Topic 1

Consumer purchasing patterns

The process global consumers use to complete a commercial transaction. Can be online using E-commerce or traditional using bricks and mortar, cash transactions.

Describe:

• RESEARCH - Consumers do their research. Use of internet for information including product reviews and business ethics before deciding to purchase. Can research reviews using social media from other customers across the globe.

• E-COMMERCE - (includes m-commerce and app commerce) which facilitates the payment of products over the internet. Currency conversions, language settings, delivery calculations across the world. Pattern - movement away from credit cards to alternative payments such as After Pay, zip pay, etc - global consumers more budget conscious.

• DISTRIBUTION - Movement of product throughout the world. Instant via internet such as video, music, software. Transport of physical goods via rail, road, air and sea across borders. Ability to track goods estimated time of delivery as product moves across borders.

Explain:

• EASE OF TRANSACTIONS - Regardless of currency, E-commerce and M-commerce/app commerce display currency of home country. Websites operate 24/7, more accessible to consumers globally regardless of time zones and currency.

• COMMUNICATION TECHNOLOGY such as social media allows for global communication and awareness of product trends in other countries = increased awareness.

• DISTRIBUTION NETWORKS increase in efficiency of movement of products through shipping ports and customs due to Free Trade Agreements. Consumers can track purchases from across the world with estimated delivery times increasing customer satisfaction and trust.

Discuss (+/-):

Data collection and security concerns:

• Not core business

• Increase of over 250% in data breach

• Impact on business public image

• Increase in financial institution apps attached to store e-commerce sites, therefore business not collecting this data

• E-commerce sites outsourcing data security to foreign countries - privacy laws not the same as in Australia

• Use of AI to collect data - permissions to use location, camera, etc gives businesses the ability to predict and make offers to fulfil needs and wants. Track purchase trends in your country or region within your age group

Consumer spending patterns

Type of products (good or service) global consumers are purchasing.

Current spending patterns:

• Customised products/services

• Advanced technology - automatic services, personal safety

• Ethical products and

• Sustainable businesses

Describe:

Global consumers with more disposable income spending money on…

• CUSTOMISED products/services, e.g. drink bottles with persons name, Stanley.

• Advanced TECHNOLOGY - automatic services, and personal safety products.

• ETHICAL and SUSTAINABLE practices - products and sustainable businesses.

Explain:

Changing needs and wants due to:

• PERSONAL factors - life stage, budget, etc. More women working and earning income across the world. More job availability in developing countries giving rise to middle income earners across the world. E.g. looking for quality or best price due to level of disposable income.

• PSYCHOLOGICAL - Ethics and Brands - e.g. consumers tend to trust global brand as they are seen to be successful, global consumers are more aware of impact on the environment and seek ethical businesses that share concerns.

• SOCIAL - Groups and need to fit in - e.g. be more western American culture.

Discuss - Issues:

• Difficult to find out how ethical global brands are - multinational businesses with many subsidiaries constantly changing. One company may be ethical but businesses along the supply chain might not. Greenwashing.

• Cultural erosion - commercialised cultures - spread of western culture. Interest and demand in other cultural practices and adopting as own.

Financial Growth

Improving the long-term stability and profitability of the business.

This can be achieved by increasing profit by either increasing sales revenue and/or decreasing expenses.

INCREASE SALES: Increasing number of customers by reaching more customers in other geographical locations. Australia has a limited market due to its relatively small population compared to countries such as China and India, so going global may be necessary.

DECREASE EXPENSES: Source raw material or products from global market (cheaper, quality or availability). Global supply chain for parts, or services. Low-cost manufacturing in developing countries due to lower labour costs, government regulations (WHS), etc - outsourcing to a 3rd party or setting up an offshore facility owned by the business.

Benefits:

• Increase profits = higher return on investment, attract more investors or finance for future expansion.

Issues:

• Ethical dilemmas (profits vs planet and people) affecting public image, e.g. Australian products being produced overseas experience a negative public image.

• Loss of Australian jobs as they move them overseas in outsourcing to reduce costs = more pressure on Aus government due to increased unemployment, and less tax being paid to the government to support health, education, and infrastructure.

