INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL

2011 -13

INTERNATIONAL BUSINESS ENVIRONMENT Assignment-1 International success of Australia according to porter analysis

ABOUT AUSTRALIA
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Economy of Australia
The economy of Australia is one of the most developed, modern market economies in the world , with a GDP of approximately US$1.6 trillion. In 2011, it was the 13th largest national economy by nominal GDP and the 17th largest measured by PPP adjusted GDP, representing about 1.7% of the World economy. Australia was also ranked the 19th largest importer and 19th largest exporter. In 2011 the Australian economy was the fastest growing advanced economy in the world. The Australian economy is dominated by its service sector, representing 68% of GDP. The mining sector represents 10% of GDP; the "mining-related economy" represents 9% of GDP - the total mining sector represents 19% of GDP. Australia is a major agricultural producer and exporter. Agriculture and its closely related sectors earn $155 billion-a-year for a 12% share of GDP. Australian farmers and graziers own 135,996 farms, covering 61% of Australias landmass.

Culture
Australian culture is as broad and varied as the country's landscape. Australia is multicultural and multiracial and this is reflected in the country's food, lifestyle and cultural practices and experience. Australia has an important heritage from its indigenous people, which plays a defining role in the cultural landscape. This diversity of influences creates a cultural environment in Australia that is lively, energized, innovative and outward looking.

Population
As of February 2010, Australia's population is roughly 22 million people. The most populous states are New South Wales and Victoria, with their respective capitals, Sydney and Melbourne, the largest cities in Australia. Australia's population is concentrated along the coastal region of Australia from Adelaide to Cairns, with a small concentration around Perth, Western Australia. The centre of Australia is sparsely populated.

Climate
The majority of Australia experiences temperate weather for most of the year. The northern states of Australia is typically warm all the time, with the southern states experiencing cool winters but rarely sub-zero temperatures. Snow falls on the higher mountains during the winter months, enabling skiing in southern New South Wales and Victorian ski resorts, as well as the smaller resorts in Australia's island state, Tasmania.

Geography
Australia is an island continent and the world's sixth largest country (7,682,300 sq km).Lying between the Indian and Pacific oceans, the country is approximately 4,000 km from east to west and 3,200 km from north to south, with a coastline 36,735 km long. Canberra is Australia's capital city. With a population of approximately 320,000 people and situated in the Australian Capital Territory, Canberra is roughly half way between the two largest cities Melbourne and Sydney. Australia has 19 listed World Heritage properties. Australia is also famous for its 2

landmark buildings including the Sydney Harbor Bridge; its ancient geology, as well as for its high country.

Legal system
Australia follows a Westminster system of government and law inherited from the British who originally colonized the country. There are two main political parties and a number of minor parties, which make up the Commonwealth Parliament. Each state and territory also has its own government.

INDUSTRIES SECTORS IN AUSTRALIA

Agriculture in Australia Australian wine Coal companies of Australia Energy in Australia List of companies of Australia Manufacturing in Australia Media of Australia Mining in Australia Telecommunications in Australia Tertiary education in Australia Tourism in Australia Transport in Australia

Australian major industries are as follows:

Mining industries Farming industries Education industries Fish ring industries

Michael Porters Diamond Theory Porter's diamond model suggests that there are
inherent reasons why some nations, and industries within nations, are more competitive than others on a global scale. The argument is that the national home base of an organization provides organizations with specific factors, which will potentially create competitive advantages on a global scale. Porter's model includes determinants of national advantage, which are shortly described below:

FACTOR CONDITIONS Factor conditions include those factors that can be

exploited by companies in a given nation. Factor conditions can be seen as advantageous factors found within a country that are subsequently build

upon by companies to more advanced factors of competition. Factors not normally seen as advantageous, such as workforce shortage, can also be seen as a factor potentially strengthening competitiveness, because this factor may heighten companies' focus on automation and zero defects. Some examples of factor conditions:

Highly skilled workforce Linguistic abilities of workforce Rich amount of raw materials Workforce shortage

DEMAND CONDITIONS: If the local market for a product is larger and more demanding at home than in foreign markets, local firms potentially put more emphasis on improvements than foreign companies. This will potentially increase the global competitiveness of local exporting companies. A more demanding home market can thus be seen as a driver of growth, innovation and quality improvements. For instance, Japanese consumers have historically been more demanding of electrical and electronic equipment than western consumers. This has partly founded the success of Japanese manufacturers within this sector.

