BMA534 International Business Management : Footwear industry

Introduction 

Footwear industry in Australia is one of the most promising and potential market in Australia. With having several global and domestic organizations operating in this sector, the market is intensely competitive. Make my shoe is one of the new entrant in the market and with their innovative approach of delivering the product; they are trying to gain a foothold in the market. Make my shoe has been originated in Thailand in 2015. They have created a distinctive approach among the customers in their home country for their innovative approach. The competitive advantage for them is delivering the product to their customers in highest possible customization option (Marques et al. 2016). The shoes offered by them to the customers are fully customizable according to the choice of the customers. Thus, each product of them carries a distinctive value to their customers. This approach of them is helping them in gaining market share among the conventional shoe manufacturers.

This report will discuss about the potentiality of them in entering the Australian market. In addition, various aspects such as political, economical, social and financial will be discussed in relation to the Australian market. Necessary recommendations will be provided accordingly. Moreover, the government policies regarding the foreign direct investment will also be discussed here in this report. Secondary data gathered from the various government sites and chamber of commerce will be used to identify the key factors. However, there are certain limitations being identified in making this report. This includes reliability of the data. Though the data are being collected from the reliable government site, but still it cannot be as reliable as the primary data. Another limitation being identified is effectiveness of this report. This is due to the reason that the market scenario is changing rapidly and thus the outcome of this report can vary from the current market scenario.

Economic factors 

Currently, Australia is going through acute inflation and accordingly the economic reforms are being modified by the government. The current economic policy of the government is aimed at enhancing the supply of the skilled employees and development of the education. Thus, Make my shoe will not find any difficulties in having the access to the skilled human resources for their manufacturing and networking unit in Australia. The economic policy of Australia is being modified to attract more foreign direct investment to the country (Butlin 2013). As of 2016, the GDP of Australia is stands at US$ 1260 billion which is lower than the previous years. The economic growth is also getting slower. In 2012, the economic growth was 3.6 which came down to 205 in 216. Thus, the modified economic reform of Australia is aimed at enhancing the economic growth in the country. Though, the outer picture of Australian economy is dull, however, it may act as the opportunity for the organizations in entering the market. This is due to the reason that the Australian economy will again regain its shape after the successful implementation of the economic reform of the government (Butlin 2013). As seen in the figure 1, the average growth rate of the Australian economy was never above 3.6 percent which is quite lower than some of the emerging economies.

However, one of the bright spot in the dull picture of the Australian economy is the increasing rate of the per capita income of the population. As shown in the figure 2, the per capita income stands at US$ 58,000 as of 2011 and it is showing positive growth. Thus, comparing to other countries, the per capita income of the Australia is positive. Thus, the purchasing power of the customers is increasing and it will pose a huge opportunity for the organization in offering their products. The more will be the purchasing power of the customers, the more will be the market for the products. Figure 3 portrays that as of 2012, the customer price index of Australia is 1.6 percent per annum. Thus, it can be said that inflation is moderate and it is the ideal economical environment for investing. The inflation rate as of 2016 in Australia is 1.5 and is gradually decreasing in the last few years. The unemployment if fluctuating in the last few years and as of 2012, it stands at 5.8 percent of the total population. However, when compared with the last decade, the unemployment rate gradually declined. It portrays that more number of people are employed and they have the purchasing power for new products.

Being a developed country, the infrastructure in Australia is quite enhanced and developed. Transportation including railways, sea port, roadways and air connectivity is much developed. Thus, organizations having their operating facility there will not face any difficulties in terms of infrastructure. Moreover, the government is further increasing the public expenditure in order to step up the infrastructural facility. Australia is having access to the latest technologies and with having adequate supply of skilled employees; organizations can have their business more effective in Australia.

Political factors 

Australia is a commonwealth state and is a democratic federal country. The structure of their democracy is bipartisan. The two major parties from the different ideologies participate in the election. The election is being held in every five years. The political condition is stable with having strong political structure. The government of Australia is headed by the prime minister. The cabinet ministers are being appointed by the prime minister to look after different departments. The Australian parliament is consists of senate and House of Representatives. Australia is one of the active members in United Nations and maintains good relations with majority of the world economies. They are having various agreements with different countries ranging from bilateral to multilateral agreements. These agreements promote free trades, anti terrorism and other global political aspects. Moreover, they are having their mission in majority of the countries. Thus, the political relation of Australia with that of the rest of the world is favorable.

