Cultural Dimensions and Elements

The cultural dimensions of any country need to be analysed before any investment is made to function effectively in the region. Geert Hofstede is the seminal author with respect to defining the cultural factors present in an area. Despite the human ‘feeling,’ he insists that all people deep inside appear to be the same, we have to acknowledge the fact that they are not, because if one thinks that they will actually access the markets of another nation and make decisions in accordance with their home country’s cultural requirements, so it is extremely probable that the risk of making a bad decision (Hofstede, 2009). He identified five basic social factors that describe the facets of culture of each society (Hofstede. G; Hofstede. G J and Minkov, 2010):

• Power Distance Index (PDI)
• Individualism (IDV)
• Masculinity (MAS)
• Uncertainty Avoidance Index (UAI)
• Long-Term Orientation (LTO)

Power Distance Index (PDI)

This index tests the degree to which the less influential members of society, whether business or family, are prepared to recognise and therefore intend to be unequal in the institution’s power division. On a quantitative scale, PDI is a measure of inequality, but it is bottom-up and vice versa does not apply. It therefore appears to state that not only are the representatives endorsing injustice in a society, but the supporters still play a contributive function. Power and injustice are relevant social realities, and anyone who tends to work internationally must recognise that all economies are inherently unequal, but the degree of inequality ranges from region to region, impacting the corporate structure and planning alike.

Individualism (IDV)

In contrast to its polar opposite ‘collectivism’ in a society, this element may also be measures that relate to the level or degree to which individuals in a society are organised or unified in the form of communities, or in other words’ collective bodies ‘. The increasingly individualistic society, in one side, means that people are more concerned about their own self, and to some degree with the immediate family. The relations and links between individuals in such cultures appear to be loose, because they are only supposed to be accountable and responsible for themselves. Whereas, on the collectivist end, the people tend to be integrated into groups and cohesive ties from the time of their birth, it includes extended families, kinship ties, tribes etc. These associations protect each other for reciprocation of the same loyalty. This also extends to all nations of the world.

Masculinity (MAS)

            Masculinity, and its counterpart ‘femininity’ pertain to the allocation of roles to the genders, this again is another fundamental measure for cultural study, as many business decisions and solutions are dependant on it. It was observed in an IBM study that the women’s values around the globe have lesser variance as compared to men. While on the contrary, men’s values are observed to vary between the masculinity features of assertiveness and competitiveness, and the femininity features of modesty and care. Thereby, declaring the assertive side to be ‘masculine’ and the modest side to be ‘feminine’.

Uncertainty Avoidance Index (UAI)

            For a multinational company, this is one of the most significant factors for a global business, since it deals with the level of tolerance in a society towards uncertainty and ambiguity; it therefore indicates the extent to which the members of a particular community are attuned to feeling comfortable or otherwise in a situation of uncertainty and unforeseeable circumstances. The unstructured scenarios are not usual; they are surprising and novel, and hence unknown to the people facing them. The cultures which avoid uncertainty, and are aversive to unstructured situations, tend to have strict rules and regulations, they have in place laws and other safety and security measures which control and minimize such situations to the maximum extent possible. People of such nations are more emotional and sensitive, and they are more motivated by their inner nervous energies. On the contrary, the uncertainty accepting cultures are more tolerant with regards to differing opinions; hence they have fewer rules and laws which try to control the uncertain situations. People dwelling in such regions are not expected to express their emotions and are more phlegmatic and contemplative.

Long-Term Orientation (LTO)

            This is the fifth dimension which was discovered later by a study conducted on a sample of Chinese students, and it aimed to measure the virtue regardless of the truth. The LTO refers to the values and qualities of the people in a society, a highly LTO society incorporates values such as thrift and perseverance, while on the opposite side, a low LTO society, or a Short-term orientated society is associated with values such as respect for tradition, fulfillment of social duties and obligations, and protecting one’s reputation in the society. The philosophy of this index is rooted in Confucianism; however societies without a Confucian heritage also are subject to its affects.

Big Cultural Features and Aspects in Italy

            Italians have always supported a conventional form of hierarchical structure, they believe that the way of communication must be equal however, but it must not ignore the respect and veneration for the posts held by people in the hierarchy. Their hierarchical structure is developed in accordance with the traditional SpA model, which is categorized into three major forms- the Board of Directors, the Board of Statutory auditors, and the registered auditor or the auditing firm etc. An Italian society lays great emphasis on posts and statuses, and thus it must be kept in mind before conducting business in Italy that one must introduce themselves with certain titles in order to attain reverence in Italian business society. Their PDI score as nearly 45%, hence showing the great extent of acceptance of inequality by the lower posts holding officials, but the Italians ensure communication equality (Moran. T; Harris. P R and Moran. S V, 2007, 562-572; Hofstede, 2009; UHY International Limited, 2010; World Business Culture, 2011).

