 |
|
|
|
|
|
|
International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting Consider Australia for Pacific OperationsBy Stephen Chipman and Andrew Sheehan
In the last decade, Australia has to a large degree been re-examining its role in the world. Historically, it looked to Europe for the main market for its raw materials, political and economic support, immigrants (Melbourne has the largest population of Greeks for any city outside of Athens), and culture. As the United Kingdom gravitated further away from the Commonwealth countries and more toward the European Union, Australia started to look north for its future.
In the last 10 years, Australia has opened its doors to Asian investment and immigration and has started to market itself aggressively as a gateway for doing business in Southeast Asia. There are now large Asian communities in the major cities in Australia, in particular Melbourne and Sydney, the two largest cities.
Many of the established Asian businesses in Australia maintain strong links with their home country. In addition to the growing Asian influence, Australia has started to embrace many aspects of American culture, driven by TV shows, movies and sports, such as basketball.
The Australian economy has an established stock exchange (the Australian Stock Exchange - ASX), based in Sydney, and well developed financial markets. With a respected regulatory environment and a strong banking industry, U.S. companies will feel comfortable with raising equity and debt finance in Australia.
Most American business people find it difficult to adapt to the overall business climate in Australia. Many years of socialist and liberal political policies have led to an environment where organized labor and unions still have considerable power. Most U.S. business people would not consider it a "business friendly" environment, with high taxation on both corporations and individuals.
Australians highly value their way of life and guard their leisure time jealousy. This is often misunderstood by foreign investors as a lack of commitment to the business. Specifically, it is difficult and costly to terminate employees. The working week is short, usually less than 40 hours, and it is uncommon to work on the weekends. Most employees would be eligible for four to six weeks annual vacation, plus public holidays. "Long-term service" leave and "holiday loading" are federally mandated labor policies, which provide for significant time off (up to a year) after 10 years of service, and extra compensation during vacation periods.
All of these factors lead to an increased cost of doing business in Australia, compared to the U.S. In many respects, however, they are the price one pays for a stable political and economic environment and a familiar language, political and legal system.
The two major trends in Australian politics are both movements away from the past, away from the dominance of socialist politics and away from dependence on Britain. There is considerable momentum in Australia to become a republic and drop its allegiance to Britain's monarchy.
A constitutional convention is scheduled this month with 152 delegates from across the nation attending to decide the future political structure for Australia. The delegates were elected by the Australian public and represent a broad range of political, social and cultural backgrounds.
In the year 2001, Australia celebrates 100 years of federation and there is growing support within the country for this event to mark the date Australia becomes a republic with its own head of state. Many Australians hope this move away from the a constitutional monarchy will enhance Australia's position and reputation in the global marketplace.
The current Australian government has been in power for almost two years. This government has an agenda, amongst other things, of taxation reform. The reforms will be far-reaching with effect on both personal and company income taxes. It is also likely that all sales taxes will be abolished and a broad-based consumption tax will be installed. This may lead to a double dissolution of Parliament (all seats in both the Lower and Upper Houses of Parliament will be contested), however, it is unlikely to result in a change of government.
The Australian dollar is one of the heaviest traded currencies in the world and is famous for its short-term volatility. Over the past year, the AUD traded in a wide range against the USD. It moved between USD0.82 and 0.64, a range of almost 20 percent. Over the long term, the AUD is mainly driven by commodity prices. As such, the downward trend in commodity prices should keep the AUD at a competitive rate for U.S. investors.
The main forces likely to be at work on the Australian dollar - commodity prices, a deteriorating current account and a moderate rise in interest rates Ð will limit its upside. The main risk is an extended economic crisis in Asia, which would impact on world growth, commodity prices and Australia's exports, and in turn, the AUD.
The legal system of Australia is developed from British law. Much of this has been codified, however, English common law is still important. The accounting requirements principally follow the standards adopted by the Institute of Chartered Accountants in Australia and the Australian Society of Certified Practicing Accountants.
Statutory recognition is given to the accounting standards as per the Corporations Law. The disclosure requirements for financial statements are set out in the Corporations Law, accounting standards and regulations of the Australian Stock Exchange.
The Foreign Investment Review Board (FIRB) approves most foreign investment in Australia, unless judged to be contrary to the national interest. The Foreign Acquisitions and Takeovers Act of 1975 applies to most proposals and provides penalties for non-compliance.
In the following sectors, all proposals above certain thresholds need prior approval and therefore need to be notified: Rural properties, agriculture, forestry, fishing resource processing, oil and gas, mining, manufacturing, non-bank financial institutions, insurance, sharebroking, tourism (hotels and resorts), most other services. Invest-ment is restricted in some categories of real estate, banking, civil aviation, airports, shipping, media and telecommunications.
The banking system is deregulated and trading banks provide a full range of services. The Reserve Bank of Australia is the central bank and implements the government's monetary policy. Other sources of funds include insurance companies, pension funds, building societies, finance companies and merchant banks.
There are also financial incentives available to businesses. These are mainly available to exporters, or potential exporters, and include cash grants under the Export Market Development Grants Scheme and programs under the Export Finance and Insurance Corp., which offers a wide range of insurance, guarantee and finance facilities similar to the U.S. Export-Import Bank.
If you are considering Australia as a marketplace for your goods, remember that the population is small, concentrated in a few cities, but with relatively high per capita disposable income. High margin, niche products, therefore, may be the best fit. As a manufacturing center, Australia is expensive compared to Asia, and labor issues can be problematic. Transportation costs may also be prohibitive, given Australia's relative geographic isolation.
Australia is becoming attractive as a place to locate Asia-Pacific operations or to provide a platform for Asian expansion. Its highly educated work force, good infrastructure and communications, growing Asian population with language and cultural skills, as well as business contacts in Asia, are all positive factors. Remember, however, that Asia is still a long way away (Hong Kong is a nine-hour flight from Sydney) and success in Asia, which is a relationship driven culture, is unlikely to be achieved from a distance.
|
