Australian Economy and FDI Impact

This assignment examines various aspects of the Australian economy, including its legal system, immigration policies, corporate social responsibility practices within the mining sector, and progress towards sustainable development goals. It also delves into the influence of foreign direct investment (FDI) on Australia's economic growth, citing empirical evidence and highlighting key trends in industries like agriculture and dairy. The assignment utilizes data from reputable sources such as IMF reports, academic journals, and industry publications to provide a comprehensive analysis.

International Business
Environment
(Australia)

Executive Summary
International business expansion requires thorough research and analysis of the targeted
country. In the present research, Australia has been chosen by the company as the new market. The
directors of the company are concerned about the risks for the business. There are various key aspects
which have been included in the study. It includes political condition, legal system, economic outlook,
cultural aspect, CSR, Foreign exchange and FDI. The analysis will help in understanding the
opportunities, risks, vulnerabilities and issues in Australia for a foreign entity. These key aspects will
allow the directors to take decision whether to expand the business to Australia. Furthermore, it will
provide them with the information which will enable them to make changes in the products, services,
approach and strategy according to the business environment in Australia.

Table of Contents
INTRODUCTION.....................................................................................................................................4
1. Country’s profile....................................................................................................................................4
2. Political system......................................................................................................................................5
3. Legal system..........................................................................................................................................7
Taxation............................................................................................................................................7
Legislation .......................................................................................................................................8
4. Economic system...................................................................................................................................8
Outlook and vulnerabilities ..............................................................................................................9
5. Cultural context .....................................................................................................................................9
Hofstede’s analysis ........................................................................................................................10
6. Ethical, CSR and sustainable environment..........................................................................................10
7. Foreign Direct Investment (FDI) ........................................................................................................11
8. Foreign exchange.................................................................................................................................12
9. Recommendations................................................................................................................................13
CONCLUSION........................................................................................................................................14
REFERENCES.........................................................................................................................................15

INTRODUCTION
International expansion can create numerous opportunities for a business which helps the
organisation to grow and become more competitive in various markets. But it can be a difficult for the
company to understand the business environment in a particular country. There are many companies
which have grown due to their effective global strategy, research and adaptability. It is essential for the
management to assess all the risks related to the industry because international expansion can be costly
and it involves many complexities (Australia in brief, 2017). The main objective of this report is to
analyse the risks and opportunities in Australia as it has been chosen as the target country for the
expansion of the business. The factors which have been included for the assessment are political
system, legal, economic, cultural, ethical, FDI and foreign exchange. These key aspects will allow the
directors to take decision whether to expand the business to Australia. Furthermore, it will provide
them with the information which will enable them to make changes in the products, services, approach
and strategy according to the business environment in Australia. Apart from this, assessment table and
recommendations have also been included in the report.
1. Country’s profile
Australia is the sixth largest country in the world and its population is about 23 million. There
are more than 22,000 foreign companies which are registered in Australia. As per the index of
Economic Freedom, it is ranked fifth (Figure 1) due to its well developed legal system, openness to
trade, skilled workforce, bureaucracy and government system (Australia Trade and Investment
Commission, 2017). It is also among the most attractive investment destinations. MNCs can be
benefitted from the trade agreements of Australia with many Asian countries. It provides them more
opportunities to increase their presence in other markets as well. According to the report of IMF,
Australia has been growing at a good pace and the same trend is expected in the future as well (IMF
Report: Australia, 2017). The factors which have been supporting the growth trend include
commitment to trade, flexible exchange rates, forewing investments, institutional policies and
macroeconomics factors. In terms of growth, the country provides low risk and safe business
environment. The service sector has also been growing which provides support to various industries.
Apart for this, there are five key industries which are performing exceptionally well in global markets.
It includes Tourism, Education, Agribusiness, Financial services and Resources & Energy. Moreover,
abundance of minerals and energy resources has been useful for them to increase FDIs and exports. But
unemployment rates have increased and many businesses except mining have not been performing well
(Australia in brief, 2017). The government has been changing their policies to provide fundamental

