Trend of Foreign Investments in Australia: Evaluating External Business Factors

The report evaluates the trend of foreign investments in Australia and discusses the impact of external business factors such as political, economical, social, and technological environment. It also identifies the natural resources and impact of foreign currency exchanges. Recommendations are provided to enhance the growth process of foreign investment in Australia.

Running head: BUSINESS ACROSS BORDERS
Business across borders
Name of the student
(AEES3007
MOHD ZAKUAN BIN AZMI")
Name of the university
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Executive summary
The aim of this report is to discuss about the trend of foreign investments in Australia. In doing
so, this report had evaluated the external business factors relevant for the business organizations
in doing business in Australia. In addition, this report had also discussed about the impact of
foreign currency exchanges for the businesses along with the impact of natural resources. It is
concluded that Australia is having huge access to the different natural resources but lacks in
skilled workers. A few recommended steps are being stated in this report in accordance to the
gaps being identified in the current trade policies in the country. These steps can help in
enhancing the country effectiveness in the long term.

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Table of Contents
Introduction......................................................................................................................................3
Political environment.......................................................................................................................3
Economical environment.................................................................................................................4
Social environment..........................................................................................................................4
Technological environment.............................................................................................................5
Identification of the natural resources.............................................................................................5
Impact of the foreign currency exchanges.......................................................................................6
Trade policies and processes of Australia.......................................................................................7
Existing levels of foreign investments.............................................................................................8
Recommendations............................................................................................................................8
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................10

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Introduction
Competitiveness of the country is important in the current time due to the reason that it
will help in attracting more foreign investments in the country. Moreover, in the current business
state of affairs, countries are getting more depended on the inflow of the foreign direct
investments for growth of the national economy. The more will be the inflow of the foreign
investments in the country, the more will be the growth of economy (Penrose 2017). Majorly, the
external business factors should be made effective enough in order to have favorable business
environment for the foreign firms. In addition, the effectiveness of the trade policies of the
countries along with the probable risks is also having major influence on the country’s
competitiveness (Salacuse 2017).
This report will discuss about the country competitiveness of Australia due to the fact that
in the recent time, Australia is one of the rapidly developing and stable countries in the world. In
addition, this report will also discuss about the relevant external business factors to be faced by
the business organizations in doing business in Australia. PEST analysis will be used to identify
these factors. Australia is having access to different natural resources, which are further
contributing in gaining competitive advantages for the country. These resources will also be
identified in this report. Existing trade policies of Australia along with the potential barriers will
be identified and a few recommended steps will be discussed accordingly.
Political environment
It is reported that currently, Australia is having stable political scenario in the country
with the moderate ranking for the political stability. This is beneficial for the foreign companies
investing in the countries. However, on the other hand, it is also identified that the trend of

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political stability is decreasing in Australia (Blom-Hansen, Houlberg and Serritzlew 2014). This
may pose challenge for the foreign companies in the long term. It is also identified that Australia
is having moderate level of government effectiveness, which will also have favorable impact on
the business organizations. Australia is also having good ranking in terms of transparency index
and it denotes that foreign business organizations will have less impact of corruption in their
operation. It should also be noted that Australia is having democratic type of government and
market based economy (Acemoglu and Robinson 2013). Thus, the business organizations
operating in the country will have less impact of government interference and regulations.
Economical environment
Currently, annual economy growth of Australia is standing at 0.6 percent as of 2017 and
they are the 10th country in the world in terms of GDP per capita. This shows the stability of
Australia in terms of economy and the business opportunities for the firms will get increased
with time. Australia is also having good score in terms of the business freedom index
(McCombie and Thirlwall 2016). Thus, the business organizations doing business in Australia
will have larger extent of freedom in their operation and activities. This will also increase the
attractiveness of Australia to the foreign investors. However, it is also identified that Australia is
witnessing decreasing trend in terms of economic globalization index. It is reported that they
have witnessed a huge fall between 2014 and 2015 (Bhattacharya et al. 2016). Thus, the business
organizations will face more barriers in their economic activities in doing business in Australia.
Social environment
Australia is having diverse social approaches in the country mainly due to the presence of
different social and cultural groups in the country. This will have both positive as well as

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negative impacts on the operating business organizations. They will have the opportunities to
offer different products and services to the customers and diverse business sectors can thrive
(Luke 2018). However, on the other hand, it will also pose challenges for the organizations due
to the reason that and business organizations will have difficulty in catering to different sets of
customers and each of the offerings will find limited market opportunities. It is also being
identified that Australian society is more globalized in nature and global trend is having is
having much influence on the market trends. Thus, the foreign business organizations are having
more market opportunities in doing business in Australia (Beattie 2013).
Technological environment
Being a developed country, Australia is one of the most technologically advanced
countries in the world. It is identified that Australia is rapidly improving in terms of innovation
and from 2011 till 2015; they have witnessed huge increase in the innovation index. This is
having favorable impact on the business organizations due to the reason that they will be able to
have the access to the latest technology and innovation in the country. In addition, it is also being
identified that Australia is witnessing increase in expenditure in research and development,
which will also motivate the investing firms in the country to have more access to technological
development process (Yigitcanlar and Dur 2013). However, it should also be noted that even
though, Australia is improving in terms of technology and innovation, but countries such as India
and China are way ahead of them and posing huge threat.
Identification of the natural resources
Australia is one of the rare countries with having different sources of natural resources.
This includes bauxite, lead, lithium and iron ore. It is reported that Australia is the third largest