            Italians are naturally very individualistic in nature, and this is also substantiated by their high IDV score, about 80%. However, individualism here does not imply independence, it entails that they prefer to be recognized as individual entities rather than part of a group or association. Italians are very family-centered and relationship oriented, hence they tend to be extremely social and hate being alone, thereby having a lot of associations with groups and gatherings; however this does not change their preference of having individual identities. This urge for distinctness is visible through their attitude and behavior while communicating, for every Italian seeks for a turn to put forth his/her views on a subject, they would ignore any repetition of content as long as they get to speak, in order to hold up their individuality. Therefore, they are often perceived to be difficult to manage and work as a team.

            With regards to the Masculinity index, the Italians fall in the highly MAS zone, this could be attributed to their historical inclination towards being a male-dominated society, though the women in contemporary Italy are becoming increasingly involved in business and have attained prominence, they must not let go of their feminine side, they must not imitate men and yet also display strength and determination.

            Italians are highly competitive, pertaining to their way of dressing up and their lifestyle, they focus excessively on appearance and presentation, for Italians the appearance and presentation can make or break their business, acts such as arriving drunk at work, or looking slovenly, being unprepared for presentations and giving an impression that you haven’t put in effort into your work would make Italians perceive you as a careless person, and thus they would avoid doing business with you. However, this competitiveness is foregone when Italians have to choose between business and relationships; they focus on the development of Long term orientations rather than short term personal gains, even if they are losing out in the former orientation.

            Furthermore, Italy is regarded as a risk averse nation, they do not accept risky and uncertain situations with open arms, hence they try to ignore uncertain situations for as long as they have to, and for this reason they rank high in the UAI. In order to curb any development towards unstructured circumstances, the Italians have created and enacted thousands of laws to control the situations, they have a high number of corporate laws and startup steps which make it cumbersome to set up a new business in Italy especially of a foreign origin. Their business setups follow a very conventional procedure, and they also comprise of legal and statutory parts in an organization for the purpose of handling unstructured situations. Italians are of a deductive nature when it comes to private life, however when business dealings come into questions, they tend to be extremely practical, with lots of strategic planning, thus substantiating their high UAI score. Furthermore, Italians are aware of the fact that the system might not work at any given time, therefore they have developed an art of handling situations, which they try to avoid at maximum, but when facing an uncertain situation, they handle it with deliberate care and creatively create a solution, this is a quality of the Italians because it helps them to overcome their high UAI ranking.

            As mentioned earlier, Italians are very fond of developing relationships, which they mix in with their commerce life; hence they developed traditional and well-knitted networks which revolve around casual relationships. Italians tend to bring friends and family into their business network where they can, in order to increase trust and develop close ties within the business sphere.  They are very friendly and greet each other in an informal way; they would extend handshakes into hugs and often kiss on the cheek. Italians do not focus on privacy and thus have very limited private space, thereby engaging in lengthy conversations in which they can discuss trivial to complicated issues regardless of the level of secrecy required. Italians are very expressive with their opinions and emotions, and hence would speak out almost anything. However, Italians tend to remain silent where silence is required, and would rather say what the next person wants to hear in order to please them; this is a cultural tendency of the Italians (Moran. T; Harris. P R and Moran. S V, 2007, 562-572; Hofstede, 2009; UHY International Limited, 2010; World Business Culture, 2011).

Incorporation of Elements and Dimensions of Italian Culture in Local Business

            Italy is a nation geared towards family orientation, and the historical roots are deeply embedded in the family structure of governance of an organization, that is they value relationships and ties, which is also evident in their world of commerce. However, with increasing internationalization and the move towards modernization, as the Italian doors open towards the global market, the business community has become aware of the fact that it has to adapt to changes. They have integrated the traditional culture of Italy in their business in such a way that it does not become an obstacle in the path towards development; however, improvement is still required. Italians are competitive in their lives, hence when this competition, along with the Italian passion for art and creativity is incorporated into the business; the local business becomes innovative, competitive and efficient. Mergers and acquisitions will also achieve success and competition, which can be established through family ties and linkages, thereby making use of the nature of Italian culture to expand the business and strengthening the family orientation further in the business life (Giovanni, 2008, 35). Italians tend to conduct business with people they already know, because of uncertainty and lack of trust in others, and because they have a high reliance on their family and friendship ties. Businesses are usually family oriented, and there is loyalty towards family, and all reciprocate this favor. Italians have a taste for appearance and lifestyle; therefore, they dress well, arrive on time, prepare for presentations beforehand, and inform for meetings in advance, and they judge others on basis of appearance and presentation. Italians concentrate on hierarchy; therefore, they meet people at top posts of other organizations, and during meetings they exchange business cards which mentions their titles and family. Meetings are lengthy, and the communication is usually loud and expressive, the presentations are visually appealing since Italians are attracted by art and creativity. Speed and deadlines are not an important factor in Italy, since decisions are taken on a consultative business and outside the formal decorum, others in the social network are consulted due to trust and value of the Italian culture, and thus the proposals are analyzed in great detail. Italians exchange gifts in business; however company logos must not be used since that increases formality, and hence more casual gifts such as a good bottle of wine, chocolates, and flowers are exchanged (Expatfocus, 2011).

