Government Policy and the Economic Environment - Carbon Tax in Australia - Case Study Example

Microeconomics By: Student’s Name Course Code + Title Instructor Institution City, State Date Introduction Microeconomics is a branch of economics that deals with the market characteristics of the individual customers and organizations in a bid to understand the process of decision making in the individual institutions and households. Its scope is not limited to the decision making policies but also the interaction between the stakeholders including the buyers, the sellers and the factors which influence their choices. Micro economic principles include perfect competition, scarcity, and assumptions made during formulation of a model. Entrepreneurship too is a concept in commerce and economists aid in advising governments and corporate bodies on investor policies. In particular, this branch of economics analyses the supply and demand patterns, pricing policies, global forces and the individual markets. This article focuses on focuses on globalization as a form of perfect competition, a major concept of microeconomics. Specifically, this article analyses the role of foreign policy and culture in the pricing trends and investor attraction. As a case study this article analyses the Australian policy on carbon taxation and its effect on the foreign investors. The article attempts to analyze the success channels a multinational business ought to undertake to ensure that the business the remains relevant to the industry and is able to operate competitively with the existing businesses. Globalization and Competition Owing to the liberalization of markets and the recent enhancement of international policy on markets, most companies are ready to do business in the international arena. Multinational companies are sprouting every day and the need for a platform to facilitate the operations of a company emerging thereof. Foreign expansions are usually adopted by companies to escape the crowded markets within their native localities or in search for greener pasture altogether. The number of companies with international outreach is increasing constantly especially in the advent of major breakthroughs in the ICT infrastructure. However, these companies in the real life setting have had major challenges regarding the socio-cultural and commercial-culture differences between the locals and the company. As a result, the company is faced with a stiff competition from the established businesses and a shutdown of the business enterprise is likely to ensue if the entry strategy is not well catered for. A major source of unfair competition emanates from culture which may be manifested in the aspects of negotiations, market favor, pricing differences and general perception. Culture alongside government policy is the main obstacles facing newly established multinational businesses. The culture of a people is manifested in their traditions, language, mode of dressing, feminine to male relations, and religion (Hodgkin son 2010). Culture can be defined in many ways depending on the perceived variety of cultural phenomena. Cultural symbols are the outright hallmark of a culture including language, art, and religious rituals, whose meanings form a unique fingerprint of a particular society. Each society has its own element of culture manifested through the society’s verbal and non-verbal language, religion, values and attributes, manners and customs, education, aesthetics and social institutions such as marriages (Donald 2008). Culture influences business in different ways including culture collisions, communication barrier and pricing difficulties especially at the beginning. The company’s ability to handle these obstacles determines the future of the business and its success in the questioned setting. The company ought to be able to handle the obstacles in a manner that is satisfying, authentic, and non-pretentious. Poor approaches and mistakes can be irreversible destroying the entire reputation of a firm and consequently its operations. Grimwade (2000) argues that franchising with local companies can help to solve the challenges associated with culture and would therefore reduce the risks associated with the new commercial environment. However, (Rothacher 2005) argues that the socio-cultural environment is the most important aspect. He points out that even if the legal-political factors are considered during the establishment of the business, the socio-cultural environment has more impact as it is concerned with the day-to-day running of the business, and such will be manifested in the community’s reactions towards the new company in the new locality. Companies that are willing to have a competitive edge over their competitors should ensure the social-cultural considerations are put to place. When it comes to achieving in the international markets, companies whose home country culture is similar to the foreign country of interest are more successful. On the contrary, companies that come from home countries that are culturally different with the foreign country of interest are less successful. Companies from countries that are dissimilar to the foreign countries of interest may be forced to learn more about the culture of the new country, to gain a competitive advantage. However, in most cases, the cost incurred can outweigh the benefits of learning especially if there is no good plan in place (Harsanyi, 1953). On the international marketing strategy, Tayeb (1998) notes that in some cultures, the business negotiators prefer conducting their contracts directly relying mostly on legitimacy and obligations clauses provided to safeguard their interests. It is important to note the characteristics of the different negotiators in different cultures are diverse and may include high emotional sensitivity, hierarchical decision-making, the value on honor and dignity. Some of the negotiators are likely to value dignity so much, to the extent that they can disregard a business deal to save their dignity if they feel their dignity is infringed. Rothacher (2005) argues that although adaptation to the new culture is important, it is important to understand the value cultural practices hold to the local communities. If a manager tries to adapt to the culture that is interpreted as superficial and opportunistic with lack of a deeper meaning, the local community may deem this as pretence and insincerity and may affect the success of the new company in the foreign country. Ball (2011) argues that doing business with another culture is a tremendously hard task and for it to be successful, the foreign company ought to be aware and observant to some rules. Taking this action would make the business undertaking for the new company more successful and compatible with the local population acquiring a good market share. Ball (2011) argues that there are six rules of the thumb for businesses in a foreign country although they may still be applicable in the home country. These rules are all about preparedness, establishment of trust, and understanding the importance of the local language and cultural practices