Economic analysis of business of G8 Education

Economic analysis of business of G8 Education

Table of Contents

Production costs and scale 3

3. Macro business environment 4
4. Economic environment 4
5. Information about export and exchange rate 5

Discussion 6

4. Sustainability 7

Discussion 9

References 10

Production costs and scale

G8 education is a childcare service provider for development and education. This organization produces services for the society. To provide quality services for the development of children, both physical and financial capital, labor and building are required (Shepherd, 2015). These are the major cost of production. All these factors are categorized into fixed and variable ones.

Fixed cost

Variable cost

Building cost

Insurance

License fees

Salary of basic staff such as security, maid

Monthly building rent

Pricing strategies for children under different age

Building maintenance cost

Cost of councilor, teachers, employees

Equipment

Craft materials

Books, other reading materials

Advertising cost

Office expense and utilities

Loan interest

Events and programs

These fixed costs are likely to be unchanged with the production. Some of the fixed costs are sunk costs that cannot be changed once incurred such as building cost. Other identified cost in the left column is likely to be fixed over a long period unless management changes the decision. A fixed cost is likely to be high at the initial stage of the business (Nekarda & Ramey, 2013). However, an average fixed cost is falling over the longer term and variable cost is increasing after a certain period. As G8 Education operates at a large scale in Australia, total variable cost is higher than a fixed cost. G8 is a large scale business, which can be understood by the number of children and employees. This organization has more than 75000 children and 10000 employees with a large integrated community (g8education.edu.au, 2016). Hence, the production cost is quite high for this organization.

3. Macro business environment
4. Stability of the political system

Business and political environment of Australia is quite stable compared to other developed nations. The political stability of this country is indicated by the ease of doing business, freedom of speech, the government support and corruption. During 2017, Australia ranks 7th in the doing business index. Australia is a mixed market-based economy with sustained growth. Despite having several economic problems, the political environment of this country is business friendly (Cohn, 2015). To take the advantage of globalization, the government supports regional integration, economical integration with Asian nations especially China. The public debt of this country is lowest among the other OECD nations (Gilpin, 2016). As Prime Minister Malcolm Turnbull re-elected the election, there is not a significant change in the policies at national and international level. This economy has a good relationship with the USA also. This cooperation helps the Australian companies to establish business relation in US countries.

1. Economic environment

The general level of inflation in Australia is very low, as Reserve Bank of Australia has set target inflation rate around 2%. During 2016, the average inflation rate was 1.3 %, which was below the target rate (abs.gov.au, 2017). This rate is lower as compared to the previous year. As the central bank chooses to trade off between low inflation and high unemployment rate as per Phillips curve, a high unemployment rate is observed in The Australian economy. During 2016, this rate was 5.7% of the total work force. The unemployment rate has decreased from the previous period.

Figure 1: Interest rate in Australia

(Source: Letts, 2017)

As per July 2017, interest rate is 1.5% that is low from previous year of 1.75%. Low interest rate and low inflation rate encourage investors to spend money for productivity growth of the economy. Hence, this economy is likely to enter into a boom period in next two years. The Unemployment rate is also diminishing indicating creation of new job in the economy (Downes, Hanslow & Tulip, 2014).

1. Information about export and exchange rate

During September 2017, current account balance is $9.6 billion. In the previous years, current account balance in December was $11.4 billion (abs.gov.au, 2017). This figure indicates improvement in current account balance that is enhancement of export compared to import.

Figure 2: Exchange rate of The Australian dollar against US$

(Source: abs.gov.au, 2017)

Since 2013, The Australian dollar has been depreciated several times against US dollar. The Australian dollar has been appreciated multiple times since 2013. Depreciation of domestic currency encourages export as export goods become economical to the foreigners. On the other hand, import goods become costlier. Hence, net export is likely to rise in the domestic economy. Mining products especially coal and natural gas are main export products from Australia. The recent decrease in mining production decreased the net export. However, the export demand has started to rise since 2016.

During 2016, 2 Centers have been acquired in Singapore to open 20 centers in that country. Therefore, it can be depicted that the child service is exported to Singapore. G8 Education wants to expand its business in other countries in the overseas. Opening business in other countries is the establishment of a subsidiary in overseas (g8education.edu.au, 2016).

Discussion

Childcare educational service is the normal product for the consumers as demand for this product is likely to rise with a decrease in price of Childcare service or increase in income of the parents. During recession, national income and per capita income are likely to reduce and hence, demand for child care educational service decreases (O’Donnell, 2014). Sales revenue has increased in 2016 to $778.5 mn from $706.2 mn in 2015, indicating a good economic condition of Australia in recent years.