support to many companies which will allow them to get back on track. They have been focused on
increasing productivity and the quality of the produces in the country. For example, the value of Dairy
industry is over AUD 4 billion and it employs more than 40000 people. It is considered to be one of the
most important rural industries in Australia. In 2016, the export value of milk production was 9.5
billion liters (The Australian Dairy Industry, 2016). It included products like cheese, milk powder,
drinking milk, yogurt, custards etc. But milk production has dropped in 2017 which is a big concern for
the government. In Australia, both domestic and international demand has been rising which is a great
opportunity for a new company.
Figure 1: Index of economic freedom
(Source: Australia Trade and Investment Commission, 2017)
2. Political system
Australia has stable government and independent bureaucratic setup. It has helped in the
development of transparent system and competent governance which is reflected in all the political
processes. The structure of both national and state government has been given in the figure below.
There are three levels which include Federal, states and local government. According to the Economic
Freedom score, Australia has received 81 points which is above the world average of 60.9 (Australian
Politics, 2017). The government is also progressive and effective in coping up with the challenges in
economy. They have made significant improvements in their policies which has helped them to adapt to
the changes. They have ensured that there are fewer restrictions on the foreign trade and investments
which is beneficial for the industry. The spending of the government is also high which account for
about 37% of the total GDP (Cavusgil, Knight and Rose, 2014). For a business perspective, it is
favorable because it becomes easier for them to understand all the rules and regulations. Furthermore,
there is no risk of complete change in the policies of the government. It has increased the opportunities

for various industries and innovation. According to IMF, there have been two major reforms in the
country. It includes NISA and National Innovation (IMF Report: Australia, 2017). These measures are
taken by the government to boost up productivity, competition and entrepreneurial development. The
government has allowed market forces to control the prices which have led to the development of the
industry (The Australian Dairy Industry, 2015). Foreign companies can assure their long term presence
as they will not be facing any difficulties from the political system which is well developed. Australian
government has also been planning to balance their budgets in the near future (Cavusgil, Knight and
Rose, 2014). It will have positive implications in the demand and better growth prospects will be
available for the businesses. In short, the political system is favorable for the dairy industry.
Figure 2: Economic Freedom score
(Source: Australia Trade and Investment Commission, 2017)
Figure 3: Political system of Australia
(Source: Australian Politics, 2017)
3. Legal system
Australia has transparent and well developed legal framework. It is ranked 8th in terms of low
corruption as per the Transparency International Corruption Perception (Australian Business and
Environment Laws, 2017). But it is essential for a new business to understand all the rules and
regulations of the country. The structure of the company should be chosen wisely as it can have

different implications in taxation, registration and liabilities. For instance, Dairy industry and has been
benefitted from the deregulation and rationalization of 2001. It has increased the efficiency and the
quality of the produce. The producers are able to compete in the international market as they have been
more competitive. Dairy Australia is an RDC organization which helps in R&D and supply chain
(Dairy Industry Development, 2016). In terms legal structure, dairy industry has favorable
opportunities of growth in Australia. The legal regulations for other indusirtes have also been
simplified.
Taxation
The company tax is 30% and foreign individuals are taxed for their earnings sourced in the
country. Furthermore, business should also take into account the consumption tax and GST (Legal
system, 2017).
Legislation
There are certain legislation and on trade activities and businesses in Australia. The state
government, territory and councils have taken many steps to streamline the entire process. They have
ensured that the rights of consumers are protected, fair trading is encouraged, healthy competition
exists and reduced conflicts among the consumers, suppliers and business owners (Legal system,
2017). Some of the legislations have been given below:
Privacy laws: Individual privacy laws and protection of sensitive information should be
ensured.
Environment legislation: There are legislation related to specific industries and prior approval
has to be taken before commencing the business (Australian Business and Environment Laws, 2017). It
attracts assessment and licensing. Furthermore, environmental protection and cultural concerns have to
be taken care.
Australian Consumer Laws (ACL): There are guidelines and norms towards product safety,
contract terms, lay by agreements, consumer rights etc (Carvan, 2002).
Product liability regulation: Safety and standards of the product have to be ensured by the
business owner or company. ACCC (Australian Competition and Consumer Commission) does not
allow harmful and sub-standard products to enter the market.
Competition laws: Fair trading laws and regulations have to be followed which may differ in
different states. There are certain obligation and responsibilities of the business owners which have to
be fulfilled by them otherwise it can give rise to penalties.