Loss Minimisation

A risk management strategy to reduce the impact of revenue losses in one area on the overall stability of the business.

Diversification - Process of a business enlarging or varying range of products or field of operation.

RANGE OF PRODUCTS: Increase product depth or breath that caters for different global consumers.

MARKET TO DIFFERENT COUNTRIES: Seasonality - routine changing of climate characteristics. Economies - countries experiencing economic growth or prosperity.

• When diversifying economies, the business minimises its losses because they are still generating revenue from other geographical locations and customers. If one economy declines another may experience growth.

• Seasonal diversification - relocated product/service availability of raw materials depending on the climate conditions. Different hemisphere seasons give businesses the ability to continue making sales if product or service is climate related, e.g. fashion. seasonal fruits, cruise ship industry.

Deregulation of Financial Markets

Financial market - Any marketplace where the trading of money, loans and investments take place. This includes:

• Banks

• Financial institutions such as credit unions, insurance companies, commercial banks

• Other money lending businesses such as wallet wizard, and buy now pay later

• Superannuation funds

• Stock markets etc

Deregulation - The removal of restrictions and regulations within a market. Past restrictions included:

• Controlled interest rates on banks

• Specific rules on who can and can’t get a loan

• Percentage of money that must be kept by bank to cover its own investment

• No foreign banks in Australia

• Amounts of $10,000 or less moving in and out of Australia (otherwise taxed)

Describe Deregulation:

• INTEREST RATES - banks can set own interest rates to be competitive.

• BANKS able to use more customers savings to invest (10% of your money in reserves).

• INCREASE COMPETITION in finance market by allowing foreign banks to operate in Australian markets. Consumers and businesses can now access funds from foreign banks - shop around for the best interest rate. However foreign financial institutions are still required to follow various laws to do with deposit taking and security of peoples money, and with fair competition and company law.

• MONEY MOVING in and out of Australia more freely (although amounts over $10,000 tracked).

Since deregulation banks and other institutions can set their own criteria for lending money. E.g. After Pay using different formula to banks. Banks focus on stable income and only lend a % of income.

Why:

New technology (E-commerce) became available to allow businesses to trade (import and exports) with more ease on international markets.

Australian banks were unable to compete with foreign institutions and were losing out on possible income.

Business found it difficult to get foreign investment into Australia - other countries experienced economic growth and Australia was falling behind.

Issues:

• Money laundering - Deposits over $10,000 only tracked.

• Some countries called Tax Havens are not willing to share financial information, making it difficult to trace money once it is transferred to these countries.

• Businesses finding ways around paying required tax by moving money around, means the government receives less income or business tax than expected - less government spending in infrastructure, education, medical, etc.

• More interconnected between countries financial (globalisation) - downturn in economy follow in effect in other countries.

World Trade Organisation

International body dealing with the rules of trade between countries. Forum for countries to negotiate trade agreements.

Describe:

• Consists of representatives from all member-government official

• Located in Switzerland

• Established in 1995 with 166 country members

• REGULATIONS - General Agreement on Tariffs and Trade (GATT) covers goods, General Agreement on Trade in Services (GATS) covers services, Trade Related Aspects of Intellectual Property Rights (TRIPS) covers intellectual property.

• SANCTIONS - Economic sanctions are commercial trade and financial penalties applied to countries

Purpose: Encourage trade between countries to bring global economic growth.

Role/s:

• FACILITATE TRADE NEGOTIATIONS - by supporting developing countries in their trade talks with developed countries by applying standard regulations to all Free Trade Agreements.

• DISPUTE SETTLEMENTS - make judgement in disagreements on free trade issues.

• ENFORCEMENT - impose sanctions against nations that break FTA regulations.

REGULATIONS:

• Reduction of all tariffs - schedule to zero.

• Ease on custom procedures (paperwork, wait times).

• National Treatment - discourage government setting rules that protect own industries.

• Reduce quotas (no limit to the number of goods and services within an industry, e.g. wine).

• Most Favoured Nation - no discrimination between countries in which a country trades. e.g. same tariff reduction schedule for all countries.

• Transparency of trade.

