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26 August 2014 | Gurjit Degun
The role of Australian companies at the start of supply chains is larger than it was 30 years ago, even though more production is taking place overseas.
That’s according to researchers at the Reserve Bank of Australia who have analysed how supply chains in the country have evolved in recent decades in International Trade Costs, Global Supply Chains and Value-added Trade in Australia.
“Overall, compared to a few decades ago, the Australian economy now involves more stages of production, with a greater share of production occurring overseas and more domestic production occurring earlier in the supply chain,” the report explained. “That is, production in the Australian economy has become more vertically-fragmented, more offshore and more upstream.
“Most of these adjustments occurred over the 1990s, which suggests that economic reform and competitive pressures due to globalisation were contributing factors.”
The report defined fragmentation as the number of stages involved in the production of a good or service. In terms of upstream, the research explained this was the average number of stages occurring between “production and final demand of a good or service”.
It found that in Australia’s domestic supply chain, the manufacturing, construction and utilities sectors “tend to be the most fragmented, while the resource sector is the most upstream”. The research added in contrast, the services sector is the least fragmented and most downstream.
The study added: “By international standards, Australian production is highly fragmented and relatively upstream, partly because of the importance of resource exports. We find evidence of an increase in the average number of stages involved in production (fragmentation), and the average distance to final demand (upstreamness), mainly during the 1990s. These changes coincided with a period of significant structural change in Australia, and result from both the changing composition of Australian industry as well as adaptation within industries.”