Comparison of Us and Italian Culture and Business

The Hofstede Analysis Comparison

The United States of America is one of the most globalized nations of the world; it is easy to compare the culture and business of the US with Italy due to the great quantity of research data and analysis available on these regions. Proceeding with the initial comparison of the two nations, the Hofstede analysis- Geert Hofstede’s analysis identifies that the American nation has a relatively lower PDI as compared to the world average of 55%; this shows that the people there are not willing to accept the inequality and hierarchy in institutions, whereas this index scored considerably higher for Italy. Americans usually refer to each other by their first names, to depict equality, whereas Italians prefer using titles, to show position in hierarchy. This indicates a greater level of equality, thereby a stable culture. The IDV scale is in line with the Italian culture dimensions, for US the IDV scores 43, which makes it one of the seven most individualistic societies of the world, Italy also ranks in these seven nations. Americans tend to be accountable and responsible for themselves only or very close family ties. In an American society, one’s position is determined by one’s achievements and not family ties, similarly Italians prefer to have a unique position, and they work in ties as long as it does not affect their personal identity. On the MAS scale the US scores high, showing that the society is geared towards a male personality characteristic holding society, where the female are also assertive and competitive, the Italian women are becoming increasingly involved in business and social life, however they maintain their feminine persona and do not imitate men as it is not appreciated in the respective region. Furthermore, the US ranks lower than the world average of 65% for the UAI, it stands at 46%, which shows that the country and business there is not risk averse, there are not many rules and regulations and therefore the culture shows that the people are tolerant and accepting towards different views and opinions, they are not afraid of uncertain situations and hence tend to manage if unstructured circumstances arise. However, it must not be ignored that in pragmatic terms, the Italians are more attuned to system failures, therefore despite their aversion for risk, they tend to handle novel situations remarkably, whereas Americans are not prone to system failures, however they do not try to excessively control the situations through laws and regulations. On the LTO index, the US ranks very low at 29, as compared to the world average of 45, this is because the Americans believe in speedy work and meeting obligations and deadlines at their earliest possible time, whereas Italians engage in lengthy consultative practices and analysis of the projects and proposals before reaching a conclusion, hence both nations again differ on this scale (Hofstede, 2009; UHY International Limited, 2010).

General Comparison in Business

            Americans are very open in their remarks, and they do not hesitate in saying ‘no’ or criticizing someone in public, whereas Italians on the contrary cannot bear insult and tend to answer in the affirmative as discusses earlier. Both the Italians and the Americans consider tardiness as a sign of disrespect for the person waiting, and hence they prefer punctuality over late arrivals. The formation of important partnerships is one important feature of Italian culture, both in private life and at workplace, and these relationships are used as networking ties to gain the maximum advantage for the business, however Americans are not very fond of establishing any personal ties at business and work, they keep their work professional, they have strict and crystal clear distinction between their work life and their social life, meetings are usually formal and short as compared to long Italian meetings which the Americans would consider ‘arguing’, therefore there is not enough time for relationship development. At meeting in a business, Americans tend to shake hands firmly to show sincerity, but they are very particular about their privacy and space therefore they do not prefer any other form of physical contact in a formal setup, which is quite contrary to the Italians who are known to have no ‘secrets’ or ‘privacy’. Furthermore, the Italians consider it a good ritual to exchange gifts, while the Americans usually deny any gift exchanges, and also set rules for the employees of their companies usually to not accept any gifts in formal setups (Gorrill, 2007; Moran. T; Harris. P R and Moran. S V, 2007, 562-572).

Prospective Sectors for Us Business in Italy

            In the year 2009, Italy has proven itself to be the 18^th largest market for US exports; furthermore the aggregate investment made by the United States of America in Italy was accumulated to be $31 billion. US tends to concentrate in areas where it has an advantage and where it can operate at a profit for the country, therefore it invests in the sectors of manufacturing, computer services and software, the energy sector and to some extent the Americans also develops industrial relationships in the aerospace industry and also the automotive sector (BuyUSA.gov, 2011, 2).

