You’ll see a lot of headlines today about tobacco company Philip Morris’ decision to close its Melbourne cigarette plant.
They’re shutting the whole operation down, and sadly 180 people will lose their jobs.
But the company will still have 550 people employed here, working on the tobacco giants’ corporate operations from its Melbourne office.
This says a lot about business conditions in Australia.
(We have contacted Philip Morris Australia to get some additional information on what roles the 550 staff employed at its Melbourne office perform.)
Several companies have decided to close manufacturing operations in the country recently, though will still maintain a presence for corporate and customer relations.
Ford and Holden, as well as Toyota are shutting their manufacturing plants in Australia down in the coming years, though have said they’re not leaving the market — simply not making cars here any more.
The auto makers are bailing, in the most part, because of the high Australian dollar, which isn’t Philip Morris’ primary concern.
Rather, the tobacco giant is calling it quits due to a gradual decline in the Australia market — and Australian government regulations introduced in 2010 which mean locally-made cigarettes need to conform to standards that reduce fire risks.
“Despite the introduction of plain packaging and the continued growth in illicit trade, PML’s volumes were stable in 2013,” said the company’s Australia MD John Gledhill.
“However, with any significant export opportunity restricted by Australian Government regulations, our Moorabbin factory is significantly underutilised, operating at less than half of its currently installed capacity.”
Either way, it still another sign that, for many companies, it’s just too hard to make things here. But it doesn’t mean they don’t want to do business in Australia.
This is significant, as manufacturing is one the industries suffering from a resiliently-high Australian dollar — which recently reached 2014 highs — that makes it unattractive to export from the country.
It’s also one of the sectors that needs to pick up some slack as the mining boom winds down — which is certainly won’t be doing well with conditions so unattractive for producers.
“The jobs are going into the services sectors,” said the National Australia Bank’s chief economist Alan Oster recently told Fairfax. “If you look in terms of over the last five years, manufacturing has reduced by about 130,000 jobs, and [private sector] healthcare has added over 200,000 jobs.”
Manufacturings contribution to Australia’s GDP is waning. It peaked at 30% towards the end of the 1950s and early 60s, and is now estimated to make up between 6% and 7% of the share. Around 75% of the Australian market is now employed in the services sector.