SANCTIONS:

Measures or penalties imposed by the WTO against countries. Economic - commercial trade or financial penalties (e.g. trade barriers, fines, or increased tariffs).

Aim to change the behaviour of the target country to enforce FTA agreements.

Process:

• File complaint

• Both parties undertake bilateral consultations to resolve issue

• Complaining member country invites other members to discuss issue

• Panel established for a decision

• Appellate Body reviews the panel’s decision

WTO Issues:

• Different members (country government officials) have more power and influence than others - imbalance between developed vs developing.

• Disputes take a long time to decide.

• WTP lacks power to enforce sanctions imposed.

• China communistic rules not in agreement with WTO principles, yet is a member - lack of transparency, government controls and subsidiary to support local company rather than allow level playing field.

• Sanctions - not all countries globally are part of the WTO, therefore countries with trade sanctions can still get goods from another country not part of the WTO.

Free Trade Agreements

Treaties or contracts between two or more countries to reduce or eliminate barriers to trade and investment.

Describe:

• Overseen by the WTO including regulations and sanctions.

• Agreement between countries (multilateral or bilateral).

All FTAs have the following common features:

• SCHEDULE THAT REDUCES THE TAROFFS (tax costs associated with imported goods and services).

• REDUCTION OR ELIMINATION OF QUOTA RESTRICTIONS (number or value amount of goods or services being imported).

• EASE OR REDUCTION IN CUSTOM PROCEDURES including amount of paperwork and time it takes for goods to pass over borders.

• NO DISCRIMINATION between countries by not favouring one nation over another.

• TRANSPARENCY of trade includes all countries reporting on trade tariffs, quotas and products.

Purpose - Foster trade of goods and services between countries to encourage economic growth and reduce poverty.

Role - By removing barriers of trade by:

• Eliminating tariffs

• Removing quotas

• Minimising government subsidies that support local industry over open global competition

ANZCERTA: Australia - New Zealand Closer Economic Relations Trade Agreement

Bilateral - between two countries.

Purpose - Strengthens trading relationship with close country New Zealand.

Role - By eliminating barriers such as tariffs.

• Eliminated all tariffs and quotas.

• Trans-Tasman Foods Standards - allows for easy flow of food products between borders.

• Mutual recognition of trade standards and professional qualifications to allow movement of labour between countries.

• Protocol on Investment - low compliance rules and costs provides legal certainty.

AANZFTA: ASEAN Australia - New Zealand Free Trade Agreement

Multilateral - between many countries.

Role - Strengthens trading relationship with close surrounding countries by reducing barriers such as tariffs.

• Elimination of at least 99% of tariffs and quotas of specific products.

• Regional rules of origin - goods which originate in Australia, NZ or any ASEAN member country will qualify for preferential tariff treatment.

• Simplified customs procedures.

• Ease of movement of business persons, those engaged in trade and investment activities.

Benefits and Challenges of FTA to Australian Business

FTA - treaties between two or more countries that reduce or eliminate barriers to trade and investment.

BENEFITS of FTA to Australian Business:

Financial Growth

• Reduced cost - reduced export costs such as tariffs and import costs when accessing a global supply chain for cheaper or high quality raw material.

• Increase sales - access to new markets to reach more potential customers.

• Leads to increase in economies of scale.

Increased Innovation

• Global competition within the domestic market and enter foreign export markets means Australian businesses must become more innovative in their process, product and marketing to maintain a competitive advantage.

Diverse Workforce

• Increased demand from Aus businesses leads to more employment opportunities. With easier access to foreign workforces due to FTAs, business can access a wider variety of knowledge and expertise from a global workforce increasing their diversity. This leads to the Australian business better understanding their foreign consumer to increase satisfaction.

CHALLENGES to Australian Businesses:

More competition within domestic market as multinational businesses enter the Aus market and when trading on the global market.

• Difficult to compete because multinational business have reached economies of scale and can offer products at lower prices.

Geopolitical risk - business invest time and money into new markets provided by FTAs. Sudden political disagreements may lead to changes in trade arrangements.

• Results in business assets being forfeited or sudden drop in demand leaving excess stock for business.