Implications for Us Businesses in Italy

            Italy is a market which must not be taken lightly, especially when the culture is so distinct and in contrast with the culture of the United States, the expatriates would be expected to undergo some cultural shock which comes with the settlement into a foreign nation with a different culture that the home culture of the employee. Furthermore, the Italian market provides a strong and resisting competition to the US investors and businesses, since they also have companies of other EU nations operating in the market, the EU nations are offered better packages to undertake business because they are a part of the trade agreement, hence US has to face competition. Italy is not as advanced as the United States, hence the lack of development reflects in the system which fails at certain times, therefore making the regulatory environment in Italy more complicated and lacking clarity and precision as compared to US. As discussed earlier, Italians tend to be tied in family ties, and their businesses are also relationship focuses, therefore they operate in the form of small and medium scale enterprises, which form 90% of the Italian market, hence provision of personal services from fellow Italians are preferred by the people of the nation, thereby giving a hard time to the foreign Americans operating in the region. There are also positive implications for the US, especially in the form of opportunities. Due to EU regulations, new markets open up in Italy, which have no domestic suppliers, hence developing a market gap which could be catered for by the American businesses; hence this is an opportunity for expansion in Italy under EU regulations. The US can succeed in the Italian market by cultivation and maintenance of personal ties, which forms a very fundamental part of the Italian culture, hence searching for the right agent, distributor and partner is significant to success probability, it is not feasible to rely on an agent or distributor from neighboring regions because despite the interference of the EU in the local market, Italy usually maintains its own individual market positioning. The perfect candidate should have existing ties in the Italian market which could be reaped; they must have a substantial know-how of the Italian practices, laws, rules and regulations since it has many state laws in place. The reliance on traditional transaction methods must be adapted, since Italians do not trust the online system due to excessive credit frauds and untrustworthy postal systems (BuyUSA.gov, 2011, 2-3). In the year 2010, the US firms faced major problems while establishing business in the Italian region, this was because of the lengthy and arbitrary way of the common authorities of interpreting and imposing tax laws applicable to the foreign investors, which focused in particular on rules on transfer pricing, of the MNCs (Multi National Corporations)’s dealings with the Italian subsidiaries. In 2010, some United States investors also faced lawsuits; these were brought on them by the local Italian government and at times the independent prosecutors as well, which accused the American businesses of fraudulent transactions between the state bodies and the banks. Furthermore, the online system became a hassle, as the internet content providers continuously fought against the local Italian authorities who held the individual firms responsible for any or all data uploaded on the sites by individuals, on social media websites or community sites, thereby making internet usage another problem. The most cumbersome feature of the entire problematic structure of investment in the Italian region by the US was the lengthy GOI process which had to be undertaken in order to attain visas for the key employees of the business, and on top of all this, the country’s digital infrastructure remained far behind and lagged the efficiency required by the advanced businesses of the US. Hence, despite the openness of the Italian region towards the Foreign Direct Investment (FDI) coming into the nation, these minute details became problematic for businesses to operate, alongside the major differences in the cultural environment which had to be integrated into the business culture in order to succeed and avoid any possible cultural setbacks (BuyUSA.gov, 2011, 96-98).

Conclusion

            Italy is a nation with a distinct culture, it is traditionalistic and upholds its legacy and culture despite modernizing its economy, hence in order to compete in the advanced and fast paced world of the 21^st century, it must globalize itself in way that it becomes more adaptive towards foreign investments rather than driving them away due to cumbersome procedures. However, this aim of betterment towards incorporating foreign investment must not compromise on the Italian legacy which is rich in traditional values and the historical Italian culture. This paper analyzed significant aspects of cultural dimensions, with the focus being the nation of Italy. The dimensions of culture and different general elements of culture such as communication, ethics, values, attitudes, customs and manners etc., were taken into account. Furthermore, the cultural dimensions were explained in line with the Hofstede analysis, which analyzed the nation of Italy and US on five scales: PDI, IDV, MAS, UAI and LTO. The comparison substantiated that the Italian and American culture are in stark contrast, hence in order for US investors to succeed in the local Italian market, the integration of culture becomes necessary. The cultural integration into business by the locals was also explained, which provided a basis of how the US investors should also move in line with the local Italians in order to succeed in the Italian market. Therefore, it is not impossible for a business to operate in another nation on a global level if it takes into account the cultural perspective, and rightfully applies the concept of cultural integration to the organization.

On the other hand, Prasad (2003) notes that the support of globalisation to international businesses could have various forms. More specifically, it is noted that globalisation can support international business both directly and indirectly; in the context of its direct support to international business, globalisation could provide to international firms access to all markets worldwide. Indirectly also, globalisation could help the firms to develop effective strategic plans – which, in the long term are expected to help towards the improvement of the position of these firms towards its competitors. Another indirect benefit of globalisation to international business would be the support of local markets – targeted markets; reference can be made particularly to the support of the economy of developing countries, as this support could positively influence the ability of the public to acquire the products/ services of the specific firm (Prasad 2003). From a similar point of view, globalisation can help to the improvement of strategic choices of international businesses – this improvement would result to the increase of these firms’ potentials to increase their profits or to expand geographically; the above target could be achieved in the following way: leaders of international firms are educated on the needs and the potentials of the global market (Parhizgar 16). In this way, the skills of leaders to identify the potential chances of the global market are increased; this increase would result to the alignment of business strategies with the demands of the global market – thus, the power of the firm in the international market is improved. Moreover, international firms that aim to support their operations and increase their profitability have to be appropriately prepared (Parhizgar 16); the most important phase of their preparation would involve in the evaluation of their value systems and the introduction of policies that best serve and support the specific systems. In accordance with the above view, globalisation would help international businesses not only to increase their customer base but also to improve their strategies; in the long term, this trend would be particularly important allowing for a stable and continuous growth.