G8 has strong employee power and skilled employees, who are key success factor for the business. Childcare service business cannot proceed without cooperation and active performance of employees (Fukumura, 2017). Company expends investment for the training of the employees. Better performance will help to enhance business sales and help to expand business in the international market. A recent trend in exchange is appreciation in the Aus$. Appreciation makes import cheaper and exports costlier as the relative price of export rises. Therefore, import of factors of production except labour would be better for the business.

4. Sustainability
5. Child care educational and development service helps for betterment of the society. G8 helps to develop social and cognitive skills among the children. Therefore, this process has positive externality upon the society (Lin & Yang, 2017). This business is run based on expectations of the community and families. This process can be better by investment in training and skill development of the employees and trainers of this institution. Communication skill among staffs should be developed so that children can easily acquire required skills that are taught in this institution (Findeisen & Sachs, 2017). Workplace health and safety policies of the Australian Government need to abide by the organization. Internal sources can be developed to build up better teaching environment.

E2

E1

Price

Quantity

MPB

MSB

MSC

P*

P1

Q1

Q*

Figure 3: Externality of education

(Source: created by author)

When this institute creates positive externality in the society, this institution only takes price against the service. Others do not compensate externalities created by this company. Education and personality development create moral value among children. Those values are seen while conducting with another person in their personal and profession life. However, this institution is not paid for that externality (Wantchekon, Klašnja & Novta, 2014).

1. Education always spread positive consumption externality among the society as it creates values. Marginal social benefits are greater than marginal private benefits in this process. Child spreads knowledge, positive thoughts at the youth age after getting proper education. High quality education helps to build human capital in the nation (Sharp, Green & Lewis, 2017). Human capital is highly required in the research and development field to enhance the productive capacity of the entire nation. The government can provide subsidy to these institutes to reflect the positive externality. As externality is not paid, it has no market value. All family members, who are educated, can provide education to their children, irrespective of income group. Education helps to spread information regarding all sectors of the economy to the common people. Hence, more people need to be encouraged to avail childcare service of institutions like G8 education for the betterment of the society.

Discussion

Positive externality generates long-term effects in the field of education. Effect of education among children can be observed after a few years later. Therefore, this investment can be considered as long-term investment for the society. Greater effect seen in the society induces increases customer loyalty. They can help business to draw more customer in future through peer-to-peer marketing. This method of publicity or marketing is more effective and reliable than other tools (Kingdon & Pal, 2014). Greater customer base strengthen business sustainability in long terms ensuring greater sales growth. However, the primary criteria for sustainability in this sector are continuous improvement in service. Profit should be a business objective, although the primary objective of this business should be value creation in the society and human capital development.

References

abs.gov.au (2017). 5302.0 – Balance of Payments and International Investment Position, Australia, Jun 2017 Retrieved on 14eptember, 2017 from http://www.abs.gov.au/ausstats/abs%40.nsf/mediareleasesbyCatalogue/1BC434D146B7F511CA257EB2001133A1?OpenDocument

Cohn, T. (2015). Global political economy. Routledge.

Downes, P. M., Hanslow, K., & Tulip, P. (2014). The effect of the mining boom on the The Australian economy..

Findeisen, S., & Sachs, D. (2017). Education policies and taxation without commitment. The Scandinavian Journal of Economics.

Fukumura, K. (2017). Effects of education externalities on schooling.Economic Modelling, 60, 39-50.

g8education.edu.au (2016). Annual Report 2016. Retrieved on 14eptember, 2017 from https://g8education.edu.au/wp-content/uploads/2013/09/Annual-Report-2016.pdf

Gilpin, R. (2016). The political economy of international relations. Princeton University Press.

Kingdon, G. G., & Pal, S. (2014). Can Private School Growth Foster ‘Education for All’: Tracing the Aggregate Effects at the District-level.

Letts, S. (2017). Reserve Bank holds interest rates at record low 1.5pc, warns on high Aussie dollar Retrieved on 14eptember, 2017 from http://www.abc.net.au/news/2017-08-01/rba-holds-rates-at-historic-low/8763628

Lin, X., & Yang, X. (2017). From human capital externality to entrepreneurial aspiration: Revisiting the migration-trade linkage. Journal of World Business,52(3), 360-371.

Nekarda, C. J., & Ramey, V. A. (2013). The cyclical behavior of the price-cost markup (No. w19099). National Bureau of Economic Research.

O’Donnell, C. J. (2014). An economic approach to identifying the drivers of productivity change in the market sectors of the The Australian economy. Centre for Efficiency and Productivity Analysis Working Papers WP02/2014.

Sharp, R., Green, A., & Lewis, J. (2017). Education and social control: A study in progressive primary education (Vol. 49). Routledge.

Shepherd, R. W. (2015). Theory of cost and production functions. Princeton University Press.

Wantchekon, L., Klašnja, M., & Novta, N. (2014). Education and human capital externalities: evidence from colonial Benin. The Quarterly Journal of Economics, 130(2), 703-757.