyzed and compared to the other country, Japan. This essay is using automotive industry as research target because it is one of the world’s most important economic sectors by revenue.
What is industry policy?
Trade and industry policy must be considered together. Policy changes which affect trading and the effect are directed towards industry. Industry policy is the way for government to effect the trading. Government use to use the industry policy to assist the country to build up competitive advantages. Successful industry policy can assist the country development and reduce the unemployment rate (Forsyth, 1985, p.70). For example, industry protection is given by tariff, quotas or subsides. Governments launch incentives programs or direct purchases to local producer. By using industry policy, the government wants to promote technological innovation and gain competitive advantage (Kym, 1980, p.132).
What are the interest groups?
The interest groups are who the interested party is. In the automotive industry, government, supplier, local manufacturers, citizens and local consumers are the interest groups. Government guides the industry development in order to giving advantages to its own national competitive positions in “strategic” industries in order to protect domestic manufacturers. Normally, the interest groups is getting benefit when government implemented industry policies such as industry protection, subsidization, credit allocation, preferential taxation, relaxation of anti-trust laws and public procurement. During the processing, the own manufacturers can enjoy a better business environment as foreign competitors is not easy to entry the own market. Moreover, incentive programs may benefit to citizens, local consumers, and local manufacturers. The government is benefit by the tax revenue from tariffs and licensing fees (Masaru, 1994, p.401).
Australia Automotive Industry
Australia government was implemented a lot of industry polices from 1950s until today. In 1950s, Australia government was implemented two policies. The first one granting commercial loans through overdrafts and the second one is allowing import licenses (tariff) and duty-free parts imports to companies which is undertook the manufacture of automotive in Australia. They are aimed at encouraging manufacturing, protecting assemblers and component manufacturers (Fleischmann & Prentic, 2001, p.355). In 1960s, the only significant changes in policy were a tariff increase from a 35% to a 45% in order to deter imports. In 1970s, the competitive position of the Australia automotive industry was continued to decline in the global industry. However, the government further announced plans to increase duties on unassembled and tariffs increased quotas to restrict imports to 20% market. In 1978, the tariff was increased to 57.5%, and it remained at that level until April of 1988.
In 1980s, Australia introduced a new car manufacturing plan, the Button Plan, with the goals of making the industry more efficient, stabilizing the price of cars, providing job stability. Export facilitation expanded in order to encourages exports. In 1995, Australia entry the World Trade Organization (WTO), they starts to encourage foreign manufactures to invest in the domestic automotive industry (Truett & Truett, 1997, p.19). In 2000s, Australia government allocated $7 billion Automotive Competitiveness and Investment in Scheme (ACIS) to support the sustainable development of the automotive industry. On the other hand, Australia’s imports tariffs have been reduced from 15% to 5% from 2004 to 2010 year. (Dixon, 2009, p.17-18) In 2010s, Australia still focus on the ACIS plan and it will be terminated in 2015.
Japan Automotive Industry
Japan Government has important impact on the development of its automotive industry. Japan cars were perceived as higher quality (Truett & Truett, 1997, p.29). In 1950s, Japan was selected automotive industry as target industry, not only because demand was expected to rise with rising incomes and because they represent a high value-added industry. Japan uses the financial assistance, financial subsidies and preferential taxation to introduction of technology from other country. Furthermore, high tariff walls were created and some European producers got in over 40% tariff. Foreign production is restricted by Foreign Investment Law, licensing and technical agreements. In 1960s, background to the economic development, the Japan car market growth quickly. The total domestic production reached 3,000,000pcs. Also, Japan car rental industry began at the same period in order to provide a stable domestic demand. In 1970s, the Japan surplus a billion dollars and 50% of the extra incremental vehicle price were subsidized (Eleanor, 1983, p.4).
In 1980s, Japan automotive through the competitive advantages, economies of scale and fixable strategies got the large market share of European Community markets through export such as Greece 42.9% (Mason, 1994, p.433). Entry WTO in 1995, Japan government reduce the tariffs and launch quotas, subsidy or incentive programs to assist the industry continuous development. In 1990s, Japan government was early in identifying technical innovation as a way to mitigate the environmental and energy problems associated with transport. The Clean Energy Vehicle Program had an improved budget (Ahman, 2006, p.437). In 2000s to 2020s, the tax cuts and subsidies both vigorous support to the development of industrial technology, perfect supporting charging stations, filling stations and other infrastructure construction.
Australia Interest Groups
Before 1980s, the Australia government use tariff and quota policies to control imports to protect the domestic automotive market. High tariffs directly increase the tax revenue. It rely geography advantage to provide a stable domestic demand. Thus, they have stable employment rate (Lansbury, Wright & Baird, 2006, p.75). However, the government policies did not encourage change and competitive advantage.
After 1980s, Button Plan and WTO impact the automotive industry. The local car manufacturers outside (except Toyota) decided to co-production in favor of imports from foreign partners or branch deletion of miniature cars. The demotic market has been opened. The largest market share is Toyota. Japan cars accounted for 51% of Australia annual sales of imported cars has become the biggest winner. In 2000s, Australia’s ACIS program provides incentive to manufactures. For example, Mitsubishi got $500 million from government funding. Even, the market performance of Mitsubishi Motors Australia is still not very optimistic, less than 7% of the market share, and the majority of the government’s bulk purchasing.