From a similar point of view, globalisation could support the stable development of businesses within a particular market, through the following perspective: through globalisation the industrialization of a country would be promoted – by supporting business initiatives that can be developed using existing resources (Justin 7). In this way, the potential markets for the products/ services of international firms are increased. However, it is important that local culture is respected and that the efforts to change the characteristics of local economy would be effectively controlled – as of their appropriateness and their necessity. In any case, Justin (7) makes clear that appropriate restructuring of the firm’s operational activities should follow the expansions of businesses geographically. At the next level, the firm’s strategies should be reviewed; the above task is considered as necessary since the benefits of globalisation are likely to last for a specific – short – period of time; for achieving long-term benefits through globalisation, firms would need to employ two different strategies: a quality strategy and an appropriately customized development strategy (Justin 7). In this way, globalisation would participate in the achievement of long-term benefits, which would support more, effectively the firm’s performance in periods of crisis – like the current one.

In accordance with Nande & Dias, globalisation can support the growth of international business through the following methods: a) in order to respond to its increased needs, an international firm is expected to employ large-scale production methods; it can also hire staff with advanced technical skills; in this way, the specific firm will be able to use its resources more effectively, b) after entering the global market, a firm can spread its risk of loss; by spreading the risk of losses between the local and the global market, a firm can ensure the allocation of funds required for the firm’s operations in the domestic market, in fact the payment of all the firm’s obligations (costs, compensation etc.) in the local market can be made by using the profits gathered in the international market, c) it is easier for international firms to achieve their ‘profit objective’ (Nande & Dias 211), d) the provision from the government to the firms of incentives in order for the latter to expand their activities locally; in the context of these incentives, a firm can be offered significant tax benefits – which would not have offered if the firm was not global, e) the entrance of a firm in the global market – and the development of its operations in this area – would lead to the improvement of quality of goods/ services and the increase of innovation across the organization – aiming to beat the rivals in the global market, f) overall, since its entrance in the global market, a firm is expected to improve its competitiveness, i.e. its power to compete its rivals, g) after entering the global market, the brand name of the firm is, usually, highly benefited; however, the relevant results/ benefits may not last for a lot.

The literature presented above proves that globalisation can have a decisive role in the growth of international businesses; however, its role is not always equally important; moreover, the appearance of delays and barriers during the efforts of a firms to enter or to establish its position in the global market cannot decrease the value of global market. On the other hand, the lack of effective measures when operating globally can lead a business to severe failures (Ali 2000). Globalisation can be a framework through which the growth of international businesses can be achieved but measures should be taken in advance so that the relevant risks are minimized.

Geography

Australia is an island continent, lying between the Pacific and Indian oceans and neighboring with Indonesia, Papua New Guinea, East Timor, the Solomon Islands, New Caledonia, Vanuatu and New Zealand. The capital city of Australia is Canberra; two other largest cities are Melbourne and Sydney (Australian Government, Department of Foreign Affairs 2010). Australia is broken into six states and two territories, which include: Queensland, New South Wales, Victoria, South Australia, Tasmania, Western Australia, and the Northern territory and Australian Capital Territory. The rival states of New South Wales and Victoria form the core of Australia’s economy as the nations’ financial and service industries is located in these areas. However it should be noticed that with over 2.9 million square miles, Australia is nearly as large in area as the lower 48 states of the Continental US (Nolan, 1996).

Demography

Australia has a great number of its native plants, unique birds and animals (Australian Government, Department of Foreign Affairs 2010). Comprising the 10 per cent of the world’s biodiversity, Australia is committed to conserving its natural heritage and unique environment (Australian Government, Department of Foreign Affairs 2010). For this purposes, there is adopted a range of protection procedures, such as World Heritage listings, wildlife sanctuaries and national parks (Australian Government, Department of Foreign Affairs 2010). Australia is a multicultural society which includes Torres Strait Islander and Aboriginal peoples and migrants from almost all over the world (Australian Government, Department of Foreign Affairs 2010). An official language in Australia is considered to be English; however many Australians prefer to speak a language at home other than English (Australian Government, Department of Foreign Affairs 2010).

Environment

The international business climate is perceived, according to Aswathappa (2010), to be the cumulative total of all the external factors operating on the organisation as it interacts with its global and domestic markets.It is further mentioned that environments can be further classified into domestic, foreign and international spheres.

Figure 1: Environment of International Business

Source: Aswathappa (2010)

Australia has a phenomenal array of life types that are exceptional relative to the rest of the planet, representing its social political values and refugees through its vibrant society and lifestyle. Their behavior is mostly informal socially and in their relationship with their colleagues (Felsers, 2010).

The environment for international business is conceived as the interaction between domestic and foreign factors and revolves around political legal, economic, cultural and technological groups. These are also the risk factors like commercial risk, cross cultural risks, currency and country risk, both of which must be tackled before investing the country (Cavusgil, et al n.d.)

Cultural Environment

Culture is a great asset possessed by most of the organizations. According to Elbert W Steward and James A Glynn “culture consists of the thought and behavioral patterns that member of a society learn through language and other forms of symbolic interaction”. Most foreign companies take place within the political limits of nation – state and as such the dominant culture has the greatest impact on international business. Culture acts a barrier to mergers and acquisition and it serves as a control mechanism that shapes performance of employees, promotes innovation, energizes people in the company to do their job, and it provides members and members with a sense of belonging, enhances their commitment to their organization (Aswathappa, 2010). Cultural environment is an important factor considered by most of the companies in their action plan to decide whether to invest in the country.

