The flying kangaroo – An endangered species?
June 30th, 2008Author: Christopher Findlay
The Qantas strikes, associated with the airline’s attempts to buy-in services from offshore, remind me of something I wrote in 1985 about the air transport business: that in the face of a more open trading regime, ‘civil aviation could be unbundled and industry-specific skills could be exported in a number of forms’.*
The consequence, I thought, could be the export of variety of services that contribute to the efficiency of the service that consumers finally get.
The pattern of unbundling may not have worked out in the way I was expecting (I thought then that the delivery of the final service might move offshore and that back-office functions might stay in Australia), but options like this are critical for the operation of competitive business and for getting consumers a good deal.
This is not new. Cars and electronics, for example, are produced with complex international production arrangements that depend on open trade and investment. We talk about ‘finer divisions’ of their supply chains and the consequences for trade and investment. There is a host of papers now on trade fragmentation which is so important to global trade and efficiency.
The same thing applies in services, or it could apply were it not for the restrictions that apply, particularly on foreign investment and the location of operations.
Qantas and other airlines (unlike manufacturing businesses) have been slow to adapt in this way because of the terms of the bilateral air services agreements that govern market access in air transport services.
Ownership and control and the location of business activity are criteria for access to the benefits of those agreements.
Yet the ability to invest offshore and run operations from offshore is critical to adjustment and competitiveness. The rules applying to aviation continue to hold this back.
A start in assessing the impact of alternative policy regimes is research on outsourcing in services in a wider range of businesses other than data processing or call centre. This won’t be easy, given the difficulties of separating out services transactions in the Balance of Payments data, so case studies might be one way to go.
Qantas could have been a good case to begin with, if only they had the opportunities to out-source a bit more!
* From p. 94 of The Flying Kangaroo – An Endangered Species?: an Economic Perspective of Australian International Civil Aviation Policy, by Christopher Findlay, published by Allen and Unwin, North Sydney, 1985.
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