AUSTRALIA, DOING BUSINESS IN



With its 18 million people, Australia (derived from the Latin word australis, or southern) is an integral part of the Asian Pacific region, and shares in the region's economic growth, which is the fastest in the world. Besides being a continent in its own right and about the size of the continental United States, Australia also controls the offshore island of Tasmania, which constitutes a separate state. The interior of Australia proper is an arid desert, but the coastal areas are more temperate. Because the climate of the country is warm year-round and its vast coastline boasts among the most beautiful, uncrowded beaches in the world, the southern-hemisphere country is a mecca for tourists. Consequently, tourism is the fastest-growing industry in the country.

In part because of the many similarities between Australia and the United States as well as the receptivity of Australians to many American products and services, American businesses have been trading with Australia and investing heavily in Australia for many decades. Currently it is the 12th-largest export market for the United States and the United States has about a $10 billion trade surplus with Australia. Because of Australia's sophisticated media and advertising industries, U.S. companies can market their products and services there by making only a few modifications to their advertising and promotions used in the United States.

In addition, U.S. businesses invest more than $64 billion a year in Australia, making the United States Australia's principal foreign business partner. Moreover, there are few investment barriers, and those that still exist—government protected industries and high tariffs—are tariffs rapidly being eliminated, factors that are also encouraging substantial Japanese investment. The greatest foreign investment occurs in the tourist industry and in the development of real estate (residential and commercial) property.

While cultural and linguistic similarities between Australia and the United States help explain the country's attractiveness to American business, more salient reasons include Australia's historically stable government and economy, as well as the high living standards. The two countries also share economic attributes such as having a trade deficit, a low savings level, declining union involvement, and a growing service industry. Consequently, the U.S. Department of State considers Australia not only an excellent environment for U.S. businesses, but also the United States' only major bilateral trade partner in the region. Because of these factors, many U.S. companies rely on Australia as a gateway to Asian markets and establish their Pacific Rim headquarters in Australia.

THE DEVELOPMENT OF AUSTRALIA'S
GOVERNMENT AND ECONOMY

Australia has been occupied by its ethnically and linguistically unique indigenous people called "aborigines" for 50,000 or even 100,000 years. The aborigine population now totals about 270,000 people who predominantly occupy rural areas. The first Europeans, however, did not arrive at the country's shores until in 1788, after British and Dutch ships passed the island by during the 17th century. While Great Britain used Australia as a dumping ground for convicts until 1840, numerous settlers emigrated to Australia helping to introduce liberal British political institutions, a highly developed free enterprise economic system, public schools, and a high degree of literacy. Over time, the number of convicts dwindled as the immigrant population rose, with settlers coming mainly from Great Britain and Ireland.

The country's extreme remoteness from other developed economies made it dependent on foreign investment and trade from the outset. The British introduced merino sheep into Australia in the early 19th century, which were ideally suited to Australia's climate and geography. For much of the 19th century, until the great economic crash of the 1890s, wool was Australia's chief industry.

Australia's geographic remoteness also precluded rapid population growth, perhaps a major factor explaining why Australians never rebelled against British colonial rule as did Americans. Instead, the small population of immigrants in Australia—there would only be seven million at the outbreak of World War II—identified in every possible way with Great Britain. During the 19th century, Australia was a prime exporter of raw materials to Great Britain in exchange for its finished manufactured goods. Australian industry, however, also developed in response to heavy British investment. Unlike the United States, the Australian colonial government took an active role in furthering Australia's economy, especially in terms of regulating wages, establishing central banks, and instituting highly restrictive and protective trade policies that lasted well into the 20th century. In addition, the country had many state-owned industries, such as textile factories, fisheries, and quarries.

Australia achieved independence from Great Britain, and became a commonwealth, in 1901. By then, Great Britain was buying 75 percent of Australia's exports, besides investing in other ways, which greatly stimulated the Australian economy and contributed to the country's high educational and living standards. As early as 1891, over two-thirds of the Australian population lived in urban areas. Mining was beginning to vie with wool production as the country's most important industry. The future president of the United States, Herbert Hoover, spent years in Australia in the late 19th century as a mining engineer, and was impressed with the mineral wealth of the island continent.

American investment, especially in the exploitation of Australia's abundant mineral wealth, was beginning to be so extensive that the Australian economy collapsed following the New York stock market crash in 1929. After World War II, the United States replaced Great Britain as the leading investor and importer of Australian goods. The war stimulated heavy industry and manufacturing, especially in the iron, steel, and automobile industries. Likewise, Australia developed a close defense relationship with the United States during and after World War II and is a member of the Anzus defense treaty with the United States.

Because of its historic dependence on world trade, Australia has readily joined the developed nations of the world in major trade conferences; Australia became a member of such international treaties and organizations as the General Agreement on Tariffs and Trade, the International Monetary Fund, and the International Bank for Reconstruction and Development (the World Bank), actions that have further deepened its ties to the United States.

