Australia’s Economic Condition
Question:
Discuss about the Economic Analysis and Multinational Enterprise.
Australia is one of the most developed countries of the world. The country has never experienced economic recession within the past 26 years, which is a record. Australia ranks 11th in the list of highest GDP per capita and it is the 13th biggest economy in the world. In 2016, the international trade has contributed 40% of the total GDP (). The country has extremely liberal trade policies that support the prosperity of the citizens through a strong economy, boost the economic growth, and encourage domestic and foreign investment and businesses manegement (dfat.gov.au, 2018).
Australia has been a part of many free and preferential trade agreements with various nations that promote the growth of international trade. However, there are few areas, where the Australian government has already imposed trade barriers, such as, in the agricultural products and processed foods, manufactured goods like steel and automotive good (hktdc.com., 2017). There can be many economic and political reasons for employing trade barriers by the Australian government.
Protecting the domestic producers and industries is the major economic objective of trade barriers. When the domestic manufactures are unable to compete with the international products, the government should impose trade barriers on imports. Reduction in imports leads to rise in domestic production with improved quality and increase in employment and in GDP of the country (intelligenteconomist.com, 2017). Once the domestic manufacturers improve their product quality, they can compete in the international market management. However, this should be a short term strategy as in the long term, the domestic industry might lose interest of improving.
Secondly, trade barriers provide revenue to the government. Tariffs can bring a substantial amount of the foreign currency to the tariff imposing country. If Australia imposes import tariffs, it can earn a good amount of different foreign currencies from the countries exporting goods to Australia (Almahmoud, 2012).
Thirdly, trade barriers also offer protection from dumping. In the international trade, an importer can sell its low quality products to a country at a price below its average cost of production if there is no trade barrier in the importing country. This affects the local industries. Anti-dumping duties and laws help in protecting the domestic manufactures from the dumped products (nordeatrade.com., 2018).
According to some policy makers, maintaining the level of imports at a minimum level guarantees political independence. When a country becomes heavily dependent on the imported products, it loses its economic and political independence and its growth faces hard challenges due to poor domestic production, lower GDP and unemployment. This can lead to economic embargo, as experienced by Iraq, Iran and Syria (Treisman & Di Lieto, 2017). Trade barriers push a country to improve its manufacturing sectors and have economic growth. A strong self dependent economy reduces the political vulnerability of the nation. Secondly, trade barriers help a country to protect domestic jobs from the cheap foreign labor, which helps in generating employment in the country and ensuring political stability (intelligenteconomist.com., 2017).
Trade Barriers as a Short Term Strategy
The assignment 2 focuses on the macroeconomic analysis of a country, where the chosen organization would like to do business. For an organization, which wants to do business in a foreign country, the macro environmental analysis is very important. This analysis presents the growth opportunities and risk factors that can affect the business positively and negatively. The macro environmental analysis are performed on the factors that can affect the business externally, hence, economic, political, cultural, legal and ethical environmental analysis are performed to evaluate the business opportunities in that chosen country (Barkauskas, Barkauskien? & Jasinskas, 2015).
International Monetary Fund (IMF) is an international economic and financial organization. It was established in 1945 with the objective of ensuring global financial cooperation and security across 189 countries, facilitating international trade, promoting higher employment rate and sustainable growth and reducing poverty across the world (img.org, 2018). Thus, the IMF website is expected to contain economic and financial information regarding every country that would help in performing the economic analysis of the chosen country.
Economical factor analysis consists of the analysis of the economic factors, which have significant impact on the business scenario of a nation. GDP, inflation are two major economic factors, along with financial position, FDI position, SDR capacity, debt relation, balance of payments, trade agreements, interest rate, exchange rates are some other important economic factors that influence the economic condition and business opportunity in a country (Dunning, 2014). In the website of IMF, there is summarized information about the chosen country’s financial and population status, along with projected real GDP, projected consumer prices, date of membership, SDR, quota and number of arrangements since membership in IMF. It has country specific separate factsheets and documents on finance and development, and fiscal monitor, which would be beneficial for doing the economic analysis. All the latest financial reports and documents on financial meetings and discussions of the country can be found on the website that could be helpful in the economic analysis. In a nutshell, it can be said that, all types of country specific financial data, proceedings, position status in the fund and detailed information on the agreements with other countries are available in the website of www.imf.org. While doing a macro environmental analysis on the economic factors of a country, the website of IMF will provide all the financial information about the country in a consolidated manner.
Australia is chosen from the website “Ease of Doing Business” by World Bank for reviewing the reports. In this website, country specific reports on the ease of doing business are available. In the reports, the economies are ranked on 10 different factors that are important for doing a business in the country. Those factors are, namely, Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting minority Investors, Paying Taxes, Trading across Borders, Enforcing Contracts and Resolving Insolvency.