4. Economic system
The free market economy of Australia has helped them to grow in spite of recession. The total
value of Australian GDP in 2017 is AUD $1.6 trillion. The main sectors which have been contributing
heavily in the growth are services, mining, construction, agriculture and manufacturing. It is estimated
that the GDP of Australia will increase to 3.1% in 2017 and 3% in 2018 (Hatfield-Dodds, Schandl and
McCallum, 2015). The rise of commodity prices has also helped the economy to improve its position.
But still there are many vulnerabilities which cannot be ignored and it is likely to remain in near future
as well. Apart from this, both business and consumer confidence is high which is beneficial for
Australia. The labor market has been improving which has reduced the unemployment rate to 5.7% in
2016 Australian Performance, 2017). More than 80% new jobs have been created in the 2016. On the
other hand, the growth in wages has remained low due to cost pressures.
International trade
The government has been taking decisions to help the business to grow. It is reflected in the
increased net exports and household consumption. For example, Australia exports more than half of its
produce to other countries. It is only behind EU and New Zealand in the rankings of largest producers.
It is also comprised of 10% in global trade and main destinations include Japan, Malaysia, Indonesia,
China and Singapore (Dairy Industry Development, 2016). But changes in the price of milk due to
change in demand can affect the business. 2015 and 2016 has been the toughest season for the domestic
producers. It is also expected that some of the companies will shut down due to tight and negative
margins. Other industries such as IT, manufacturing, Tourism, Education, Agribusiness, Financial
services and Resources & Energy have been performing well. It can create new opportunities for the
new business.
Outlook and vulnerabilities
There were many factors in 2016 which slowed down the growth of the economy. But in 2017,
the trend is likely to improve as domestic demand is expected to rise. The employment and inflation
will also increase (Pandya and Sisombat, 2017). But still there will be some micro financial issues
which will affect the economy. It can increase the risk on the many sectors. The two main problems are
house prices and uncertainties in China. Moreover, high debt ratios, current account deficits and
external liability have been a concern. Therefore, in terms of economic outlook, the new company has
to take prepare themselves for the ups and downs. They have favorable conditions but they have to
remain cautious.

5. Cultural context
Australia is a multicultural society and the number of immigrants has increased in the recent
few years. A new business has to prepare itself to cater to the need of people from different
backgrounds and origins. Most of the people are Christians (over 50%) but other religions are also
present (Garling, Hunt and Sanders, 2013). There are also Oceanians, Torres Strait Islander and
Aboriginals. Apart from this, there is no official language in Australia. Most of the people speak
English but it is considered to be a monolingual nation. The other languages include Mandarian, Italian,
Arabic etc. On the perspective of communication, Australian is friendly and open. They respect each
other as well as different opinions (Markus, 2016). They prefer directness in conversation and
interactions. They require more information about a person before communication. Most of the people
are well educated and competent. As a result, the unemployment rates are lower as compared to other
countries and wages are higher.
Hofstede’s analysis
Australia is low in power distance which means power is not concentrated among few groups. It
is spread out evenly among all the people. There is more equality and better access to power.
Furthermore, in terms of uncertainty avoidance, Australia has scored low. This implies that Australia
avoid uncertainties (Schaper, Volery, Weber and Gibson, 2014) . They prefer stability which increases
their anxiety. They take rules and regulations seriously and follow them. Moreover, they are
individualists and it is considered important in the society. They tend to support their personal
objectives over groups goals. They are also inclined towards masculinity. The traits which are common
among the people are ambition, achievements, strong personality, money acquisition etc. A new
business has to ensure that they take into account all the information and produce goods or services of
high quality. The new company in has favorable conditions in cultural perspective and it will allow
them to increase their market share easily.
6. Ethical, CSR and sustainable environment
CSR or Corporate Social Responsibility has become an important part of Australian businesses.
The government has made sure that all the products and services follow the regulations and fulfill their
CSR commitments (Crowther, Seifi and Moyeen, 2017). The environmental sustainable policy has
been focusing on creating mandatory standards for the protection of environment and resources. The
policy includes:
 Waste minimization
 Reducing carbon emission