Australia's highly developed economy, stable political and economic institutions, and sophisticated infrastructure have made the country a haven for foreign investors, despite the high tariffs that have prevailed throughout most of its history. By the mid1970s, approximately one-third of Australia's manufacturing industry, especially oil refining, chemicals and pharmaceuticals, was directly owned by foreign businesses, with an even higher percentage of foreign ownership of the mineral industry.

AUSTRALIAN INVESTMENTS AND
INCENTIVES

The government in Australia is a multiparty parliamentary democracy, and the country is a constitutional monarchy led by Queen Elizabeth II. Because Australians have identified less and less with Great Britain and increasingly with their neighbors in the Pacific Rim, the government has been considering turning the country into a republic and severing its ties with the queen. The government, regardless of which party is in power, seeks a stable financial environment and is determined to implement free trade policies. Even the telecommunications industry, government owned since its inception, underwent deregulation in the 1990s. U.S. telecommunications companies penetrated the market, shortly after the government-owned monopoly Telecom Australia was sold to private interests. While there still remain certain "protected" industries, such as shoe manufacturing and the automobile and railroad industries, even these cannot count on government protection for long.

Because of what many Australians perceived as the foreign "takeover" of major Australian enterprises, the Australian parliament passed the Foreign Acquisitions and Takeovers Act in 1975. This legislation defined the "national interest" and gave the treasurer the right to prohibit certain investments or limit them if they ran counter to that interest. Moreover, penalties for failure to disclose business transactions (or false disclosures) were set for the first time. The Foreign Investment Review Board (FIRB) and the treasurer review the investment proposals of foreign businesses according to the criteria established in the act. They largely restrict investments in three areas: media, aviation, and urban real estate. Nonetheless, the vast majority of the investment proposals for other industries are accepted. In fact, the government exempts some foreign projects from review by the FIRB, and eliminates some of the restrictions on the acquisition of new mines by foreign investors. These concessions result from Australia's need to attract foreign capital and reduce its huge deficit, which is of paramount importance to government and business in Australia.

Nevertheless, the FIRB continues to restrict investment in some industries. The Broadcasting Services Act of 1992, for example, prohibits foreign investors from owning a television license, though they may own up to a 15 percent interest in such a license. Furthermore, ownership of television stations and newspapers by foreign investors is limited to 20 percent and 25 percent, respectively. Other restricted industries have included power generation, postal systems (although private companies in the 1990s have been allowed to compete with the state system), and urban transit systems, but the country has an ongoing program of market liberalization. Consequently, those interested in investing in Australia should obtain the most current list of industries that are off-limits to foreign investment.

Despite these restrictions, Australian federal and state governments provide a number of incentives to encourage both foreign and domestic investment. To begin with, a company or entrepreneur wishing to set up a business in the vast underdeveloped Northern Territory will find that it has been designated as a free trade zone. As a free trade zone, there are no customs duties on raw materials (as long as the final product is exported). In addition, there are exemptions on many other taxes, and low-cost land is available for the purpose of setting up a business or factory in this region.

Other government incentives are known as bounty payments, or bounties, for research and development projects carried out in Australia, or direct payments to manufacturers of such items as bed sheets, textile yams, printed fabrics, computers, and other products. Because the list of products is subject to change, interested businesses and entrepreneurs should obtain a current list. In addition, foreign banks get an incentive, in the form of exemption from Australian interest withholding tax, for establishing a branch in Australia. There are many other incentives and incentive programs for foreign investors, large and small. The Australian Trade Commission, including its seven branches in the United States, has the most current information on incentive programs. Moreover, each of Australia's states offers its own investment promotions and often negotiates particular promotions to meet the needs of individual investors.

LAUNCHING A BUSINESS IN AUSTRALIA

Once companies and entrepreneurs know what kind of business they wish to establish and where to set it up in Australia, they then must undertake a standard preparation process for launching a new business. This process includes extensively researching and studying the target market, which might entail traveling to the area where the business will be set up. Australia still has a visa system in place and visas are valid for a six-month stay in the country. Companies and entrepreneurs can expedite this process by hiring a consultant in Australia to provide the needed investment information. There are a number of American accounting firms with branches in Australia, among the largest being PriceWaterhouseCoopers, which publishes the information guide "Doing Business in Australia." For those unable to afford the luxury of private consultants, every state capital in Australia has an American Australian Chamber of Commerce that freely dispenses advice and can recommend other sources of information, too. In addition, the American Chamber of Commerce in Australia publishes a "USA/Australia Trade Directory" that provides an exhaustive list of information on doing business in Australia.

Since most entrepreneurs probably do not intend to emigrate to Australia and operate their own businesses, they will find it necessary to hire local Aussies (who must reside in the state or territory in which the business is located), which means complying with federal and state labor regulations. Some U.S. entrepreneurs and companies are shocked at the very high wages, which are at least twice what similar jobs pay in the United States—even for service jobs. Labor costs are usually a company's greatest expense. Unlike in the United States, however, companies need not worry about health insurance, since a government health-insurance plan covers all Australians, regardless of their employment status.