RELATED AND SUPPORTING INDUSTRIES: When local supporting industries

and suppliers are competitive, home country companies will potentially get more cost efficient and receive more innovative parts and products. This will potentially lead to greater competitiveness for national firms. For instance, the Italian shoe industry benefits from a highly competent pool of related businesses and industries, which has strengthened the competitiveness of the Italian shoe industry world-wide.

FIRM STRATEGY, STRUCTURE AND RIVALRY: Firm strategy, structure and

rivalry constitute the fourth determinant of competitiveness. The way in which companies are created, set goals and are managed is important for success. But the presence of intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade competitiveness.

GOVERNMENT INTERVENTION: Government can influence each of the above four

determinants of competitiveness. Clearly government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national or supranational level.

MINING INDUSTRY:
FACTOR DETERMINANTS: Australia has abundant mineral resources, skilled industry
professionals, advanced extraction processes and cutting-edge technology, Australia is a leader in the global mineral industry. Australia has cost effective advantage of supplier of lead, nickel, uranium and zinc as compared to china, South Africa, India etc. Australia has the worlds largest reserves of lead, nickel, uranium and zinc. It is the worlds largest producer of bauxite and alumina (using the Economic Demonstrated Reserves (EDR) measure) the second largest producer of zinc ore and nickel, and the third largest producer of iron ore and gold.

DEMAND DETERMINANTS: Australia has huge demand of mining and minerals in

local market than in foreign market. This will potentially increase the global competitiveness of local exporting countries. A more demanding home market can thus be seen as a driver of growth, innovations and quality improvements. Mining and minerals activity currently comprises approximately eight per cent of the Australian economy, and 40 per cent of exports. The sector is expanding, driven primarily by huge demand for raw materials from China and other parts of Asia. Earnings from Australias mineral resources exports increased by 11 per cent to $116 billion in 2007-08. The scale of our resource industry has helped Australia become a world leader in the development and manufacture of mining equipment, technology and services (METS). Australian firms are competitive right across the supply chain, which includes exploration, engineering, minerals processing, environmental management, mine safety, R&D 5

and training. For example, Australian companies design and manufacture large capital items such as mining trucks. Australian developed mining software plays a prominent role in the planning and development of mines around the world. In total the METS sector generates sales of a$12 billion annually, and A$2.5 billion worth of exports. Successful R&D in sectors such as radar exploration and minerals analysis has given birth to firms that now export niche technologies. As a result, the resources sector is one of the leading stimulants for R&D in the Australian economy and foreign investors are increasingly focused on the potential for innovation as well exploration.

SUPPORT DETERMINANTS: There is strong public support in Australia for higher

levies on mining groups. Commodities such as iron ore and coal form a large part of Australian exports, and as prices have recovered from savage drops last the tax will be levied on profits from Australian onshore mining operations. Companies would get a refund of state royalties, but combined with company taxes and after allowing for extraction costs and recouping capital investment 45year there have been calls for the profitable sector to contribute more to the economic recovery. And according to the study had done by Australian high commission they said that Western Australia is quickly proving to be the hub of the mining sector with 52,000 migrants alone employed there in the past year. The outsider workers are working in mining industries even in low wages just because growth opportunities of worker in the same industry. This will leads to cost- effectiveness and competitive advantage of any country.

