Question:
Identify any regulatory framework/s affecting the Multinational Company you have Identified Operating in Australia and discuss why and how it affects the Company. For example, Multinational Corporations, like local Companies, are subject to 30 per cent Corporate tax.
Organisations are required to comply with various domestic and international regulations while operating their business in multiple countries. The regulatory framework affects the business of multinational corporations and its operations. This report will analyse the regulatory framework of Woolworth Limited; it is one of the largest retailing chain in Australia and second largest in New Zealand. The company was founded in 1924, and it operates in the retailing industry. Further, the report will evaluate the treaties, conventions or agreements in Australia that influence the business of Woolworth Limited.
Woolworth limited is world’s 19th largest retailing chain, and the stores of the company are situated in more than 992 locations. Mainly, the corporation operates in Australia, New Zealand, and India; the firm’s head office is situated in Bella Vista, Australia. Woolworth limited is known for its competitive pricing products and high-quality customer services; the company provides value and specialised facilities to diversified customers relating to wholesale products (Raghuram and Kuberkar, 2008). The company is governed under the chairmanship of Brad Banducci and Gordon Cairns; Banducci is also the CEO of the firm. There are more than 202,000 employees in the company from which 197,000 work in Australian stores whereas around 5000 are employed in other Woolworth stores situated worldwide (Woolworth Group, 2017).
Woolworth limited operates in multiple sectors including hotel, liquor retailing, departmental stores, and supermarkets. The financial position of the company is solid that assisted them in expanding their business throughout Australia and New Zealand. The products and services offered by the company focus on improving the living standard of its customers and maximising stakeholders’ value (Lyons, 2007). The competition in the retailing industry has proliferated due to globalisation and digitalisation; Woolworth has gained a competitive advantage over its competitors because of competitive pricing and large market share.
Woolworth limited is constantly innovating and evolving its products and facilities to fulfill the requirement of customers and finding new methods to address the market challenges. The company operates as per its regulatory framework. The retailing industry changes rapidly as per the market and customers’ requirements; nowadays, consumers prefer more choices and affordable products in great quality. Woolworth serves more than 21 million customers in a week. Therefore, the company requires that each of its vendor and supplier comply with legal obligations and responsibilities (King, 2014). A code of conduct enhances the reputation of Woolworth because the company can achieve its organisational goals through ethical, legal and moral standards. However, several regulatory frameworks influence the business and operations of the company.
The frameworks varied from company to company in the retailing industry. The regulatory framework is required to be followed in various areas relating to health, safety, trade practices, food safety, privacy, environment, and responsible handling of alcohol. The corporation is required to supply its products and facilities as per the conditions established by the industry. The Woolworth limited and its vendors are required to analyse and fulfill the requirements provided by the retailing industry. Many of the regulatory framework provisions affect the operations, and financial performance of Woolworth limited in the long run (Hollander, 2006). There is a significant amount of diversity in the retailing industry based on area, nature of products, format of the sector, the level of competition and the products and services that are produced and sold. In recent years, the firm has met multiple challenges that are linked to rules and regulations of the retailing industry.
The performance, structure, and efficiency of the firm operating in the retailing industry have become a barrier for the economic contribution in Australia. As per government regulation, the Australian retailers are obligated to share their products and facilities with the foreign counterparts. As per the directions of the Australian government, the retailing industry is required to establish safety standards for the protection of life and health of the people (Business, 2017). Many tax regulations influence the business of the corporation. The government has implemented various taxes and duties on the retailing industry that creates both advantage and disadvantage for the firm based on the conditions in which it operates.
Following are the policies implemented by the Australian government that influence the business of Woolworth limited:
Corporation Tax: The corporation tax influence the corporation’s development and investment within an industry. This tax imposes on the net profit on a corporation hence it reduces its investment opportunities. A high rate of corporation tax reduces corporation revenue which decreases its investment opportunities, and it allows local competitors to expand their business in the industry. The current corporation tax rate in Australia is 30 percent, and companies are required to pay such amount on their marginal income (Australian Taxation Office, 2017).