 Greenhouse gases
 Minimizing pollutions
 Environmental management
 Use of energy
According to the index of Sustainability Development Goals (SDG), Australia has been ranked in
the world. This index compares the practices and performances of different nations (SDG, 2017). It
includes 17 goals related to health, climate change, social context, environmental and sustainable
economic development. Australia is behind many countries such as Canada, UK, Germany etc.
Australia is among the highest carbon emissions countries (Environmental sustainability policy, 2017).
Their policies are underdeveloped and there may be significant changes in the near future. The
government is getting more attentive towards their environmental goals which will result in more strict
rules and regulations. The SDG index also shows that immediate action is required because they are on
vulnerable condition (Ross, 2017). It can have negative implications on the industries which are related
to fisheries, minerals, carbon emissions etc. They will have to obtain licenses and approvals from the
concerned authority. A business has to take this aspect into consideration because any change in the
sustainable policy means that they have to change their entire process (Crowther, Seifi and Moyeen,
2017). It will not only increase the cost of the company but it will burden of debts on them. The CSR
practices and changes may create unfavorable conditions for the new company in Australia.
7. Foreign Direct Investment (FDI)
Foreign trade is considered important in Australia and the total value of exports and imports
account to over 41% (Whitton, Baker and Mounter, 2016). The open market allows trade freedom,
investment freedom and financial freedom. All the industries allow FDI and foreign competition. Open
market system means the government has allowed privatization in most of the industries. But they
make sure that they regulate and keep a check on all trade activities to avoid any issues (Armstrong,
Reinhardt and Westland, 2017). The competitiveness of Australia has increased in service industry, high
quality manufactured goods and technology. The main sources of exports are agriculture, mining and
minerals. According to the FDI Confidence Index, 2017, the confidences of the investors remain strong
(Foreign Direct Investment Confidence Index, 2017). Even though, their ranking has dropped in recent
few years yet Australia remains an attractive location for business. They have been benefitted by strong
ties with Asia which has increased to $408.7 billion (Pandya and Sisombat, 2017). Furthermore, The
FDI inflows of Australia have increased by 38 %. In 2015, the value of FDIs inflows was USD 38

billion which has gone up to USD 52 billion in 2016 (Australian Performance, 2017) . The global trade
has been affected by weak demands and uncertainties in many economies. It has led to the decrease in
Global FDI which has dropped in 2016. But Australia has performed well in these conditions which is a
positive sign. In 2017 and 2018, the world trade and FDI are likely to improve which will be beneficial
for Australia (FDI Inflows, 2017). The Trade and Investment Ministry of Australia has also been
allowing FDI in many industries such as agriculture, manufacturing, services, It etc. It has been due to
the international reputation of many industry and their quality produces. Thus, FDI investment will not
create any hurdles for the new company and it will provide favorable opportunities for the growth.
Figure 4: FDI Confidence Index
(Source: Foreign Direct Investment Confidence Index, 2017)
Figure 5: Australia’s FDI inflows
(Source: FDI Inflows, 2017)
8. Foreign exchange
The value of the Australian currency has decreased from 2013. It was 0.9679 in 2013 which
reduced to 0.7661 in 2017 for AUD/USD (Exchange rates, 2017). It is essential for the business to use
forwards, futures and options to avoid any risk of currency fluctuations. According to IMF, 87% of the
liabilities in Australia are in foreign currency. On the other hand, 49% of the assets ate are in foreign
denomination (Changes in currency, 2017). Depreciation in domestic currency can create problems for
a business. It is important for them to hedge to avoid risks. Many Australian companies have been
following this method which has been beneficial for them in the long run.

Year Rate
Average 0.8265
2013 0.9679
2014 0.9028
2015 0.7521
2016 0.7436
2017 0.7661
Figure 6: Exchange rates
(Source: Exchange rates, 2017)
9. Recommendations
Australia is an attractive destination for foreign investment and business expansion. It can provide
lot of opportunities for the growth and development of the company. It can be seen from the analysis
that there are both positives and negatives in the country. The new company has to prepare themselves
for the future events. It is highly recommended that the management should make changes in their
products and services keeping in mind the multicultural context in Australia (Schaper, Volery, Weber
and Gibson, 2014).
Criteria Favorable Moderate Unfavorable
Political system v
Legal system v
Economic system v
Cultural context v

Ethical, CSR and
sustainable
environment
v
International trade v
Foreign Direct
Investment (FDI)
v
Foreign exchange v
Score 4/9 3/9 1/9
It can be seen from the above that the favorable are more. Thus, the new dairy company will be able to
survive and grow in Australian market.
CONCLUSION
It can be concluded from the broad risk analysis of Australia that there are lot opportunities for
business growth and development. But there are certain risks which have to be taken into consideration
by the company before starting their business. They should not use a generalized approach for all the
countries. They should be more focused on adaption and proactive approach should be used to compete
in the industry. From the assessment, it can be seen that a new business can easily flourish in Australia.
But the management has to make sure that they understand the legal complexities and take prior
licenses before commencing. They should also prepare themselves for the economic vulnerabilities
which can have significant effects on the business.

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Appendix
 FDI
 Economic indicators

 Comparison of Australia with other countries