Doing Business In Australia

Summary

This file has for main goal to analyze risk factors of Australia. We have conducted a study of legal, political, cultural and financial risks. Australia is the 15th largest economy in the world [1] . Australia’s GDP is one of the highest of all countries and services take a major part in it with 70% of the GDP. United States of America are one of Australian’s major partners and are representing the largest investor. We have seen that law of Australia is different to the others due to its common law. Australia is also a country very stable in term of politic and it is an opportunity to catch for companies. This is moreover, the country with the lowest risk of political instability rated to 9.24 [2] .

Australia is suggesting many opportunities to enter its market for foreign companies in huge performing sectors as the aircraft industry, electrical, vehicles, pharmaceutical…

We have seen that to succeed in such a market, being present on a local level is better. One of the best ways of entering this market is to hire an agent. Another way is to have a partnership or a subsidiary working with a local distributor who already knows the market. In another hand, being present in Australia allows a company to have a secured position in a country with “lower risks” and use the country as a base to reach Asian markets more easily. This is the case for European companies for example.

In this file, we considered many options available to enter the market with partnerships, acquisitions, joint-venture or trade.

Introduction

This report has for objective to set-up a report dealing with the different risks in terms of politic, cultural, legal… in order to build a business in a specific country such as Australia. Moreover, we are going to discuss about the most appropriated strategies for a company to enter Australian market regarding the risks we are going to analyze. International law is specific to each country.

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In all business, every company has to consider the law enrolled in the country they want to enter. In fact, you cannot enter a country without analyzing its environment. A company has to adapt itself, its products and maybe its policies just to have rights to tap on this market. There are many organizations that govern trade. If the country is member of the WTO (World Trade Organization), it gives an added value to the country which means that it’s opened to foreign companies. In order to develop their economies, countries are suggested to ratified conventions, signed agreements and being member of organizations. Import and Export are two key factors in order to develop the economy of a country. USA, China and Germany are the best examples of success in these elements.

Australia is the 14th largest exporter in the world [3] and the company is present in many organizations. This is a growing country, already developed country with many high expectations in terms of business. More and more companies are taping the Australian market and the number of people coming to start a new life or new business in the Oceania’s country is increasing.

After analyzing the country’s opportunities and threats for doing business, we are going to analyze the different methods for entering the Australian market. It exist many market entry strategies as joint-venture, partnerships, acquisitions… It can be also a direct exportation to a local distributor or more simply being present in the country thanks to a subsidiary. There are market opportunities which are really more concrete for precise sectors as aircraft industry.

Finally, we can talk about the geographical situation of Australia which is making some issues to companies. In fact, the proximity to the Chinese market is an issue for other countries. They need to find a solution to export in Australia efficiently in order to face the low cost of Chinese exporters.

In a first step, we are going to present an overview of the country and develop its international law and finally present their risks to take in consideration. In a second step, we are going to discuss about the forms of international business used to enter Australian market and all expectations that can have a company via trade, foreign direct investment…

Potential risks to consider for doing business in Australia

Australian Overview

We need to give first an overview of the country economic situation to anticipate the risks. Australia is the thirteen’s largest economy of the world. The economy was increased and the quality of life is also increasing. Moreover, the growth of China is giving more credit to the Australian growth. Geographically speaking, China is well positioned for relations and import-export with countries as Australia.

Australia has a population of about 20 million people. The national language of Australia is English due to the colonies from Britain. It is one of the best standards of living and it delivers opportunities to businesses.

SWOT Analysis [4] 

Strengths

Weaknesses

Country with a regular and secure political system

Competitive advantage in terms of variety of segments

Difficulty to apply rules and policies for the parliament

Risk of migration creating issues of troubles in the country

Opportunities

Threats

Strong position and relationship with USA

China’s growing economy is increasing the business between the two countries

Main threat comes from the currency rate which is submitted to variations

This SWOT analysis is an overview of Australia and it allows having the main points in terms opportunities and strengths for companies to do business in such a country.

Legal Risks

Australia has a common law. This common law is build from the English one. The main law is the Constitution of Australia. It is the way that Australia is directed and it builds the government of the country. To explain in few words, Australia is separated in States and each State is governed by its own jurisdiction. It consist that laws edited by the parliament and it help to take concrete decisions where the laws are themselves not précised. Common law is not rigid but it is not always the best solution to issues.

Moreover, Australia ratified a treaty called AUSFTA which means Australian & United-States Free Trade Agreement. This free agreement allows the suppression of tariffs barriers and offers new opportunities for companies to do business between Australia and the United States of America.

The country has ratified the CISG (Convention on Contracts for the International Sale of Goods). It is made in order to minimize legal risks that Australian companies can meet concerning exchanges on import-export. It was signed 12 years ago in 1988 [5] by the United Nations.