Food Safety Regulation: The Australian government requires corporations to comply with food safety standards to ensure that their good and services are as per the safety requirements to protect customers’ welfare. The food safety regulations apply to the retailing industry because they sell consumer products and services (Hobbs, 2010). Woolworth limited provides its services through supermarkets and departmental stores that offer a variety of consumer food products. Therefore, the company can increase customers’ trust by effectively complying with the regulations of food safety.
The Food Standards Australia New Zealand (FSANZ) provides a code of practices for corporations operating in the industry to address various problems relating to food safety. The standards require companies to sell environment-friendly products and services instead of products that are hazardous for customers’ health; the corporations that failed to comply with the safety regulations are forced to pay the penalty. Recently, Woolworth limited has to pay a fine of $3 million for selling unsafe consumer products, and it reduces company’s performance and revenue (The Australian, 2016).
Consumer Law: The consumer law ensures that contracts are created based on fair rules and regulations that focus on protecting the customers from unsolicited agreements, product safety, and penalties. The national statutory framework of the Australia has a significant impact on its economy because it encourages retailers to ensure that their products and services are not harmful to consumer health and environment. The Australian Competition and Consumer Commission (ACCC) is authorised to impose these standards on corporations (Richards, Lawrence, Loong and Burch, 2012). Woolworth limited is also required to comply with the consumer law provided by the country. However, the company follow a strict code of conduct that ensures the protection of the welfare of customers along with other stakeholders.
The company ensures that its policies and strategies comply with the consumer laws because noncompliance can have a negative impact on the performance and success of the firm. In 2016, a fine of $3.057 million has levied over Woolworth limited because it failed to comply with the standards of safety and health provided by the government. Therefore, lack of compliance with regulatory framework can reduce customers’ trust in a corporation.
Goods and Service Tax: The Australian Government introduced Goods and Service Tax (GST) in 2000. The functions of Woolworth limited directly influence by the GST because it affects its revenue and expenses. Currently, the rate of GST is 10 percent in Australia, and it imposes directly on consumer products and retail sector (Australian Taxation Office, 2017). The introduction of GST is beneficial for retailing corporations because it strengthens the strategies relating to customer product and services. The high rate of GST reduces tax expenses for corporations from different areas such as service and real estate, and it ensures that companies perform in an effective manner. GST reduce issues relating to value chain by the implementation of uniform tax rates.
Woolworth limited in one of the largest retailing company in Australia, the company enter into new agreements and contracts to expand its business. The company offers its services and products in areas of Australia, New Zealand, and India, therefore, the agreements and treaties between these countries have a significant influence on Woolworth’s business. In 1983, Australia and New Zealand entered into an agreement to bring economic relations closer called ANZCERTA or CER which stands for Australia New Zealand Closer Economic Relations Trade Agreement (Elijah and Leslie, 2013). The agreement allows corporations to trade between the countries freely and it builds the foundation for the development of both countries economic and trade association; the agreement help strengthen both countries treading relations through common valuable development (Lockie and Higgins, 2007).
The agreement has a direct influence on Woolworth limited because the compliance and transaction expenses for products has been reduced which resulted in higher revenue and significant progress. The quantitative restriction on the offering of products has been removed due to the elimination of tariffs which resulted in maximisation of market distortion and eventually assist the company in satisfying a large number of customers’ requirement (Wright and Grace, 2011). The elimination of trade barriers drastically changes the products offered by Woolworth; the company has increased use of technology in the production process because the cost and duties of transportation have been reduced due to the agreement. Therefore, the quality of products has been increased which enables the company to satisfy its customers and expand its market share.
The Bilateral Free Trade Agreement (BFTA) between New Zealand and India has assisted in the expansion of economic cooperation between both countries (Aggarwal and Urata, 2013). This agreement has a considerable influence on the retailing products of Woolworth limited; the demand for products has increased between both countries because of the low cost of the products. The quantity of manufacturing and trading of products has increased between the countries which positively influence the investment opportunities for the corporations. In 2009, Woolworth limited invested $24 billion in entering into the hardware sector; the company enter into a contract to acquire ‘Danks’ in order to expand its operation in the local sector. Danks Holding Limited deals in building supplies and hardware products, and it is one of the largest hardware retailing corporation in Australia (Greenblat, 2009).