GOVERNMANT INTERVENTION: Australia's new Mining for Development Initiative

is helping developing countries use their natural resources to grow their economies and provide social benefits to their people. The aid program is expanding its mining-related assistance to improve resource governance, sustainability and development. In resource-rich countries the mining sector has the ability to unlock significant socioeconomic benefits, reduce poverty and support progress towards the Millennium Development Goals. However, countries risk missing out on these benefits if the sector is not well managed and regulated. Already, several resourcerich countries have failed to turn mining wealth into economic and human development. Many of Australia's developing partner countries have substantial natural resources and are engaged in mining. Australia can provide these countries with the expertise they need to build a sustainable mining sector, making better use of revenues, improving socially and environmentally sustainable development, and growing the economy.

MINERALS AND RESOURCES

Large quantities of minerals and resources are extracted in Australia. These include:

IRON ORE Australia was the world's third largest supplier in 2008 after China and
Brazil, supplying 342 million metric tonnes. NICKEL Australia was the world's second largest producer in 2006 after Russia. GOLD Australia is the second largest producer after China. URANIUM Australia is responsible for 11% of the world's production and was the world's third largest producer in 2010 after Kazakhstan and Canada. DIAMOND Australia has the third largest commercially-viable deposits after Russia and Botswana. Australia also boasts the richest diamantiferous pipe with production reaching peak levels of 42 metric tons (41 LT/46 ST) per year in the 1990s. 6

OPAL Australia is the world's largest producer of opal, being responsible for 95% of
production. ZINC Australia was second only to China in zinc production in 2008, producing just under 14% of world production. COAL Australia is the world's largest exporter of coal and fourth largest producer of coal behind China, USA and India. PETROLEUM Australia is the twenty-eighth largest producer of petroleum. NATURAL GAS - Australia is world's third largest producer of LNG and forecast to be world leader by 2020.

Much of the raw material mined in Australia is exported overseas to countries such as China for processing into refined product. Energy and minerals constitute two thirds of Australia's total exports to China, and more than half of Australia's iron ore exports are to China.

AGRICULTURE INDUSTRY FACTOR DETERMINANTS: The Australian agribusiness sector occupies a significant
place in the Australian economy and has a strong track record in attracting international investment throughout the agricultural supply chain. Australias diverse climate, rainfall patterns and soil types sustain a wide range of agribusiness enterprises, including: tropical and temperate horticulture; inland and coastal aquaculture; the production of grains, oilseeds and fibers; grazing and feed lotting of livestock; thoroughbred breeding, forestry and the production of timber products. Australia enjoys several advantages. His geographic isolation and leading quarantine and monitoring regime help preserve a reputation for high quality production.

DEMAND DETERMINANTS: Australia has huge demand of agricultural products in

local market than in foreign market. This will potentially increase the global competitiveness of local exporting countries. A more demanding home market can thus be seen as a driver of growth, innovations and quality improvements. Australias population is still expanding, with people coming from all parts of the world, and many more things are grown here than ever before. While much of what we grow is consumed by Australians, some of it is exported. For example, rice is grown for the Asian market, fruit like oranges is grown and sold to the American market, and wheat is sold all over the world. Milk and dairy products are exported, as well as fruit and vegetables, oils and fats, seafoods, plus many more - all are grown today in Australia. As a major exporter of agricultural produce and services, more than two thirds of agricultural commodities produced on farms are exported each year. Among the agribusiness export industries, the average proportion of production exported ranges from 98 per cent for wool to 51 per cent for dairy products. The value of the agricultural exports in 2006-07 was $27.8 billion. Over the past twenty years, the production and exports of beef, wine and dairy products have increased significantly in response to growing overseas demand for higher value products.