The ranking of the economies are provided on the basis of the easy regulations for conducting business in the economy. There are total 190 countries considered by the World Bank for this analysis. A higher rank in the ‘Ease of Doing Business’ list indicates that the regulatory environment is more favorable for starting and operating a business. These rankings are determined by sorting the score on the parameter ‘Distance to Frontier’. The ranks are given from 1 to 190. The absolute level of the regulatory performances over time is assessed by this parameter. The frontier represents the best performance by an economy and the gap between the actual performance and the frontier is called the distance score (DTF). The range of the score is 0 to 100, 0 indicating the lowest performance, and 100 indicating the frontier, that is, perfect ease for business in that topic management. The score for each of the 10 factors are consolidated to get the final DTF score and that yields the ranking (World Bank Group, 2018).
Revenue to the Government
From the table above, it can be found that, Australia has moderately good scores and ranks among the 190 countries. Being a developed and economically liberal country, Australia has enforced an easy environment for doing business. It has very good rankings in ‘Dealing with Construction Permits’, ‘Getting Credit’, ‘Starting a Business’, ‘Enforcing Contracts’ and ‘Resolving Insolvency’. In these topics, Australia has fared well among the 190 countries and in these factors; the business owners find ease of doing business. It ranks 26 in ‘Paying Taxes’, which can be considered as a good ranking among the 190 countries (World Bank Group, 2018). Hence, it can be said that, the regulatory environment of Australia provides good support in starting a business, getting constriction permits and necessary credit, enforcement of contracts and resolving insolvency.
On the hand, Australia has very poor ranks in ‘Trading across Borders’, ‘Protecting Minority Investors’, ‘Registering Property’, and ‘Getting Electricity’. Thus, it can be derived that, the business owners face quite high difficulty in international trading and moderate difficulty in protection of minority investors, property registration, and in getting adequate electricity connection (World Bank Group, 2018). All these are quite important factors for setting up a business and running that smoothly and the above mentioned topics are the concerned areas for getting the perfect ease of doing business in Australia.
Therefore, from the review of the reports and the DB ranks, it can be said that, Australia has a good score in overall ease of doing business. The economic policies of the country provide adequate support to the business industry to operate with ease. However, among the 10 topics, identified as parameters of ease of doing business, Australia has fared very well in some factors, while it fared moderately in others, the combined effect of which has positioned the country at the rank of 14 among the 190 countries.
References
Almahmoud, M. (2012). Reasons For Using Trade Barriers. Wordpress.com. Retrieved 16 March 2018, from https://almahmoudm.wordpress.com/2012/07/15/reasons-for-using-trade-barriers/
Barkauskas, V., Barkauskien?, K., & Jasinskas, E. (2015). Analysis of macro environmental factors influencing the development of rural tourism: Lithuanian case. Procedia-Social and Behavioral Sciences, 213, 167-172.
dfat.gov.au. (2018). Barriers to Australian Trade and Investment in Regional Comprehensive Economic Partnership (RCEP) Participating Countries. Department of Foreign Affairs and Trade. Retrieved 16 March 2018, from https://dfat.gov.au/trade/agreements/rcep/Pages/barriers-to-australian-trade-and-investment-in-regional-comprehensive-economic-partnership-rcep-participating-countries.aspx
dfat.gov.au. (2018). Economic diplomacy. Department of Foreign Affairs and Trade. Retrieved 16 March 2018, from https://dfat.gov.au/trade/economic-diplomacy/Pages/economic-diplomacy.aspx
Dunning, J. H. (2014). Economic Analysis and multinational enterprise. Routledge.
hktdc.com. (2017). Trade Regulations of Australia. Hong-kong-economy-research.hktdc.com. Retrieved 16 March 2018, from https://hong-kong-economy-research.hktdc.com/business-news/article/Small-Business-Resources/Trade-Regulations-of-Australia/sbr/en/1/1X000000/1X006MWA.htm
imf.org. (2018). Financial Position in the Fund for Australia as of February 28, 2018. Imf.org. Retrieved 16 March 2018, from https://www.imf.org/external/np/fin/tad/exfin2.aspx?memberKey1=40&date1key=2099-12-31
intelligenteconomist.com. (2017). Why Governments Are For Trade Barriers. Intelligent Economist. Retrieved 16 March 2018, from https://www.intelligenteconomist.com/5-reasons-governments-are-for-trade-barriers/
nordeatrade.com. (2018). The economic context of Australia – Economic and Political Overview. Nordeatrade.com. Retrieved 16 March 2018, from https://www.nordeatrade.com/en/explore-new-market/australia/economical-context
Treisman, D., & Di Lieto, G. (2017). Why Australia shouldn’t fear a wave of trade protectionism. The Conversation. Retrieved 16 March 2018, from https://theconversation.com/why-australia-shouldnt-fear-a-wave-of-trade-protectionism-86931
World Bank Group. (2018). Doing Business – Measuring Business Regulations – World Bank Group. Doingbusiness.org. Retrieved 16 March 2018, from https://www.doingbusiness.org/
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