Understanding the Australian market atmosphere in a business deal will alleviate stress and make it profitable and fun for all business parties (Nolan 1996). International businesspeople, dealing with an Australian counterpart, commonly experience cultural differences. The following discussion is designed to provide brief analysis of the cultural environment in Australia.

            The business style of the average Australian businessperson can be described as direct, optimistic and informal (Nolan 1996). These people are very flexible; they are often able to reach compromises in business (Nolan 1996). Additionally, the Australian business culture is highly correlated with ethics. Even though bribery, underhanded dealings, under-the-table payments and other types of corruption do happen, it is neither culturally nor commonly accepted practice (Nolan 1996). Thus, the international businesspeople, coming from the countries where corruption is a common deal (for example, Post-Soviet Union countries: Russia, Ukraine, etc.) risk to loss the deal, to cause a scandal and/or to arouse legal action if the do not know the basic cultural principles of Aussies (Nolan 1996).

Nolan (1996, p. 139) states that “direct communication is highly valued in the Australian business community at all times, regardless of the situation surrounding a discussion; thus the Australian people take pride in saying what they mean and meaning what they say, and they expect the same of others”. Therefore, the businesspeople, whose words have varying meanings depending on a situation, should take into account the directness of Australians in order to avoid misunderstandings (Nolan 1996). Most people in Australia prefer informal style of communication, viewing formality as something absolutely burdensome and artificial (Nolan 1996). An overriding goal of the preferred informal communication is to make everyone feel comfortable (Nolan 1996). Thus, foreign business people should be prepared for abandoning established procedures, moving immediately to the use of first names among negotiating parties, or choosing not to dress to show power and wealth (Nolan 1996, p.139). Despite gender, race, age, class, income or business category, all people are treated in the same professional and civil manner in Australia (Nolan 1996).

Australian businesspeople expect that international visitors will be cordial, polite and knowledgeable about business (Nolan 1996). They expect that their foreign partners will be similarly oriented as they are, namely, concerned about profits, results, fairness and collegiality (Nolan 1996). Nolan (1996, p.140) explains that before doing business, Australians want to be “mates”. Thus, to receive the best response from Australian partners, international business people are advised to treat them in a friendly and respectful manner (Nolan 1996). Even though Australians have little cultural experience with bargaining, they tend to deal the view of their own interests (Nolan 1996).

Another essential cultural feature of Australians is their great focus on time management (Nolan 1996). Australia’s corporate activities and appointments arrive on schedule, and lateness can be used as an incredibly detrimental symbol (Nolan 1996, p.144).

Political and Legal Environment

The political environment refers to the effect on foreign business of the structure of government and judiciary in a country. The style and system of government prevalent in a nation determines, supports, facilitates, encourages, shelters, guides and regulates the country’s business. This is one of the risk factor which corporate organizations face when they conduct business with the outside world. Political risk is any government action or politically motivated event that could adversely affect the long term profitability and value of a firm.  

Australia has democratic stability and a regional government structure of responsibilities that are normally divided between the federal government and state governments, both of which are ruled by elected parliaments(Feslers, 2010). Open, stable, and progressive political and legal environment of Australia attracts many international investors due its high degree of certainty and confidence (Australian Government, Department of Foreign Affairs and Trade, n.d.). Legal framework in Australia is efficient and transparent and corruption levels are very low comparing with the global indexes (Australian Government, Department of Foreign Affairs and Trade, n.d.). Australian legal system is developed from British Law with courts at both Commonwealth as well as States. The law enforcement responsibilities are shared between federal and state police forces. The legal system permits the acts to be passed by the federal parliament (Feslers, 2010). All these achievements are related to a strong system of checks and balances, and a highly respected law enforcement and judicial system (Australian Government, Department of Foreign Affairs and Trade, n.d.). Australian government offers full support with friendly foreign investment policy and has constituted Foreign Investment Review Board in 1976 to advise the Treasury and the government. The approach of government towards foreign investment policy is to encourage foreign investment consistent with community interests The FDI proposals are reviewed by FIRB and comments are sought from the government officials on large proposals whereas smaller proposals are exempted from Foreign Acquisitions and Takeovers Regulations 1989. The policy lays down various rules and regulations related to various service and industrial sector facilitating FDI as well as economic growth.  (www.firb.gov.au).

The Ease of Doing Business in Australia

According to the World Bank’s ranking on the ease of doing business, Australia takes the 10^th position out of 183 possible (The World Bank 2010). Additional, the World Bank evaluates the country’s global position through such indicators: starting business, dealing with Construction Permits, registering property, getting credit, protecting investors, paying taxes, trading across boarders, enforcing contracts and closing a business (The World Bank 2010). Thus, for example, for starting business in Australia: it is required to complete 2 procedures; it takes only 2 days; and it costs only 0.7 % of income per capita (The World Bank 2010). For registering property, it is necessary to complete 5 procedures, and to spend 5 days for this operation (The World Bank 2010). Taxation issues are not as attractive for international businesspeople as in some other countries, because tax payers are required to pay taxes 11 times per year; these procedures require in total 109 hours per year; the profit tax is 25,9%; labor tax and contributions equal to 20,7%; the total tax rate (% profit) exceeds 47,9% (The World Bank 2010, p. 3).