SUPPORT DETERMINANTS: Australian agriculture has consistently financed and

developed science-based farming for the sector. This has maintained an average agricultural productivity gain of two per cent over the past 50 years. Competitiveness for agribusiness is derived from locally-developed production methods and technologies and international research and development collaborations. Continual innovation in farm machinery, sophisticated plant 7

and animal breeding programs and intelligent transport solutions underpin the ability of Australian agribusinesses to bring world-class commodities to market. This will leads to making cost- effective products and competitive- edge.

GOVERNMENT INTERVENTION: some grant and assistance packages given to

agribusiness industry. The Australian government designates billions of dollars every year for agricultural development, targeting market access, performance assistance in the agricultural industry, encouraging new technologies, protecting Australias wildlife and assisting producers in developing business skills. he Department of Agriculture, Fisheries and Forestry of the Australian Government offers grants for various areas of these industries. From climate change programmes to trade and market access, there are several dozen programs available to farmers and small businesses. Agriculture and food government grants are available for research and innovation, crops, horticulture and wine, natural resource management, land care and more.

AUSTRALIA'S MAJOR EXPORTS OF AGRICULTURE BY DESTINATION 2009 (CALENDAR YEAR)

Major agriculture export products

CY2009 A$m 4,756 4764 1152 940 702

Share of Rank 1 2 3 4 5

Contribution

Wheat Beef Live animals Milk and cream Vegetables, fruit, fresh or frozen

17 % 17% 4.1 % 3.4 % 2.5%

LIVESTOCK
The number of livestock killed for domestic consumption or export, or exported live in 20012002 is shown in the following table:

Livestock slaughtering Thousands ('000)

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Beef Cattle exported live Sheep Lambs Sheep exported live Pigs Poultry

8,587 797 14,441 17,400 6,443 5,402 416,000

In 2009 exported livestock earnings totaled (A$) $996.5 million with $662 million contributed from cattle exports to Indonesia and other countries. Goat exports totaled 97,621 with a value of $11.5 million. In 2009 the number sheep exports declined but the value was similar at $323 million.

EDUCATION INDUSTRY
FACTOR DETERMINANTS: The Education industry is the fifth largest in Australia
employing 790,400 (7.3% of the total workforce) It is also one of Australias fastest growing export sectors contributing $17.2 billion in export income to the Australian economy in 200809. The Education industry includes the sectors of: early childhood education school education higher education vocational education and training Adult and community education. The school education sector dominates employment in the industry with 417,200 workers (or 53.9% of the industry workforce). Australia is well regarded for providing high-quality international education, attracting thousands 9

of students from around the world, being able to develop a large-scale, extremely competitive education industry. Over the past decades, Australia has emerged as one of the top five providers of international education services, after the US, the UK, Germany and France. The training industry in Australia is also robust and, at present, stands at an estimated A$1.7 billion, of which one-third is devoted to behavioral and soft skills training. A significant proportion 600 million is dedicated entirely to IT training.

Rapid Growth of Branch Campuses: A rapidly growing number of universities across

the world are establishing branch campuses in other countries. In fact, the number has almost doubled to 162 in the past three years alone and has jumped eight-fold since 2002. Although the US continues to dominate with its offshore campuses scattered around the globe, more countries have become involved as hosts and providers. The US is followed by Australia with 14 campuses, 9% of the total number.

INDUSTRY DEVELOPMENTS: Recent developments in the international education

industry are notable in three respects. First, international student mobility has more than doubled in the last two decades or so. Second, program mobility encompassing distance education has also led to new forms of cross-border education. Third, institution mobility through such commercial deals as franchises and twinning arrangements are becoming an increasingly important feature of cross-border education, although on a limited scale. Such developments are leading to the emergence of a new market place for the international education industry.