Ethical issues - limited rules and regulations on OHS, labour and environment in some foreign markets countries. Business can now take advantage to lower costs such as labour.

• Negative public image as Australian business moves jobs offshore.

Spread of Skills and Technology

Skills - the ability to carry out specific tasks.

Technology - machinery, equipment and the scientific knowledge used to complete the task.

Describe:

DEVELOPED countries - High level of skilled labour and available technology due to higher levels of education and government support to training and university institutions = Skilled labour force.

DEVELOPONG countries - Lower level of skills and available technology due to education. = Unskilled labour force and lower availability of high skilled jobs.

IMPACT of Globalisation:

• Skill level globally is increasing especially in developing countries due to globalisation (multinational company offshoring and training local workers).

• Greater movement of skilled workers throughout developed countries.

DEVELOPING COUNTRIES

Why:

• Labour costs are lower in developing countries.

• Governments encourage investment by large international businesses - providing opportunities for local workers.

• Business need to reduce costs to stay competitive.

How:

• Outsourcing - Business contracting a 3rd party to carry out a non core function, to access skills and specialised knowledge that the business does not have or takes time away from core business.

• Offshoring - Business set up in developing countries taking with them their technology, this leads to local workers requiring upskilling to use the technology.

DEVELOPED COUNTRIES

Why:

• Governments encourage investment by large international businesses, adds to exports - ‘balance of payments’ between exports and imports.

• Developed countries specialise - workers migrate to learn and gain experience with the best (usually pay is higher) → Skilled labour increases.

• Different countries have different resources available - outsourcing for unskilled labour → Unskilled labour decreases in developed countries.

How:

• Free trade agreement allowing the flow of labour.

• Recognition of qualification.

INCREASED MOVEMENT OF SKILLS IN DEVELOPED COUNTRIES

In some developed countries they are losing their skilled labour force as they move to other developed countries for more opportunities.

Due to specialisation and FTAs:

• Engineers into Europe and Germany

• China has a high level of tech manufacturing

• Switzerland and Singapore data storage, etc.

CHANGING SKILL LEVELS IN DEVELOPED COUNTRIES

Benefits:

• Lead to economic growth, and a rise in improved living conditions/standards of living of people as employment opportunities and wages increase.

• Global businesses assess unskilled and skilled labour at a cheaper cost than in more developed countries.

Disadvantages:

• Global business invest large amount of initial capital for infrastructure to cater for incoming technology (including infrastructure on transport and communication systems) and upskilling of the local labour force. This may lead to delays and reliability issues.

• Spreading company technology into developing countries runs the risk of IP breaches.

• Job losses in home countries affecting public image.

• Government spending money on training.

• Developed countries may experience structural unemployment (fluctuation due to restructure in industry such as moving offshore).

• Skilled migration policies.

Employment Levels

Developed countries - high levels of income, technology and infrastructure.

Developing countries - low level of income, technology and infrastructure.

Employment - % of people in the labour force currently working.

Describe:

Employment levels increasing globally (both developed and developing countries).

Developed countries general increase with:

• Structural unemployment - due to organisational restructures such as outsourcing and offshoring, technologies.

• Cyclical unemployment - due to demand and economic.

Developed countries:

• Decrease in employment → Reduces consumers demand.

• Increase in employment → Reduced government spending on social services.

Developing countries:

• Increase in employment → Rising in living standards due to job availability = Reduced poverty.

Why:

• Labour costs are low in less developed / developing countries.

• Governments in less developed encourage investment by large business.

• Rules and regulations limited such as building restrictions, age of worker and other workplace considerations such as Equal Employment and Work Health and Safety.

• Business need to reduce costs to stay competitive.

• Take advantage of countries strengths - e.g. availability of labour, engineering skills, etc.

How:

• Outsourcing to offshore location

• Offshoring own facilities

• Using global supply chain

LABOUR

• Poor work conditions for unskilled workers in developing countries as demand increases.

• Unskilled job availability reduced in developed countries as moved offshore or replaced with tech.

• Ethical consideration: child labour, liveable wage (developing), moving jobs from home country such as Aus.

COUNTRY

Developing countries increase in GDP, wage growth etc = economic growth.