Businesses that want to export a product or products to Australia can do all of their research in the United States. Accounting and consulting firm PriceWaterhouseCoopers publishes a handy "Guide to Australian Customs/Excise Duties and Government Assistance." Since Australian tariff and customs regulations change frequently, however, it is best to receive updated information from Australian trade representatives in the United States.

After market studies are completed, most American businesses or individuals form a company, either private or public, which can then be incorporated in the Australian state or territory where it will be situated. This is done through the Corporate Affairs Commission of that state or territory, a process that does entail some expense. To initiate the process, most investors file a proposal with the FIRB. The FIRB reviews the proposal for doing business in Australia to make sure it complies with the 1975 Foreign Acquisitions and Takeovers Act. This act is very liberally interpreted and foreign investment proposals are frequently exempted from review, except for investments in the industries discussed above. In addition, 100 percent ownership of a company in Australia is legal in many industries.

Publicly owned foreign companies wishing to set up a branch in Australia must comply with stringent financial disclosure regulations, which require no extraordinary legal or auditing practices or procedures, although the auditors of such a company must be independent and preferably Australian (or whose licenses comply with Australian auditing standards). The approval of a business proposal and the registering of the business with the state or territorial government completes the basic process of establishing a business in Australia.

Once a business is established, whether it is a branch of a large multinational corporation or a small private enterprise, the company must pay taxes for all income earned in Australia only (for Australians, taxes are levied on all sources of income). This policy provides another incentive for outside investors to do business in Australia.

Furthermore, new businesses must make sure they adopt business practices that conform with Australian ways of doing business and Australian ways of life. For example, whereas upper-level personnel (e.g., management) traditionally make most decisions in U.S. companies, Australians prefer a collaborative decision-making process that cuts through a company's hierarchy and gives all employees a say in the process. In addition, Australian workers value free time more than their U.S. counterparts typically do, and, therefore, they expect more vacation time and days off than U.S. companies generally provide their employees.

KEY INDUSTRIES FOR INVESTMENT AND
TRADE

Australia's major industries for investment and trade during the late 1990s included the high-tech, service, and tourism industries, according to the U.S. Department of State. Because Australia manufactures only a small number of high-tech products and has strong demand for such products, Australia offers excellent export and manufacturing opportunities for products from the health care, communications, information technology, and defense industries. Furthermore, Australia ranks second after the United States in per capita computer penetration and U.S. companies dominate the Australian computer market.

With the expansion of the service sector in Asia, Australia is positioned as a base for providing an array of services to support various industries such as the manufacturing, management, and processing industries. Australia offers an educated workforce along with highly developed technology, making the country a strong competitor in the region's service industry.

Because of Australia's pleasant climate and natural features, the country has a robust and expanding tourism industry. Consequently, Australia can attract visitors from around the world, especially those from affluent Asian countries. Moreover, because the country will host the 2000 Olympics in Sydney, the country continued increasing its tourism infrastructure, thereby offering investment opportunities for both national and international investors.

Other growing business sectors include the energy, mineral, and agricultural industries. Australia's energy and mineral industries offer U.S. companies potential for investment and sales. While Australia already ranks among the world's leading producers of aluminum, bauxite, lead, zinc, gold, and uranium, these industries could continue to grow with new financial backing, creating opportunities for investment as well as for selling mining machinery, equipment, and technology.

Agriculture is another expanding industry in Australia, although it is much more unpredictable. The country suffered from a severe drought during the early 1990s, but by the middle of the decade this sector began to turn around. As a major exporter of crops, Australia experienced strong growth in export value in the mid-to-late 1990s. Despite Australia's strong agriculture industry, the country still imports large amounts of processed fruits and vegetables from the United States.

[ Sina Dubovoy ,

updated by Karl Heil ]

FURTHER READING:

An American Guide to Doing Business in Australia. Burbank, CA: PacRim Publishers, 1994.

Byrt, William. Business and Government in Australia. Melbourne: Macmillan Company of Australia, 1991.

"Doing Business in Australia." New York: Price Waterhouse, 1991.

Dyster, Barrie, and David Meredith. Australia in the International Economy in the Twentieth Century. Sydney: University of New South Wales, 1990.

Golike, William R. "Australia: Don't Overlook the Export Opportunities Down Under." Business America, 19 April 1993.

Hand, Michael J. "There's a Dynamic Marketplace 'Down Under," Business America, 30 November/14 December 1992.

"How to Tap Australia's Potential." Global Trade, August 1990.

Kramer, Hugh E. "Doing Business in Germany and Australia." Management Decision, July 1992.

McCalla, John. "They're Coming Back, Mate!" Global Trade, November 1992.

Sunoo, Brenda Paik. "Adapting to the Land Down Under." Workforce, January 1998.

U.S. Department of State. U.S. Embassy Camberra. "FY 1999 Country Commercial Guide: Australia." Washington: Bureau of Economic and Business Affairs, U.S. Department of State, July 1998. Available from www.state.gov/www/about_state/business/com_guides/1999/eastasia/australia99.html .

Wright, Edward J., ed. Doing Business in Australia. New York: M. Bender, 1992.



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