Concerning the WTO (World Trade Organization), Australia is a member since January, 1st 1995. As we know, WTO is an organization helping the exchanges of goods and services between countries. This a key factor of success for Australia in order to do business abroad. It a primordial factor of deleting or reducing the main taxes, tariffs barriers regulating different countries to export. It helps the trade deals and is made also in order to protect each country’s interests and resolve issues happening between countries from respective countries.

It is essential to precise that Australia was involved by many disputes and issues with another country as with United States or Uruguay for the last one. In these cases, WTO was in charge of resolving the issues. It gives more credit to a country for investing on it and for Australia this is just a consequent opportunity.

WIPO, World Intellectual Property Organization is again created by the United Nations and is made in order to create a protection and promote it around the world. This organization delivers different patents, conventions protecting brand names, products or trademarks. This law reinforces the protection of different countries in terms of economical factors. Australia is one of its members since 1972 [6] . Moreover, there was an agreement between the WTO and WIPO to increase cooperation between countries to help mainly developing countries. As you can see below, Australia own one of the most secured intellectual protection.

1.75As we can see Australia has the better ratio in terms of instability of its political system. With 9.24, Australia is representing the lowest risk of all major countries for foreign investors. This is a main element in order to establish an entering strategy for a company. This is one of the reason which for we chose Australia as country because this is one of the greatest opportunity nowadays. It represents security and a secured plat-form for foreign companies.

Footnotes:

1: 0 = very high, 10 = very low

Source: The IMD World Competitiveness Yearbook, 2010, Switzerland, www.imd.ch/wcy.

The government:

Australian government is at the 4th place concerning the efficiency [7] . There are two types of governments on a national and a local level.

Australia’s government is known as Commonwealth. This is a constitutional monarchy which is divided in 3 main sections. First is the parliament which has to elect and select the different laws for the institution. Secondly is the executive which apply directly the laws. Finally is the judiciary which is independent. This main jurisdiction has to enforce the laws and is directing the two others jurisdictions. It is a way for Australia to avoid corruption and troubles in the country. We can say moreover, that the system is very strong and the enforcement law allows maintaining it.

Cultural Risks

Concerning the cultural aspect, Australia is well positioned for foreign business. In fact, there are no language barriers because Australia is a colonized Britain country. Moreover, the long relations they have with the United States of America reinforce their credibility. It is a country where it is very practical and easy to negotiate, do business and tap on the market.

Moreover, as we said before, Australia is politically very stable as a country and nowadays, it represents the lowest risk in the world to invest in. This is a proof that Australia is out of corruption or briberies issues. Australia owns a specific law and organization related to take care of any foreign bribery. This institution is in charge of the sanctions, decisions and laws established to fight this issue coming on a first time from China which has a major role in Australia.

Financial Risks

First, we can say that Australia has a very stable economy; the country is one of the most developed countries of the world. This economy is more and more stable thanks to the developing Asian markets and its strong relationships with Japan and United States. The GDP growth is positive since more than 15 years with more than 3% increase per year.

This is the only country of the world which is also a continent and it gives many resources to export. The Australian “business model” is like western countries. It means that services take the largest part in the economy. In fact, they represent more than 70% of the GDP [8] . The country is known for its quality of life. This is the 6th country ranking for quality of life and it is a key factor for many people coming to live in Australia. Therefore, the market is developed but it is also in continual development.

We have seen the different risks and factors present in Australia by analyzing them in different parts with legal, political, cultural and financial risks. Now, we are going to discuss and develop the forms of strategies to enter the market.

Adapted strategies to enter Australian market

There are many opportunities to tap on a specific market. Australia is one of the greatest opportunities for many foreign companies to establish their own business. In fact, the country is one of the most secured of the world.

Overview of the competitive market

Australia is a country with much strength. The country is known for its quality of goods, the labor sector and its efficiency on legal laws.

The liberalization of goods and free trade agreement are representing a strong competitive advantage for such a country. In fact, Australia has Free Trade Agreements with the United States and south Asian countries. Moreover, this agreement could be developed and extend to other countries with China, Japan, India and South Korea.

The country own already many companies and brands present since a long time and it remains strong relationships. Moreover, the proximity from Asian markets and the growing economy of China represent a weakness and a threat for European and American companies. They cannot face the low costs.

Strategies to tap on Australian market

There are different issues and information that we need to answer. Are we going to a short or long-term strategy? Are we going to establish a structure in the country? Are we going to hire local employees? Will production be in Australia or stay at a national level? Are we going to hire an agent, work with suppliers, partners…?

Regarding to the legal risks we analyzed, there are organizations present in Australia to consider. FIRB, Foreign Investment Review Board is taking care of each foreign investment and provides general information on Australian policies and laws.