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producer of iron ore, uranium and zinc. On the other hand, it is also identified that Australia is
also the fourth largest producer of coal and gold (Aleksynska and Havrylchyk 2013). Thus, it can
be concluded that access to large varieties of natural resources will help the business
organizations in having the seamless supply of raw materials. Another major competing factor
for Australia is huge export of uranium due to the fact that in the current time, uranium is being
used as an ingredient for the nuclear reactors. Thus, firms operating in this sector will have huge
opportunities in operating in Australia. Strategic geographical location of Australia is also a
major competing factor of doing business in Australia. This is due to the reason that Australia is
having the equal access to the emerging economies such as China and India along with to the
western countries such as the United States (Busse and Groning 2013). Thus, the business
organizations operating in Australia will have the advantage of gaining the access to different
regions around the world. Another competing force in doing business in Australia is huge
shipping network, which will further help the businesses indulged in import and export to have
huge business opportunities.
Impact of the foreign currency exchanges
Currently, exchange rate of Australian dollar with that of the American dollar is 1.39:1.
This denotes that Australian currency is slightly devalued compared to the American currency.
This will have positive impact on the importing firms due to the reason that they will have more
valuation for their offerings in the domestic market (Hodrick 2014). On the other hand, it will
have negative impact on the exporters and they will gain less value by exporting. In addition, it
should also be noted that frequent fluctuations in the currency valuation will affect the business
organizations mainly the foreign entities. This is due to the reason that the more will be the

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fluctuations in the international valuation of the currency, the more will be the variances in the
profitability of the organizations (Cenedese, Sarno and Tsiakas 2014).
Trade policies and processes of Australia
Australia is having different authoritative bodies for approval of the documents for the
foreign investments. They are having dedicated foreign investment policy, which covers all the
elements related to the foreign investments in Australia. It is reported that proposals for the
investment in Australia should have to be made to the Australian Foreign Investment Review
Board for the primary approval process (Rolfe and Kinnear 2013). It is also being reported that
majority of the Australian business sectors are opened for the foreign investments. In addition, in
the recent time, Australian government is offering incentives for investing in certain business
sectors such as agribusiness and food sector, infrastructure, tourism, energy and manufacturing
process. Foreign investments in this sector are being subsidized by the government. It is also
being stated that foreign investments are being given tax incentives and benefits in the doing
business in the country.
However, on the other hand, a few barriers are also being identified in the current trade
policies of Australia such as the absence of single window system for the approval process. This
denotes to the fact that foreign investors have to face high intensity of bureaucracy in the
approval process. This is one of the major challenges for doing business in Australia. In addition,
it is also identified that the level of tax benefits and incentives offered by the Australian
government is not at par to the level being offered by some of the developing countries such as
China (Von Wallis and Klein 2015). Thus, Australia is losing away the major chunk of foreign
investments to these countries. Australia is having different states and based on these states, the

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rules and regulations are also different. Thus, the business organizations operating in one
Australian state will have to face different sets of rules and regulations by opting to enter
different states and this is further increasing the complexities for the investors.
Existing levels of foreign investments
It is reported that Australia is having fluctuating trend of foreign investments in the last
few years. This is due to the reason that Australia received only AUD 25926 million of foreign
investments in 2015, which further increased to AUD 64825 million in the next year. However,
in 2017, this figure again reduced to AUD 60499 million. This shows the fluctuating nature of
the inflow of foreign investments in the country. This is also a major discouraging factor for the
foreign investors in investing in the country (Gitman et al. 2015). However, on the other hand, it
is also estimated by different reports that inflow of foreign investments will increased in the
following years and may touch the AUD 65000 million marks. Thus, it can be concluded that
future trend of foreign investments in the country is positive.
Recommendations
 It is recommended that Australian government should benchmark the investment policies
of the developing countries, especially India and China. This is due to the reason that in
the recent time, these two countries are attracting the major investments over others.
Thus, benchmarking them will help Australia to gain competitiveness in gaining the
foreign investments in the country.
 It is also being recommended that Australian government should focus more on having
universal rules and regulations for all the states. This will reduce the complexities for
investors in doing business in the country. In addition, the foreign investors will also be

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benefited by having the singular approach across the country. This will also further
promote the concept of single window approval process in investing in the Australian
market.
 Australia is having abundance of natural resources but lack of manmade resources such
as skilled workers. This is the major reason behind the increase in the migrated workers
in the country. It is reported that a good portion of the national economy of Australia is
depended on the productivity of the migrated population. Thus, it is recommended that
Australian government should more focus on enhancing the access and sources of
manmade resources. This will further complement the natural resources in gaining
advantages.
Conclusion
This can be concluded that Australia as a country is having good potentiality of attracting
foreign investments in the country. In this report, different negative and positive factors of doing
business in Australia are being identified and evaluated. It is also identified that huge access to
the different natural resources is one of the major competing factors for doing business in the
country. In addition, the impact of the foreign currency changes on the business is also being
discussed in this report along with the existing trade policies of the country. It is identified that
Australia is witnessing fluctuating trend of inflow of foreign investments in the country. A few
recommendations are being discussed, which may help in enhancing the growth process of
foreign investment in Australia.

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