MARKET SIZE: Education is Australias second largest services export sector, behind
tourism, and became the third largest export overall, contributing $17.2 billion in export income to the economy in 2008-09, an increase of 23.2 percent from the previous financial year. Key industry figures for the overall Education market in Australia (2009):

Key Industry Figures Industry Revenue Revenue Growth Industry Gross Product Number of Establishments Number of Enterprises Employment Exports Imports Total Wages

2009 78,680.6 $ million 3.5% 50,580.4 $ million 30,591 Units 27,622 Units 804,547.9 People 7,602.9 $ million -43,785.3 $ million

GROWTH FIGURES AND FDI FIGURES Global demand for international higher
education will grow from 2.173 million in 2005 to 3.720 million in 2025. This is a growth of 71% over 20 years or compound growth of 2.7% per year. Demand for 10

Australian international higher education will grow from 163,345 in 2005 to 290,848 in 2025. Online Education is estimated to grow by 25.1% per annum over the past five years from $1.15 billion in 2004-05 to $3.54 billion in 2009-10.

COFFEE INDUSTRY
Porters Five Forces Model
This model devised by Michael Porter proposes that business-level strategies are the result of five competitive forces in the companys environment (Porter, 1980). These forces as seen in the diagram below include; potential new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products and rivalry among competitors. In order for the model to achieve its designated purpose of evaluating the attractiveness or unattractiveness of entering into such business, one must first define the industry he or she wishes to analyze. Without a clear definition, an attempt to evaluate the forces is futile, as inaccurate hypotheses will be concluded. In this scenario, the industry is defined as the coffee shop market. The aforementioned attractiveness or unattractiveness depends on whether the forces are being evaluated from the perspective of a new entrant or from an existing player

THREAT OF NEW ENTRANTS: The threat of new entrants is based on the extent to
which new competitors can enter the market. In reference to the coffee shop industry, it is a fairly easy market to penetrate. it requires relatively little capital investment (particularly with equipment often being provided by the suppliers for free), there are no government regulations

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and no switching costs for companys customers. the fact that anybody could open a coffee shop makes it particularly unattractive for those who already exist in this industry.

BARGAINING POWER OF SUPPLIERS There are a number of suppliers that

provide products to coffee shops like Gosh. These include the suppliers of the coffee beans, milk, sugar, equipment and store furnishings. It is well recognized that within Australia, the supply of coffee beans is a cut-throat market where one supplier can be easily substituted for another because coffee beans are not unique. For example substituting Coffee for Vittoria. Furthermore, no supplier has apparent control of the market. Therefore, if a firm is purchasing supplies from suppliers who [do not] control a large share of [their] market, the suppliers will [not] be able to control prices (McColl-Kennedy, Kiel, Lusch, Lusch, 1994), resulting in little bargaining power. Suppliers of other goods, with fewer suppliers, for example sugar, may have a higher bargaining power over the coffee shops. Overall, this is an attractive feature of the industry from the players perspective.

BARGAINING POWER OF BUYERS: Within the coffee shop industry there is only one type of buyer, the individual. However, the coffee shop industry must realize that it is extremely hard to differentiate their product. Therefore, in situations where products are incapable of being differentiated, the bargaining power of buyers is strengthened. ( Brad more, 1996). Additionally, the high availability of substitutes (sec 2.5) also adds to buyers bargaining power. The higher the buyers power, the more unattractive the market for the industry competitors. INTENSITY OF RIVALRY: Although Australia has about 6000 cafes according to
Patria Jefferies, Domes managing director]there is room in this market for everyone. (Tread gold, 2000a). This feeling appears to be mutual throughout the larger competitors, with Brett Blundy, the managing director of Brazin Ltd. (owners of Gosh) agreeing there is room in the market for a lot of companies. ( Lloyd, 2000). This relaxed attitude is an advantage to those who are already in the industry.

THREAT OF SUBSTITUTES: A substitute is something that the consumer will be

satisfied with purchasing or using, instead of the product in discussion, in this case, coffee. It is obvious that coffee has a number of substitutes such as tea, soft drinks and milkshakes to name but a few. The switching costs involved for the consumer are low and therefore, the threat of substitutes is said to be high. This is another unattractive force for the coffee shop industry.

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