Doing Business in Australia

Team Lead: Hari Adari

ROT:Karin

ROT:Anand

ROT: Tom Sharkey

Introduction

Alloy Customs (AC)

U.S. company that specializes in the design

and manufacturing of alloy automobile wheels

Seeking to expand operations globally

AC has contracted with MIB Global Research

to explore strategies that will help AC to

maximize its global potential

Global Automobile Industry

Highly diversified : manufacturers, dealers, suppliers, etc.

The leading countries are US, Japan, Germany, and S.Korea. Among

which US stands at top with an economy of more than $10 trillion.

Taking an advantage of Globalization, big brands in auto industry like

Toyota(..15secs, demand), G.Motors, Ford, Volkswagen AG, & DC

made their presence all over the world.

Major Segments of Auto Industry Automobile parts Industry

Manufacturing of storage batteries &other spare parts.

Four wheel Industry

It’s the largest segment (G.M, Toyota, Ford, .etc)

Two wheelers Industry

Largest producers are Asian countries (Japan, India)

Commercial Vehicle Industry

Includes light, rigid vehicles, trucks. The global market share in 2006 was

$10bn.

Utility vehicles Industry

Engaged in manufacturing & selling of sports utility vehicles. key regions are

N.America, Europe, China and India.

World Market for Alloy Wheels

Phase 1: Potential Host Countries

Canada

Australia

Philippines

Germany

Malaysia

Mexico

U.K

South Africa

Several countries were evaluated on criteria such as trade barriers, cultural

barriers, existing infrastructure, economic conditions, market size, etc.

Australia

The selected host country was Australia

Australia ranked very highly on the country analysis, particularly in the

areas of existing infrastructure, lack of cultural barriers, economic and

political stability, and lack of trade barriers

The Australia-United States Free Trade Agreement (AUSFTA)

eliminated tariffs on almost all manufactured goods between the two

countries and opened up new opportunities for U.S. manufacturers

Though Australia is very culturally similar to the United States, it is

important to not overlook some of the differences that exist and to

fully understand the competition and regulations

Industry Analysis

The alloy wheels market:

Alloy wheels are expensive and not standard on most cars,

however they are becoming more popular and increasingly

available

The automotive parts and accessories market is growing

worldwide.

In Australian, the market size is estimated at over US$10,183

million, with a yearly growth rate of around 4%

Industry Analysis The Australian automotive accessories market:

Australia has proven to be an appealing market for American

companies for many years due to the few barriers to entry, a

familiar legal and corporate framework, and a straightforward

business culture

Australia has experienced significant economic growth for the

previous two decades, and it appears that the trend will continue for

years to come

The Australian automotive components and accessories market is

valued at around US$5 billion, and Growth in Australia’s aftermarket

has averaged more than five percent over the past ten years

Phase 2: Initial Entry Methods

Alloy Customs initial entry strategy will include working with an

Australian company to learn about doing business in Australia and

develop a presence in the host country.

3 potential methods:

Licensing

Franchising

Contract Manufacturing

Licensing

Licensing agreements in Australia are very similar to those in the

United States

There are few legal and administrative requirements for licensing in

Australia, and the language and cultural similarities make negotiations

and understanding obligations relatively easy

Allows a company to enter a foreign market without significant capital

investment

Lack of control over operations may cause quality concerns

Franchising

Franchising is similar to licensing, but tends to be more long-term

Precise regulations in terms of how business is conducted

Franchisee often assumes most of the costs and risks in setting up the

operation

Franchising is very common in Australia

The Australian franchise industry is regulated by the Australian

Competition and Consumer Commission

The Franchising Code of Conduct covers issues such as disclosure of

information between the parties as well as complaint handling and

dispute resolution procedures

Contract Manufacturing

Contract manufacturing involves a company “hiring” another company

to manufacture its products for them, and is very common in the

automotive industry

Advantages include lower costs, flexibility, and lower capital

requirements

The manufacturer that is selected must be fully evaluated to

determine if they will be able to meet quality standards and to keep

pace with growth and increased production over the years

Phase 2 Recommendation

It is recommended that Alloy Customs enter into a contract

manufacturing agreement with an Australian company. This will

allow AC to take advantage of an existing company’s operations

and knowledge of doing business in Australia.