In terms of political risk assessment of Australia, they are having positive and favorable political environment in the country. Thus, the political risk in Australia is negligible. Governmental structure is strong enough to withstand any political misadventure. In terms of the transparency International index, Australia ranks 13^th in the global list of corrupted countries in the world (Transparency 2017). Thus, the level of corruption is also very low. It is as positive aspect for the organizations opting to enter the Australian market.

Legal factors 

Australia is having own constitution which was formed in the year 1901. The Australian legal structure comprise of two parts; cases which are being decided by judges and the legislations which are being made by the parliament. The legal criminal and civil cases are being determined in the court by the judges (Rember 2015). The Supreme Court is highest of all. For the foreign organizations set to start their business in Australia have to go through some legal formalities. This includes obtaining the business visa to operate in Australia. Afterwards, the terms and conditions being followed by the Australian organizations will also applicable for the foreign organizations also. This includes the organizations health and safety act and employee welfare act and others. Ownership of business and land in Australia will require various certifications. This includes environmental clearance certificate, ownership certificate and other adhering legislations. Organizations operating in Australia have to adhere with the employment and labor law 2017. According to this law, organizations have to provide their employees the basic salary stated by law. Moreover, they are also responsible in maintaining safe and secure working environment in the organization. The contract of employment with the employees should also be done according to this legislation.

Trade and investment environment in Australia 

As of 2016, Australia is the eighth largest receiver of FDI in the world. Thus, it portrays a positive overview about the business environment of Australia (ESCAP 2017). The tariff rate of Australia is also much lower than that of the average rate in Asia-Pacific region. The tariff rate in Australia is 2.8 percent with that the average rate in the Asia-Pacific region is 7.4 percent. Thus, organizations entering in the Australian market will have large tariff benefit. It is being forecasted that the FDI rate in Australia will be estimated at 50650 AUD Million by 2020 (Kirchner 2012). The economic policy of the government is further enhancing the flow of FDI in the country. The majority of the FDI in Australia is coming from the developed countries. United States constitutes of 23.7 percent of FDI in Australia followed by United Kingdom of 13.8 percent (Habc.gr 2017).

The current account trend of Australia is deficit with having -2.6 percent as of 2016. Thus, the import is exceeding the exports. This is one of the key reasons that the government is trying to push investment in the country. Prominent trading partners for Australia are China, Japan, United States, South Korea, Singapore and New Zealand. As of third quarter of 2017, the exports stand at 31450 AUD Million compared to the imports of 30900 AUD Million (Tradingeconomics.com 2017). It is being estimated that the export will reduce in the coming years with increase in the import rate. Thus, the current account deficit will increase. The key imports for Australia includes vehicles, refined petroleum products, computing technologies and medicines. Exports include Iron ore, Coal, LPG and CNG and gold (Atlas.media.mit.edu 2017). Australia is having various types of trade agreements with different countries. It includes free trade agreements with China, Japan and Korea (Department of Foreign Affairs and Trade 2017). Bilateral agreement includes Canada Australia Trade Agreement and multilateral agreement includes The Agreement establishing an ASEAN-Australia-New Zealand Free Trade Area. Various other trade agreements of Australia are there with different countries based on respective criterion.

The growth of FDI in Australia started from 1980 when the both the inward and outward investment of Australia rose at a much rapid rate. From 1980 to 2007, the growth rate of FDI in Australia increased from 30 percent to 150 percent. From the initial period, the FDI scenario of Australia was being dominated by United States, United Kingdom and Japan (dfat.gov.au 2017). The stock of FDI in Australia as of 2013 was $2.5 trillion compared to the outward investment of Australia was $1.6 trillion. Being a developed and industrialized economy, the organizations entering in the Australian market will have the access to every type of industrial technology, resources and infrastructure. FDI in Australia attracts tax incentives ranging from 43.5 percent to 38.5 percent depending on the corporate annual turnover. Special economic zone is also being promoted by the government of Australia for the organizations belonging from certain countries. This depends on the trade agreements with other countries.

Foreign exchange issues 

As of 2006, the exchange rate compared to the USD stands at 0.72 percent. In the last few years the exchange rate is decreasing which may have adverse impact for export from Australia (Aph.gov.au 2017). Thus, the export scenario of Australia will get affected. Government of Australia determined their exchange with the help of fixed exchange rates which is being changed to the floating exchange rates. Thus, currently the exchange rate of Australia gets determined by foreign exchange market forces. In the last few years, the Australian currency has shown positive growth in valuation (Kent 2017). This is due to the reason of strong investment in the economy and rise in the price of the commodity.

