Foreign Market Entry Strategies: With Emphasis on Australian Market

Nikhil Mogha

11 Oct, 2022

Australia possess a competitive advantage in the production activities and process of primary products due to abundant natural resources coupled with world-class transport services and telecommunications facilities. The country is an attractive destination for foreign companies to invest their capital. Australia has signed free trade agreements^[1] with New Zealand, Singapore, the U.S, Thailand, Chile, Korea and many more countries. Any overseas company willing to invest in the country will benefit from the arrangement of duty-free agreements with other countries and help freely export goods. The foreign market entry strategies of a company willing to enter the Australian market shall be framed in such a way that it will enable them to have efficient and effective control over the customer base and aims to have a smooth regulatory process with authority.

There are several ways to enter the Australian market by a foreign company; hence, it is on the company to decide which way to opt before entering the market, along with calculating their merits and demerits. A company’s foreign market entry strategies shall also include legal, regulatory, accounting and taxation standards. It is pertinent that foreign company shall determine in advance what type of business activity they want to pursue in the near future in the Australian market.

What are Foreign Market Entry Strategies?

When an entrepreneur wishes to open an organisation in a foreign market,they have a variety of options. A company willing to operate in a foreign market has to face a lot of competition andregulatory issues in operating their business in an alien country. Moreover, the extra cost incurred during the company’s establishment must be evaluated to avoid future risks and determine whether the business will be profitable. Hence,the marketentry strategy would be as such to protect the business from outside risks, and at the same time making the business fortuitous. The foreign market entry strategies shall be held in two ways:

1. Direct Strategy

The direct strategy will include direct contact with the market. By eliminating the intermediaries, the company can more efficiently operate their business plan in the foreign market. The company can effectively increase by coming in direct contact with the customers and providing them with more options with competitive pricing. If a companyopts to set up a company in a foreign market, it shall choose its foreign market entry strategies more efficiently and consider operational needs such as:

1. Access to Customer
2. Workforce requirement
3. Location and Infrastructure
4. Accessibility and cost of raw materials
5. Cost of Warehouse

2. Indirect Strategy

An indirect strategy will include appointing a third-party agent who will handle all the business operations and regulatory compliance on behalf of the company. The third-party agent acts as an intermediary and sells products and services through a partnering relationship. A new company willing to enter the foreign market could appoint a third-party operator, which would help them to raise experienced staff and helps in quickly accessing the resources. Moreover, the operators may use quantifiable techniques to judge the market condition and frame effective foreign market entry strategies that will help the company in tailoring its business plan according to the needs of the foreign market.

What types of business structures are available to foreign companies in Australia?

The registration of a company in Australia is handled by the Australian Securities and Investments Commission. One of the primary aspects of foreign market entry strategies is the incorporation of acompany. The country offers various business structures to foreign companies, including:

1. Sole proprietorship

A foreign entity willing to enter the Australian market can register as a sole proprietorship firm. A sole proprietorship is the cheapest and viable form of business structure where the person has exclusive control over the affairs of the company, and the individual shall be legally responsible for all aspects including the liability of the business. This is a preferred business structure for opening trading and small scale business activities.

2. Public Companies

A foreign company willing to enter the Australian market can register as a public limited company. The company can raise capital from the public by issuing shares in the market. The company registered as a public limited company must appoint atleast 3 directors and 1 secretary, of which 2 directors shall be residents of Australia.

3. Partnership

A foreign entity willing to enter the Australian market can register as a Partnership firm. The type of business is generally adopted by accountancy and law firms. The company registeredas a partnership firm shall have one partner who is resident in Australia. The tax shall be calculated on the income earned by the partners individually; however, if the annual turnover is more than AUD 75, 000, then then it is mandatory for the partnership firm to get GST registration.

4. Proprietary Limited company

Any foreign entity willing to enter the Australian market can register itself as a proprietary limited company. The proprietary limited company is similar to a private limited company and is regarded as the best business structure for foreign companies.These companies are generally owned by foreign entities as the company can be set up without local shareholders. Further, the company shall register for Goods and Service Tax if its annual turnover exceeds AUD 75 000.

5. Trust

A foreign company willing to enter the Australian market can register as Trust. The Trust is not considered a separate legal entity in Australia and is refrained from paying tax. Any income generated by the Trust is distributed between beneficiaries, and each beneficiary pays tax according to their part. Moreover, the Trust is established by a deed and not registeredwith the ASIC. Further, the trust t shall be established in Australian land and shall have an Australian-registered phone number.

6. Acquiring an Existing Australian Company

Foreign companies willing to enter the Australian market can acquire an existing Australian company. The foreign company can acquire all or partial shares of the company. The company shall adhere to the Australian foreign Investment framework while acquiring the foreign company. The framework is managed by the Foreign Investment Review Board and requires foreign entities to obtain approval before acquiring any inters in the Australian firm.

7. Joint Venture

The foreign company willing to enter the Australian market can enter into a joint venture agreement with the Australian company. The agreement and law of contracts govern the joint venture.

What are the steps in the Market Entry Strategies of a Foreign Company before entering the Australian market?

The company willingto enter the Australian market shall frame its foreign market entry strategies in such a way so that if any future risk arises, they are fully ready to counter those risks. Hence, below mentioned are steps that a company shall adopt before entering the Australian market:

Step 1: Market Research

The company willing to enter the Australian market shall conduct market research. They should be calculated and evaluate all the possible outcomes of their products and services in the market. This means collecting the data on:

1. Availability of resources
2. Availability of raw materials for the production of products or services
3. Competition in the market
4. Similar options are available in the market in relation to the products or services.
5. Suitability of location

Step 2: Making a Business plan

After conducting market research, the company shall frame a detailed business plan in their foreign market entry strategies, keeping the latest trends in the Australian market. The business plan shall include the products and services, futures risks, governance structures, type of company, solutions to counter the future risks, taxability, etc. A good business plan will help the company raise capital and help them adjust according to the current business environment.

Step 3: Company Registration in Australia

One of the critical aspects of foreign market entry strategies is the company’s registration. The company shall be registered after the shareholders or investors approve the business plan. They can choose from many options and apply by making an application with the ASIC along with submitting the requisite documents. The applicant can choose the business structures according to the business plan and shall opt for a different taxation system.

Step 4: Setting up Registered Office

After registration of the company, the company shall choose a registered office through which they will operate their business.It is required for a foreign company operating in the Australian market to have a registered branch in the country. It is required that the subsidiary company willing to enter the Australian market shall also have a branch office in the country to communicate directly by the authority.

Step 5: Appointment of Key Personnel

The company shall appoint key managerial personnel who shall handle all the legal operations, business activity, and regulatory compliance with the Australian authorities. The number of key managerial personnel’s different for different business structures. Hence, the company shall carefully choose the business structures in their foreign market entry strategies before entering the Australian market.

Conclusion

Australia is a country full of opportunities. It offers diverse business structures and a free market where competition is fairly managed between the entities. Given the advantage of its location and rich natural resources, the country offers a dynamic environment for foreign companies. The country is digitally advanced and offers reliable transportation facilities. The rules and regulations are framed to provide foreign companies to operate freely in the market and have access to a large number of countries by way of free trade agreements. Therefore, the foreign company shall frame foreign market entry strategies bests suited to their needs before entering the Australian market.

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