In order to tap on the market, there are already known success ways. Local sales structure if required many times to succeed. It can be done with an agent or a local distributor.

The methods to consider:

The main forms of business to consider are:

Agent or distributor

Licensing and transfers

Joint ventures

Alliances

Subsidiaries

Sole traders Policies are regulating this type of business. There are regulated by the Commonwealth government. The investments are more controlled and minimized. The decision to choose such a type of business means that the others as joint-venture are reduced.

Australia is one of the 10 most attractive countries in terms of foreign direct investment. The approximate amount of the investments is almost $2 trillion. The growth in 5 years is about 65%.

The forms we have here are the most common used in Australia. Why? The forms of business used in Australia are similar to the ones used in USA. It is very basic to set-up a business in Australia. It can be thanks to a partnership with local distributor,. Subsidiaries, partnerships, joint-venture, or agent representative are also common business forms used.

Regarding the legal law of Australia, each foreign company based here is directly registered as an Australian one. Moreover, the ASIC, Australian Securities and Investments commission which is in charge of the registration and securities concerning the regulation of each company. They control of the company is answering to all norms.

Legal law and the Corporation Act in Australia shows many requirements for a foreign company. In terms of security, a physical presence in Australia is better. In fact, Australia and its main city Sidney is a huge Hub, a plat-form serving to reach the local market but also as a lever of transaction to the Asian markets. That is why it is essential for a foreign company to establish itself in the country thanks to a subsidiary or thanks to an alliance-partnership to have a better knowledge of the market. This is the secure level of legal risks that we have seen which can led to these strategies for entering the Australian market. So, in general, foreign direct investment is the best way due to the secured country.

The final main risk that a foreign company can have in Australia is related to common standards. The country is divided in States and each State has specific laws and the government is not so precise about the principles and rules to which are subject companies. Companies are also under the jurisdiction of a main organization, ACCC (Australian Competition and Consumer Commission) which used the Trade Practices Act in order to control investments which can maybe lead to a concentration in a specific sector.

In such a country regulated and secured of all corners, foreign investments are taxed by the government and have to respect many norms for example like environment laws. The government has to fix a limit of foreign investments because in term of local economy, foreign companies are taking the power.

Conclusion

Thanks to this case study, we analyzed the different risks that we have to face in Australia. Implementing a new strategy and choosing a form of business to tap on a market is very difficult and must be a reflected decision.

Australia is one of the most secured countries of the world. Foreign investments are growing up and all companies are turning themselves to this country to succeed. In fact, Australia offers guaranties but it is also a plat-form, as a Hub to reach the Asian Market in terms of geographical situation. This is the vision mainly for western countries and companies as European companies.

Australia has nevertheless some issues that companies have to face. Commonwealth and common law are regulated the country. The economy of the country is well entertained but an issue is coming from inside the country. National companies are not so enjoying foreign investments because they are taking the power and the Australian government has to fix more and more restrictions, tariffs barriers to limit the number of investments. We can resume the main legal risks. There is the risk of “foreign company independence”. This is the risk that a Chinese company for example takes the monopoly in Australia. There is the “application to common law”. Chinese companies’ for example are making troubles because of their objectives. We cannot be sure of what they want to do. They have in consequence to be observed and analyzed. There is the “taxes and policies” issue. All company has to respect Commonwealth but also each State rules which are differing from each other.

In another hand, we have seen thanks to graphics from official sources as the Australian government website, that Australia is member of the WTO; the CISG was ratified by the country. For the intellectual protection and the ratification of WIPO, Australia is one of the best countries of protection.

This is the country with the most stable political risk and the lowest one so it shows a certain security for foreign companies thanks to a strong government and a common law basis coming from the Britain one.

Finally, we have seen that FDI are the most interesting form of business to develop in Australia thanks to alliances or a subsidiary in the country.

Recommendations

There are two types of recommendations to make. One is for the country, Australian government which has to face its own issues. The second is for foreign companies wishing to set-up a business in Australia.

Concerning the country, as we saw it is a well secured country with a high quality of standard living. The main problem is the economy coming from the local sources. In fact, foreign companies are taking the power and it is risky for local producers. The country has to limit and reduce the number of investments in order to maintain the local companies. Moreover, there are the issues from China. Chinese companies are making troubles. In fact, the growing second economy of the world is developing itself in Australia but it is also a risk to be touched by the corruption and counterfeiting which are very present in China. In order to avoid this issue, the government needs to make restrictions and control in place to verify each company regarding the nature of its objectives.

In another hand, there is the recommendation for the companies establishing themselves in Australia. After the analyze we made in the file, we can say that FDI are the most common and secured way to invest in the country. Being present physically in the country thanks to subsidiaries or by making alliances is also a way to have a better knowledge of the country and to reach the growing markets of Asia.