Developed countries:

• Structural unemployment - spending on retaining and education for higher skilled jobs (decline in manufacturing jobs).

• Skilled and specialised job growth.

• Budget considerations as less tax is collected

ENVIRONMENT

• Greater production levels - drain on natural resources (China manufacturing = atmospheric pollution).

• Environmental protection laws different between developed and developing countries = ethical decisions.

Tax minimisation

Tax - financial charge on business by the government based on levels of profit made.

Tax Minimisation - the use of legal strategies to reduce the amount of tax payable.

Businesses pay tax on the profit (=sales-expenses) they make from sales in that country. Australia has one of the highest rates of business tax rates.

Increase Expenses (in high tax countries) → Reduce Profits → Reduce Tax Payable (in high tax countries).

TAX HAVEN

Countries with secretive tax and financial systems.

• Country that offers foreign individuals and businesses little or no tax liability.

• Share limited or no financial information with foreign tax authorities.

• Do not require residency or presence to benefit from their tax policies.

Explain:

• Banking services adds to country GDP.

• Attract investment into country.

• Tax haven countries benefit by drawing large amounts of capital into their economy, which can be used for further investment.

• Business reduces the amount of tax paid overall.

TRANSFER PRICING

Related companies (subsidiaries) trade with each other.

• Business sets up a related company in a tax haven.

• Business in high tax country pay for a service provided by the related company located in a tax haven.

• Transfer or send the price of the product.

• E.g. payroll, IP.

• Tax pain in home country is reduced due to lower profits being recorded.

Arms Length Principe:

• New global standards implemented 2015.

• Arms length transactions - Both companies trading must act in own self interest, not subject to any pressure or duress from other party, e.g. parent company.

• Pay fair market value.

• No collusion between the buyer and seller.

IMPACT

• GDP increases in the tax haven (services provided and jobs created in financial sector).

• Amount of corporate/business tax received in Aus is reduced.

• Government services provided may reduce as Gov does not receive as much tax income as expected.

ISSUE: When business inflates the price and use of tax havens to hide financial information.

INTENT: To dodge tax.

Impact on Domestic Market

Home market - Australia:

• Relatively small population

• Large middle income

• Low unemployment = high levels of disposable income

WHY:

Australian consumers want access to:

• Greater variety of products

• lower prices

• Product that are not usually available.

Global consumers want access to:

• Australian quality products e.g. fashion, work boots, education, etc.

Australian business are driven to go global so they can compete against multinational companies.

HOW: Outsourcing, offshoring and accessing global supply chain to reduce their own costs of goods sold and/or operating expenses.

AUSTRALAIN BUSINESS

• Facing greater competition due to Free Trade Agreements allowing multinational company access to Australian markets without hindrance of tariffs and red tape.

• Multinational companies have access to economies of scale and global supply chains - lower expenses.

• Multinationals compete with Australian business at a lower price point.

• Drives prices down.

• Australian business lower profit margins, difficult to compete with Multinational business large scale operations.

• Small Australian businesses decline.

AUSTRALIAN LABOUR

Offshoring to take advantage of cheaper labour than in domestic country:

• Loss of unskilled jobs, e.g. manufacturing in Australia. → Aus labour requires upskilling → government spend money on training.

• Greater movement of skilled and unskilled labour: countries become specialised - movement of skilled labour into those countries leaving structural skill gaps in Australia.

International Cooperation

Relationship between governments, in which they agreed to work together towards common goals.

• International cooperation can be in the form of FTAS - Contractual rules and regulations, WTO.

• Leads to business confidence in investment for the long term.

International cooperation:

• World health Organisation

• World Trade Organisation

• International Labour Organisation

• Paris Treaty (environment), etc.

CHALLENGES:

• Increase competition in Australia - unlevel playing field against multinational companies.

• More movement of labour impacting employment/unemployment and availability of skilled/unskilled labour.

• Ethical - doing business with other countries that do not hold same values, e.g. payment of bribes.

ADVANTAGES:

• Business financial growth - reach new markets.

• Consumer choice - different and/or cheaper products due to competition.

• Australia - higher employment rates, government receives more tax.