Woolworth limited focuses on establishing a multi-format strategy to improve the daily requirements of customers. The contract has increased the corporation’s opportunity to deliver and distribute products as per its customers’ requirements. The progress of Woolworth in home expansion, consumer and hardware products increases the corporation’s retailing capabilities, technology, and skills. Despite the adverse economic condition, Woolworth limited decided to diversify their business and invest in a business which provides high competition in the retail sector (Durie, 2009).
The decision affects Woolworth’s other operations as well because the amount could be invested in improving the quality of existing products. The profitability and market position of a company is influenced by significant amount of investment in the new sector. The firm is now dealing with diversified products and facilities of the different retailing sector. The agreement of expansion benefits customers because it increases the number of product choices for them. This contract has also assisted in reducing the resource allocation of producing other consumer products and facilities. Therefore, entering into new industry increases and develops the corporation’s productivity but it also hampers the quality of existing products of the firm.
Conclusion
To conclude, several factors influence the retailing industry in Australia and customers’ preference. Woolworth limited has acquired a substantial amount of retail market in Australia, however, the regulatory framework established by the government require to business to meet specific standards. The regulatory framework ensures that products of the firm are not hazardous for customers, and they are environment-friendly. The Consumer law, GST, Food Safety regulation, and Corporation tax are few of the regulatory frameworks that influence the business and policies of Woolworth limited. The company expands its business by entering a new market through new agreements and contracts. The new contracts and agreements also influence the existing products and services of the business. The agreements focus on maximising shareholders’ value and increasing market share of the company.
References
Aggarwal, V. and Urata, S. eds., 2013. Bilateral trade agreements in the Asia-Pacific: Origins, evolution, and implications. Routledge.
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Australian Taxation Office., 2017. GST. [Online] Australian Taxation Office. Available at: https://www.ato.gov.au/Business/GST/ [Accessed on 30/11/2017]
Business., 2017. Retail & wholesale trade industry fact sheet. [Online] Business. Available at: https://www.business.gov.au/info/plan-and-start/develop-your-business-plans/industry-research/retail-and-wholesale-trade-industry-fact-sheets [Accessed on 30/11/2017]
Durie, J., 2009. Woolworths but of Danks designed to take on Bunnings. [Online] The Australian. Available at: https://www.theaustralian.com.au/business/opinion/woolworths-buy-of-danks-designed-to-take-on-bunnings/news-story/f6706a4d9df18f806a7371a3b1fbb54a [Accessed on 30/11/2017]
Elijah, A. and Leslie, J., 2013. Australia and New Zealand’s slow and steady move towards economic integration. [Online] The Conversation. Available at: https://theconversation.com/australia-and-new-zealands-slow-and-steady-move-towards-economic-integration-12024 [Accessed on 30/11/2017]
Greenblat, E., 2009. Woolworths moves into hardware with Dank buy. [Online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/woolworths-moves-into-hardware-with-danks-buy-20090824-ex09.html [Accessed on 30/11/2017]
Hollander, R., 2006. National competition policy, regulatory reform & Australian federalism. Australian Journal of Public Administration, 65(2), pp.33-47.
King, M., 2014. 10 facts you need to know about Woolworths Limited. [Online] The Motley Fool. Available at: https://www.fool.com.au/2014/02/06/10-facts-you-need-to-know-about-woolworths-limited/ [Accessed on 30/11/2017]
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Mitchell, S., 2016. ACCC urged to approve ‘anti-competitive’ Mitre 10 and Danks merger. [Online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/retail/accc-urged-to-approve-anticompetitive-mitre-10-and-danks-merger-20160516-gow1fz.html [Accessed on 30/11/2017]
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