Benefits and Challenges of Expanding to Australia
If your company is considering international growth, Australia could be an excellent destination. Its robust economy and straightforward business practices make establishing an office accessible for most employers. The country’s highly skilled and educated population also provides a diverse pool of qualified candidates to recruit.
However, as with any international venture, you’ll encounter unique challenges when executing an Australian expansion. Complicated regulations and obscure tax processes can make navigating the waters of employment difficult for individuals unfamiliar with local laws. Weighing the advantages and disadvantages of doing business in Australia can help you decide whether it’s the right move for your company.
Reasons to expand to Australia
There are many benefits of doing business in Australia. The country is rich in natural resources, especially metals like uranium, iron ore, and gold. In particular, iron ore was the first Australian export to reach 100 billion Australian dollars in annual export value. Its top sectors are mining, agriculture, and services, and critical areas of potential growth include renewable energy, technologies, and health and aged care.
Here are the top five reasons you should expand your company to Australia:
1. Ease of doing business
The World Bank’s Doing Business 2020 survey placed Australia at 14th in ease of doing business and the 7th easiest country to start a business in. On average, it takes about two days for the Australian Securities and Investments Commission (ASIC) to approve a company for registration. There’s also no minimum paid-in capital requirement, making it easy for entrepreneurs to enter the market.
Australia allows four different business structures:
- Sole trader: One person is the exclusive owner of the business.
- Partnerships: Two or more parties own and manage the company.
- Companies: The firm has a complex hierarchical structure and is a separate legal entity from its owners.
- Trusts: An entity acts on someone else’s behalf with the ultimate goal to transfer assets to its beneficiaries.
Additionally, getting credit is a simple process in Australia. The country ranked 4th in the world for ease of getting credit, which is evident in its strength of legal rights index score. The World Bank gave the nation an 11 out of 12, meaning its laws are almost perfect in terms of their ability to protect the rights of borrowers and lenders.
2. Diverse and skilled workforce
According to the Australian Bureau of Statistics (ABS), 63 percent of Australians aged 15-64 have one non-school qualification, which is an educational achievement obtained beyond elementary and secondary school settings. This qualification can be a degree, certificate or advanced diploma.
Among them, 83 percent have qualifications that are relevant to their job, and around 24 percent have more than one non-school qualification. More specifically, 31 percent of Australians have attained non-school qualifications of a bachelor’s degree or above.
Therefore, it’s not surprising that Australia is home to some of the world’s most prestigious higher education institutions — eight Australian universities made it on the U.S. News Top 100 rankings for 2022. Science, technology, engineering, and mathematics (STEM) sectors are especially promising in Australia, with space science, clinical medicine, and computer science paving the way for future innovations.
While Australia has no official language, most of its citizens speak English. But because one out of five Australians is born overseas, many people speak other languages, including Arabic, Mandarin, Cantonese, Greek, and Vietnamese.
3. Strong economic growth rate
Australia is an excellent place for your company to tap into a healthy, growing economy. Covid-19 sparked the first recession Australia has experienced in 29 years, but the economy has proven resilient, bouncing back with a GDP growth of 4.54 percent in 2021. With restrictions slowly easing thanks to increasing vaccination rates, the Australian economy is bound to grow even more in the coming years.
According to the International Monetary Fund (IMF), Australia’s economy is the 12th largest in the world, accounting for 1.6 percent of the global economy. Australia’s national debt is low compared to other developed economies and has remained low even after the pandemic increased federal spending. The IMF predicts that Australian government debt will be only 54 percent of their GDP in 2022.
4. Reputation for sound business practices
Australia’s low rates of corruption and cohesive judicial system provide a robust legal framework to protect investors and businesses. Companies are entitled to certain legal protections according to the Competition and Consumer Act of 2010, which covers every aspect of business ethics from supplier to consumer.
Some protections include the following:
- Buying goods or services for commercial use under AUD 100,000, including company vehicles, entitles your company to certain consumer guarantees if malfunctions or breakage occurs.
- Supplier refusal to provide your business with necessary goods or services is against the law under specific circumstances.
- Suppliers are not allowed to make misleading claims about the goods they provide your company.
These laws, and others, protect companies from any wrongdoing.
Additionally, Australia protects its workers through one of the world’s most comprehensive pension programs. Through its compulsory program, the country has generated an astonishing AUD 4 trillion in assets for retired workers, making it the third-largest program of its kind in the world.
Typically, it takes around 402 days to enforce a business contract in Australia, which is significantly shorter than the average in other Pacific and Organisation for Economic Co-operation and Development (OECD) countries. Australia’s effective policies and rule of law can inspire confidence in investors and shareholders, thus increasing your company’s value over time.
5. Location and connections
Australia shares a time zone with Asia’s most powerful economies, including Japan, China, and much of Southeast Asia. Additionally, its history with the UK and U.S. makes the country more accessible to Europe- and Canada-based corporations. Most of Australia’s important export relationships are with businesses located throughout Asia. Because of its location and strong ties to Asian markets, Australia serves as a gateway to other global markets. Expanding to Australia can increase your chances of success in these prominent world markets.
Australia is also an active member of multiple international trade forums, including:
- The World Trade Organization (WTO)
- The Asia Pacific Economic Cooperation (APEC)
- The Regional Comprehensive Economic Partnership (RCEP)
- The Group of Twenty (G20)
By expanding to Australia, you can increase your chances of success in growing your business in other prominent world markets.