Mullins Wheels

Well-known manufacturer in the Australian alloy wheels

market

Phase 3: Long-Term Strategy

Within ten years of its initial entry into the Australian market,

Alloy Customs plans to advance to the next level of its

globalization strategy

AC will enter into either a joint venture with an Australian

company, or set up a wholly-owned subsidiary in Australia, and

sell directly to markets all over the world

Establishing a Business in Australia

Australia welcomes foreign investment, and the U.S. is Australia’s

largest foreign investor with US$245 billion invested in 2005-2006

The Foreign Investment Review Board (FIRB) screens each

investment proposal to make sure that it is conforms to existing

law and government policy and meets national interests

The Australia-United States Free Trade Agreement (AUSFTA)

liberalized Australian foreign investment protocol for U.S. firms

Establishing a Business in Australia

The political risks for entering into a joint venture or establishing a

wholly-owned subsidiary in Australia are minimal

Australia ranks better than the U.S. in its lack of corruption

Australia has a comprehensive legal system and well-established

regulations to counter corruption

The government procurement system is transparent and

regulated, which minimizes the possibilities for corrupt transactions

Joint Venture

A joint venture is a company in which ownership is shared

between at least two otherwise independent companies

It is recommended that if AC were to enter into a joint venture

that it would do so with the contract manufacturer selected in

Phase 2

Joint ventures in Australia are very similar to those in the United

States

Joint Venture

Advantages

Capitalize on the Australian manufacturer’s knowledge of

doing business in Australia with regards to competition,

culture, political systems, etc.

Reduce AC’s initial investment, since the costs and risks

would be divided between the two companies

Disadvantages

Risk of giving control of its technology to the partner firm

Risk of conflict between the two business partners

Wholly-Owned Subsidiary

Alloy Customs would own 100% of the stock and

have full control over every aspect of running the

business

Most foreign firms establishing their business in

Australia are awarded national treatment and do not

have to seek government permission to establish and

own a business

Wholly-Owned Subsidiary

Would require significant initial investment

This investment could be reduced if an existing

company was acquired because AC would be able

to utilize existing facilities and equipment rather

than procuring new resources

Issues

Financial & Accounting

Tariffs & Taxes

Operational Issues

Phase 3 Recommendation

It is recommended that Alloy Customs set up a wholly-owned

subsidiary in Australia by acquiring the manufacturer which it

will be doing business with through the contract manufacturing

agreement

Will allow AC to set up its full operations in Australia and begin

selling its products to the global markets quickly

There are no significant obstacles for a U.S. firm to set up a

wholly-owned subsidiary in Australia, and there are few political

or economic risks

Phase 3 Recommendation

AC must negotiate a fair price for the acquisition, based on the

actual value of the acquired company

Must develop an integration plan to reduce the rate of turnover

during the acquisition

Once an agreement is reached, AC will need to register with the

Australian Securities and Investments Commission

Once the acquisition is finalized and operations are successfully

merged, AC will be able to begin selling to global markets and

fully realize its globalization strategy

Conclusion

The similar culture and few barriers to entry make Australia an excellent

opportunity for AC in the alloy wheels market

By setting up a contract manufacturing agreement with the recommended

Australian manufacturer, AC will be able to begin production overseas with

relative ease

Over the years, AC will develop a close relationship with the manufacturer

and gain valuable insights into the Australian market, and eventually propose

the acquisition to gain full control of the facility in Australia

Through these recommended tactics AC should be able to realize its goals of

expanding its operations and establishing a global market presence

Thank You