The World Bank Report 2010

Table 1. Australia’s ranking in doing business 2011

(Source: The World Bank 2010)

Government Policies on International Trade, Direction and Terms of Trade, Attractiveness as a Site for Foreign Direct Investment  

The foreign investment strategy of Australia promotes FDIs that are compliant with community priorities and are necessary to register and receive FIRB approval in some categories, such as new venture idea, investment in sensitive industries, purchase of properties and securities, and real estate (Feslers, 2010). Australian government welcomes foreign investments as it has helped built its economy and brings jobs and encourages innovation. The Foreign Investment Review Framework provides the policy and legislation comprising FATA acts which is the legislative framework for screening regime. The framework states that all foreign governments and their related entities can apply for FDI in the country. However the policy is quite liberal of US investors, with regard to monetary threshold, as $231 million applies in prescribed in sensitive sectors and $1005 million in other sectors thus encouraging US investment which is exhibited in Table 4. The decisions pertaining to the proposals are made in 30 days under the FATA which can be further extended upto 90 days by the Treasurer and considers application within the national interest, national security, other Australian government policies, impact on the economy and character of the investor (www.treasurer.gov.au).

            Foreign Investment Review Board (FIRB) was established in 1976 to look into the proceedings of the foreign investment proposals. According to Australian Bureau of Statistics (ABS), the stock of foreign investment in Australia at the end of December 2009 was $1,927.7 billion, an increase of $124.6 billion as compared to December 2008. The following graph shows that United States is the single largest source of inward as well as outward FDI followed by EU and UK.

Figure 2:- Level of FDIs by country

Source: www.firb.gov.au

            The following figure shows Australia remains a net importer of capital even in times of global recession which is more that it’s FDI abroad. (Fig.3)

Figure 3: Foreign investment flows 2004-05 to 2008-09

Source: www.firb.gov.au

As per the most recent study revealed by the FIRB, it is clear that Australian government has put forth a friendly policy for FDIs which is shown below in Table 2 wherein the agency approved 5352 proposals out of 5821 in the year 2008-09 as compared to 8548 in 2007-08 (lower by 32%).    

Table 2: Applications considered for the period from 2003-04 to 2008-09

Source: www.firb.gov.au

            The following graph (Fig.4) shows that majority of the investments were above $1 million followed by $100 million and $5 billion investments, thus making it clear that Australia is a destination to do large scale business.

Figure 4: Total approvals by value 2005‑06 to 2008‑09 — number of proposals

Source: firb.gov.au

            Though majority of the investments were above $1 million, it is pertinent to mention here that most of the proposals were accepted in the mining and service sector followed by finance and manufacturing sector giving an indication that Australia is the hot destination for service oriented firms and is hotbed for mining industries with 50% of proposed investments made in the mining industry which is shown in the diagram (Fig.5).

Table 3: Total approvals by industry sector in 2008‑09

Source: www.firb.gov.au

Fig 5: Total approvals by value by industry sector in 2008‑09 — proposed investment

Source: www.firb.gov.au

            As shown above in Fig.2, United States is the major source of income through FDIs for Australian government. According to FIRB, 95 proposals of United States were approved with major investment in service sector amounting to $16,094 million and $19,798 million in mining sector. However China was the major investor in mining sector with $26254 million out of its total investment of $26599 in Australia. Japan made majority of its investment in mining sector while United Kingdom had invested $4336 million in finance sector. Out of the total investment of $166,709 million made in Australia during the year 2008-09, $90622 million was invested in mining sector followed by services sector. The detailed table presented below shows that Australia is a great nation to make future investments.

Table 4: Approvals by country of the investor in 2008‑09 — industry sector

Source: www.firb.gov.au

            The Foreign Investment Policy of Australia also provides certain grants and incentives in form of tax deduction to investments made in scientific research and local manufacturing units, reduced rate of payroll taxes. The policy encourages export activities by providing various grants and tax rebates, incentives for developing RHQs in Australia. As such, Australia is ranked 10^th by World Bank for foreign investors and ranked 2^nd for starting a new business (World Bank, 2010).

Risk Factors

            The Department and Foreign Affairs and Trade, Austrade & Export Finance and Insurance Corporation (EFIC) monitor the affects of political changes on Australian businesses and EFIC provides political risk insurance to help mitigate these risks which is an added advantage to the foreign investors and a kind of cooperation extended by the Australian government towards them. As the foreign investments are regulated under FATA and FIRB, differences in laws are expected and can affect the import procedures, taxation, employment practices, currency dealings, property rights, the protection of intellectual property, etc. However Austrade’s overseas offices provide assistance by recommending lawyers to tackle the issue (Australian Govt., Austrade). Australia in a Country Risk Tier (CRT) 1 region with very low levels of risk to the economic, political and financial environment and 18 years of continuous economic growth, according to the AMB Country Risk Survey (2010).