Japan Interest Groups
In 1950s, the high import tariff is benefit tax revenue. In additional, foreign competitors restricted. Toyota achieved a breakthrough in the development in this period. In 1960s, the car rental industry policy benefited citizens, consumers and producers as the car rental can enjoy tax incentives. Thus, a stable domestic demand is estimated. In 1970s, 50 percent price subsidies program also support the demand. In 1980s, tariff reductions had increased pressures to achieve international standards for quality, cost and delivery performance. The management of Toyota Australia realized that significant performance improvements were needed to positioning themselves as one of Toyota’s global manufacturing. Therefore, they are hard on investigated the production skill. In 1990s, government guide manufactures to consider resources in employee training programs and improve manufacturing processes (Langfield-Smith & Greenwood, 1998, p.333). Thus, Japan’s new energy vehicles, HEVs technical standards are leading in Europe and the United States. In 1997, Toyota’s first-generation hybrid successful launch. Since 2000s, Japan government forces on new energy vehicles, tax cuts and subsidies both consumption benefited Toyota Estima, the Crown and Toyota Prius.
According to the above analysis, it is clearly showed that how industry policies affect the industry’s development. In 1950s, Australia and Japan both take a high tariff policy. In 1960s, the Japan government takes advantage of car leasing policy. It successful created domestic demand so as to support the development of the industry. On the other hand, Australia only relies on geographical advantage to support domestic demand (Mehri, 2006, p.39). In 1970s, Japan government successfully used 50 percent of the price subsidies to encourage domestic demand for cars. However, Australia government increased the tariff to 57.5 percent. It set the barriers for competitors but also foreign technology. In 1980s, Australia launched the button plan, encourages exports. Unfortunately, Australia automotive in the international market has not a clear competitive advantage.
In the same period, Japan has been made in the development of the automotive industry success, including just in time, effective management mode, effective production, economics of scale, has achieved a high market share in Europe. In 1990s, after of WPO, the two countries have also been forced to reduce tariffs, resulting in imports of foreign competitors. At the same time, the Japan government has begun guidelines automotive manufacturers, research new energy vehicles to prepare for the future development of the automotive industry, thus, the world’s first HEVs is produced by the Japan car manufacturers, is sufficient the forward-looking of the Japan government and it is a world leader in the automotive industry. In 2000s, when the Australia government is still pursuing a large number of subsidy programs, the Japan government has been planning and implementation of new energy vehicles, supporting National (Shadur & Bamber, 1994, p.345).
In conclusion, Japan does the right things in the right time. They implemented of government industry policies with powerful interest groups. Compared with the Australian government, Japan policies is more appropriate and effective as they create good business environment and competitive advantage from Japan industry policy. Many academic journals recommended that a new energy vehicle (HEVs) is future. From this point of view, Australia shall be refresh existing position as well as truly national automotive industry’s competitiveness in the international market. Considered to increase domestic demand with subsidies to encourage the development, reform advocates supporting the country in order to improve the operating environment and increase stabilize employment rate (Mitchell & Harrison, 2012, p.111).
Ahman, Max. (2006). Government Policy and the Development of Electric Vehicles in Japan. Energy Policy, Vol. 34, Issue 4, p433–443
Dixon, Peter, B. (2009). Comments on the Productivity Commission’s Modelling of the Economy-Wide Effects of Future Automotive Assistance. Economic Papers, Vol. 28 Issue 1, p11-18, 8p, 1 Chart
Eleanor, M, Hadley. (1983). The Secret of Japan’s Success. Challenge, Vol. 26 Issue 2, p4, 7p
Fleischmann, Matthew, P., & Prentic, David. (2001). Strategy, Scale or Policy? Exit in the Australian Car Industry. Economic Record, Vol. 77, Issue 239, p351-360
Forsyth, P.J., (1985). Trade and Industry Policy. Australian Economic Review, Issue 71, p70, 12p
Kym, Anderson. (1980). The Political Market for Government Assistance to Australian Manufacturing Industry. Econmic Record, Vol. 56 Issue 153, p132-144.
Langfield-Smith, Kim., & Greenwood, Michelle, R. (1998). Developing Co-Operative Buyer-Supplier Relationships: A Case Study of Toyota. Journal of Management Studies, Vol. 35 Issue 3, p331-353, 23p, 1 Diagram, 3 Charts
Lansbury, Russell, D., Wright, Chris, F., & Baird, Marian. (2006). Decentralized Bargaining in a Globalizing Industry: The Automotive Assembly Industry in Australia. Relations Industrielles / Industrial Relations, Vol.
61 Issue 1, p70-92, 23p
Masaru, Yoshitomi. (1994). The Role of the State In Industry Development in Japan: Fundamental Driving Forces for Economic Development. Australian Journal of Public Administration, Vol. 53 Issue 3, p401-407
Mason, Mark. (1994). Elements of Consensus: Europe’s Response to the Japanese Automotive Challenge. Journal of Common Market Studies, Vol. 32 Issue 4, p433, 21p, 2 Charts
Mehri, Darius. (2006). The Darker Side of Lean: An Insider’s Perspective on the Realities of the Toyota Production System. Academy of Management Perspectives, Vol. 20 Issue 2, p21-42, 22p
Mitchell, Lorianne, D., & Harrison, Dana, E. (2012). Greenwashing to Green Innovation in Automotives and Beyond. Business Renaissance Quarterly, Vol. 7 Issue 1, p107-116, 10p
Shadur, Mark, A., & Bamber, Greg, J. (1994). Toward Lean Management? International Transferability of Japanese Management Strategies to Australia. International Executive, Vol. 36 Issue 3, p343-364, 22p, 6 Charts
Truett, Dale, B., & Truett, Lila, J. (1997). Australian Government Policies and the Balance of Trade Performance of the Transportation Equipment Industry: A Comparative Perspective. Comparative Economic Studies, Vol. 39 Issue 1, p15-42, 28p, 5 Charts