Top challenges of expanding to Australia
Doing business overseas comes with its own set of challenges. It’s essential to understand the intricacies of local laws before expanding into the country. Similarly, preparing for challenging situations is crucial to maintaining your presence and success within your target country.
In Australia, the main challenges come from untangling the country’s complex taxation system and employment laws and preparing for emergencies like supply chain disruptions and environmental disasters.
1. Confusing tax system
When it comes to taxes in Australia vs. the U.S., you may find Australia’s process to be more complicated. Employers must pay taxes on both a national and a local level. If a company falls under two tax laws, a double tax treaty can exempt them from the redundant taxes. Some of the taxes employers are responsible for include:
- Payroll tax
- Fringe benefits tax
- Capital gains tax
- Customs duty
- Stamp duty
Some tax rules can also change depending on specific company types. For example, an incorporated company will need to pay a 30 percent income tax on its worldwide earnings. However, an Australian branch of a foreign company will only need to pay taxes on Australian-sourced income.
Experts criticize Australia’s taxation system as needlessly complicated and cumbersome, claiming that it relies too heavily on personal and corporate taxes. The system is also progressive, meaning that tax rates depend on each party’s ability to pay. While the government redistributes taxes into the economy, it’s a tricky maze to navigate for businesses new to the country.
2. Complicated employment laws
Australia’s modern award system covers most employees. These documents outline the terms and conditions of employment for most industries and occupations, covering entitlements such as pay, work hours, breaks, and overtime. This system can be confusing due to its scale, as over 100 awards exist. When the awards overlap, deciding which one applies can sometimes be a complicated process.
For example, although awards cover both employers and employees, certain managers and higher-paid workers may not be eligible for coverage even if an award applies to their industry. Generally, awards don’t apply to companies that have established registered agreements. These agreements are Fair Work Commission (FWC)-approved documents that serve the same purpose as an award — setting out the minimum terms and conditions of employment.
However, in the case where the industry’s award would result in higher pay than the company’s registered agreement, the award would apply. In general, if two or more policies apply to an employee, the higher-paying one will be the policy that withstands. Use the FWC’s online tool to find out if an award exists for your industry.
3. Supply chain vulnerabilities
Historically, Australia has benefited from China’s high demand for raw materials. However, their close relationship has caused concern that Australia is too dependent on China. Covid-19 supply chain disruptions revealed that one in five Australian imports is highly concentrated, meaning that they mostly come from a single source. China supplies about two-thirds of said vulnerable products.
While the Productivity Commission’s 2021 report on supply chain vulnerabilities states that most essential supply chains are secure, it also estimates that one in 20 imports may be vulnerable to short-term disruptions. These products are primarily nonessential, like sparkling wine, toys, and holiday decorations. Companies involved with nonessential goods may want to exercise caution when expanding to the Australian market.
In terms of exports, Australia is secure. Australia’s main concentrated export to China is iron ore, and the Productivity Commission states that only 1.5 percent of all other exports are vulnerable to supply chain disruptions.
4. External disruptions
Furthermore, public safety and political issues in Australia can affect business proceedings. The catastrophic bushfires and Covid-19 lockdowns of 2020 serve as examples.
Australia is home to a diverse ecological landscape, but it’s also prone to extreme weather and environmental events. Australia’s bushfires have always been a common occurrence — the hot, dry months are considered the fire weather season for a reason. However, wildfires have increased in intensity in recent years, as seen in 2020. Many experts warn that future fire seasons could worsen as a result of climate change.
In addition to burning over 65,300 square miles of land, the 2020 fires killed 33 people and destroyed over 3,000 homes. Smoke from the fires even affected the 2020 Australian Open, which took place in Melbourne. Later that year, Australia experienced widespread lockdowns to curb the Covid-19 pandemic. Fortunately, with vaccine distribution, it looks like mandatory lockdowns will likely be avoided in the future.
If you plan to do business abroad, regardless of the location, it’s best to have contingency plans in place for when emergencies occur.
Expanding to Australia with an Employer of Record
Working with an Employer of Record can help ease some of the common pain points associated with hiring and onboarding in another country, whether you choose to establish a legal entity there or not.
An Employer of Record is a third-party organization that takes care of human resources and legal obligations for a customer. As the customer company, this arrangement allows you to focus on day-to-day business matters.
Here are some common reasons you might want to enlist the help of an Employer of Record:
- You want to build a remote team: An EOR can help you set up your Australian remote team by providing human resources services within Australia.
- You want to break into a new market: With an EOR by your side, you can establish a presence in a new country without risk. An EOR can handle local labor laws and taxes so you can focus on your team’s actual work.
- You want to start as soon as possible: If you’re looking to hire and onboard team members quickly, working with an EOR is one of the best choices you can make. Once you find your ideal candidates, your EOR can onboard your candidates and prepare them for work in only a few days.
No matter where you choose to grow your business, an EOR can help solidify your strategy by taking the hard work off your shoulders.
Trust Globalization Partners for your Australian expansion
If you’re considering expanding your company to Australia, working with Globalization Partners can help push your strategy to the next level. Globalization Partners is a trusted leader in the global workforce industry, with a 98 percent customer satisfaction rate and a presence in 187 countries. Thanks to our in-country legal and compliance exports, we know how to help you grow your business — wherever that happens to be.
Download our Global Hiring Handbook to learn more about starting business activities in other countries. Still have questions? Contact us using our online form today and a knowledgeable team member will reach out as soon as possible.