Financial factors 

The banking sector in Australia is being regulated according to the Banking Act 1959. Commercial banks in consist of both domestic and global firms. Various other financial institutions including credit firms and cooperative societies operate in Australia. All the banks in Australia are being controlled and regulated by the Reserve bank of Australia. The interest rate in Australian bank adheres with the international financial scenario. The term deposit and savings rate ranges up to 3 percent. Taxation rate in Australia constitute of various types including personal income tax, corporate tax, goods tax and excise tax. However, Australia is having lower rate of tax burden when compared to other first world nations. As of 2013, the taxation rate stands at 25.6 percent of the total GDP.

Cultural factors 

Cultural aspect of Australia is mainly influenced by western traditions with extensive liberation. Business organizations are mainly corporate and family owned. All types of business are being operated according to the company and employment act of Australia. According to the Hofstede cultural dimension, power distance is less in Australia (Hofstede 2017). People are more self-oriented and social bindings are less. In addition, Australia is a masculine society. However, they scores very less in uncertainty avoidance. They are having more normative culture and indulgent societies. Public holidays include queen’s birthday and other region wise holidays. Australia is a secular country with having majority of Roman Catholicism followed by Christianity, Islam and Buddhism.

Recommendations 

• Make my shoe should determine the aspects of the trade agreement with Australia along with their home country. It will help them to determine the incentives and assistance they are going to get by investing in Australia.
• They can consider Australia as their exporting hub due to the fact that it will attract further government incentives.
• With having stringent legislations, make my show should adhere with all the required regulations in operating their business in Australia.
• Cultural diversity in the organization will help to have the access of the requirement and cultural aspects of the customers from different social backgrounds.
• With the growth in the inflow of FDI and various government initiatives in promoting FDI in Australia, this is the right time to enter the Australian market.

Conclusion 

Having discussed various aspects of operating business organizations in Australia, it can be concluded that the organizations entering in the Australian market will have various advantages. The economic and financial policies of the Australian government will further help to enhance the performance of the business organizations. The political risk and other perceived risk for the organizations is also relatively low in Australia. In addition, being a developed economy, the organizations will not face any difficulties in accessing required resources. Thus, it can be said that the Australian market is the effective for the growth of the business organizations.

References

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Atlas.media.mit.edu. (2017). OEC - Australia (AUS) Exports, Imports, and Trade Partners. [online] Available at: https://atlas.media.mit.edu/en/profile/country/aus/ [Accessed 21 Aug. 2017].

Becker, C. (2017). Australia's lacklustre economic growth - Chris Becker - MacroBusiness. [online] Macrobusiness.com.au. Available at: https://www.macrobusiness.com.au/2012/03/australian-economy-gdp-growth/ [Accessed 20 Aug. 2017].

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Butlin, N.G., 2013. Investment in Australian economic development, 1861-1900. Cambridge University Press.

Department of Foreign Affairs and Trade. (2017). Free Trade Agreements. [online] Available at: https://dfat.gov.au/trade/agreements/Pages/trade-agreements.aspx [Accessed 21 Aug. 2017].

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Habc.gr. (2017). Foreign direct investment (FDI) in Australia. [online] Available at: https://www.habc.gr/australia_fdi.asp [Accessed 21 Aug. 2017].

Hofstede, G. (2017). Australia - Geert Hofstede. [online] Geert-hofstede.com. Available at: https://geert-hofstede.com/australia.html [Accessed 21 Aug. 2017].

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Kent, C. (2017). The Resources Boom and the Australian Dollar | Speeches | RBA. [online] Reserve Bank of Australia. Available at: https://www.rba.gov.au/speeches/2014/sp-ag-140214.html [Accessed 21 Aug. 2017].

Kirchner, S., 2012. Foreign direct investment in Australia following the Australia–US free trade agreement. Australian Economic Review, 45(4), pp.410-421.

Marques, C.S., Leal, C., Marques, C.P. and Cardoso, A.R., 2016. Strategic knowledge management, innovation and performance: a qualitative study of the footwear industry. Journal of the Knowledge Economy, 7(3), pp.659-675.

Rembar, C., 2015. The law of the land: The evolution of our legal system. Open Road Media.

Tradingeconomics.com. (2017). Australia Foreign Direct Investment Forecast 2016-2020. [online] Available at: https://tradingeconomics.com/australia/foreign-direct-investment/forecast [Accessed 21 Aug. 2017].

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