Participation in Cross-National Cooperation and Agreements, Regional Trading Blocks, FTAs and Other Forms of International Economic Integration

Australia’s international economic integration has been driven by the country’s participation in cross-national cooperation and agreements, regional trading blocks and Free Trade Areas.

• The Organization for Economic Co-Operation and Development (OECD)

OECD is the main forum for monitoring and evaluating economic trend and developments in its 34 member countries (Australian Government, Department of Foreign Affairs and Trade, n.d.). Australia is one of the OECD member countries. Thus, the Australian membership of the OECD suggests the fundamental benefits of liberal democracy and free markets in improving the economic and social well-being of the country’s citizens (Australian Government, Department of Foreign Affairs and Trade, n.d.).

• Association of Southeast Asian Nations (ASEAN)

The Association of Southeast Asian Nations (ASEAN) is aimed at accelerating economic growth, cultural development and social progress in the region (Australian Government, Department of Foreign Affairs and Trade, n.d.). Australia is the ASEAN first Dialogue Partner, and has a longstanding relationship with this organization (Australian Government, Department of Foreign Affairs and Trade, n.d.).

• The Association of Southeast Asian Nations –Australia–New Zealand Free Trade Area (AANZFTA)

The Association of Southeast Asian Nations –Australia–New Zealand Free Trade Area (AANZFTA) is considered to be the largest Free Trade Agreement that Australia has concluded (Australian Government, Department of Foreign Affairs and Trade, n.d.). According to the Australian Department of Foreign Affairs and Trade (n.d.), ASEAN together with New Zealand account for 20% of Australia’s total trade on goods and services.  AANZFTA provides commercially meaningful benefits through substantial tariff reduction and elimination commitments (Australian Government, Department of Foreign Affairs and Trade, n.d.).

• East Asian Summit

The East Asian Summit (EAS) is an important regional grouping which it plays a major role in fostering stronger political integration and collaboration in East Asia (Australian Government, Department of Foreign Affairs and Trade, n.d.). Membership of the EAS comprises 16 countries, including Australia (Australian Government, Department of Foreign Affairs and Trade, n.d.).

• The Australia-United States Free Trade Agreement (AUSFTA)

AUSFTA is an agreement between the United States and Australia, which covers goods, services, government procurement, investment, telecommunications, e-commerce, intellectual property rights, competition related matters, standards and technical regulations, labor and the environment (Australian Government, Department of Foreign Affairs and Trade, n.d.).

• The Thailand-Australia Free Trade Agreement (TAFTA)

The Thailand-Australia Free Trade Agreement (TAFTA) contains commitments to undertake inbuilt agenda negotiations on government procurement, services, business mobility, investment and competition (Australian Government, Department of Foreign Affairs and Trade, n.d.). Australian business is encouraged by the notable benefits and opportunities created by TAFTA (Australian Government, Department of Foreign Affairs and Trade, n.d.). Thus, for example, Thailand eliminated its tariffs significantly, and plans to phase all remaining tariffs to zero in the next 10-15 years (Australian Government, Department of Foreign Affairs and Trade, n.d.).

• The Singapore-Australia Free Trade Agreement (SAFTA)

The Singapore-Australia Free Trade Agreement (SAFTA) is an agreement aimed at strengthening trade and investment links between Singapore and Australia (Australian Government, Department of Foreign Affairs and Trade, n.d.). The agreement eliminates tariffs, improves increased market access for Australian exporters of services and provides a more open and predictable business environment across different areas, including intellectual property, competition policy, e-commerce, government procurement, business travel and customs procedures (Australian Government, Department of Foreign Affairs and Trade, n.d.).

• The Australia-Chile Free Trade Agreement (FTA)

The Australia – Chile Free Trade Agreement is a significant market opening agreement for Australia. According to the Australian Government, Department of Foreign Affairs and Trade, it will reduce tariffs on 97% of goods currently traded (Australian Government, Department of Foreign Affairs and Trade, n.d.). Additionally, the tariffs on all existing merchandise trade between Chile and Australia will be eliminated by 2015 (Australian Government, Department of Foreign Affairs and Trade, n.d.). Additionally, Australia is a member of the World Trade Organization, the Cairns Group, and the Asian-Pacific Economic Cooperation (Australian Government, Department of Foreign Affairs and Trade, n.d.).

Conclusion

Australia is one of the best places for international business as it has created incentives to entice foreign investors providing opportunities in the areas of industrial and infrastructure development. Australian financial services are among the most competitive and sophisticated which is added advantage to the companies investing in the country. Moreover, the island of Australia is strategically positioned as a perfect intermediary for trade between Asia and the rest of the world convenient to shipping routes as well as airways. It is both a potential source for those seeking suppliers worldwide and a prime location from which to serve the rapidly growing Asian market. Human resource is important tool for any organization in order to achieve success in its endeavor, Australia has great human resource, skilled and well educated, and many of whom can speak one or more Asian languages, thus making it prime location for regional operating headquarters (Nolan,1996). Thus Australia is one of the hot destinations to make investment in view of its demography and socio economic ability offering good market.