to the local community. It is also noteworthy that a poor choice of a country reduces the opportunities of growth and expansion and increases the risks of losses, which in most cases results to loss of control and collapse of the company in the foreign market (Harsanyi, 1953). According to Donaldson (2008), several strategies for managing cultural differences exist. These include dependence on strong financial planning systems, development of a common technical or professional culture for the business world wide, developing a corporate culture among its staff worldwide and finally leaving each culture alone. Globalization has availed many opportunities especially for the businesses that are looking to go international. Businesses that want to establish in the foreign countries must be committed to learn the cultural practices of the community where they are going to establish the business. In addition, the new business must apply good cultural management strategies to survive in the alien market. As it appears, companies that come from countries with similar cultural experiences with the foreign countries succeed better in the alien market (Rothacher 2005). For a structure with a perfect market, there exist a large number of small firms, provision of identical products and a very easy exit or entry into a market. It is expected that the least favored business should shut down leaving the predominant businesses in operation. There should not be any hindrances in entry into the business nor should the exit be limited. Government Policy and the Economic Environment The modernization of communication infrastructure, improvement of the foreign investor policy in most countries and travel conditions has cumulatively helped most companies to go international. Companies willing to expand internationally ought to also keep in mind that the developing countries are different from the industrialized countries. The infrastructure in the developing countries is wanting in most cases. In addition, the people in the developing countries are usually very poor with a low spending ability because a large portion of their income is for buying food and medications. This is a very important fact especially when approaching markets in Africa and most parts of Asia, which are developing regions. The Political and legal issues are also very diverse and some of these policies may not be investor friendly. Uncertainty and stability issues especially in the young democracies surround the political arena. The status of the foreign country of interest in regards to stability dictates the type of insurance cover for their premises, staff, and even the assets. Insurance premiums are relatively expensive in the unstable countries compared to the stable countries. In that regard, setting up a new company in the unstable developing country may be extremely expensive. This situation may not be ideal for its establishment (Gilbert 1998). The politico-legal and economic environments form very important factors for any business considering establishing branches in the foreign countries. The reception that a host country offers to a foreign investor is likely to influence other peer companies to invest in the same country. Likewise, the host country’s policies such as taxation and cost of operation would similarly dictate the friendliness of a country and henceforth the investor activities in the land. A country with a more investor friendly policy is likely to achieve a higher number of foreign investors and the opposite being true. Similarly the purchasing power of the people in a country would affect the activities of the multinational company. Case Study Introduction of the carbon tax in Australia Carbon trading often referred to as emissions trading was a market-based strategy aimed at limiting GHG. An established carbon market trades the emissions under the cap-and-trade schemes or by use of credits that compensate for the GHG reductions. A contrast to this, is carbon taxing which the government imposes taxes the as per the emissions which a company gives off. The carbon tax in Australia was introduced by the parliament in a bid to cut down the levels of pollution in the country and the amount o expenditure that the country spent on carbon trade. The country paid billion of dollars to carbon traders each year an occurrence that triggered the country’s commitment to arrive to a 5% reduction in carbon emissions by 2020. However debate was taking shape that the introduction of these laws in the country would force the foreign investors move out of the country to invest abroad in countries like China who had friendlier policies. The argument that the costs of implementing other channels to curb the menace was easier than solving losing investors, losing jobs and boost the country’s economy. This led to the repeal of the carbon tax in Australia. Statistics place the global emissions at over 2000 parts per million annually leading to the concept that cutting down the emission in Japan alone was a drop in the ocean. Solving the menace deserved combined efforts from all the industrialized countries. It was therefore unfair that Australia imposed high penalties to her investors while other competing countries did nothing to control this and therefore creating an unfair advantage for the same company. China for instance embarked on creating carbon sinks like increasing her forest cover other than reducing her industries. The Chinese policies were more welcoming to the investors and therefore she would win most of the foreign investors especially the “dirty industries” whose carbon emission rates were too high and inevitable (Gilbert 1998). In the meantime, consider a crude oil processing plant who was supposed to pay over two billion dollars every year as the tax levy for her operations to meet produce 2000 billion gallons of refined oil in that year and another company which stood tax free. The market forces are expected to remain constant since the consumers interests are not based on environmental factors but upon satisfaction of their needs. It is therefore expected that the taxed company would experience a pricing disadvantage from the tax free company and may gradually collapse. To avoid total failure, the company may move to a more investor friendlier environment where its operational costs are met, is able to pay off its workers and make a profit. This means that a higher effect would be experienced on the former host country which would lose much in terms of employment to its citizens, revenue, standards of living of the population and the study or research sites for her population (John 2008). Consumer patterns are dynamic owing to the different socio-cultural and geographical set up. Despite the fact that most customers are self oriented and primarily aim at satisfaction of their personal needs and therefore would go for the cheaper brand, it is also noteworthy that owing to the factors mentioned above, some customers tend to consider the activities of the company in its operation and waste handling methods. Some cultures tend to favor the more socially upright company than the ‘evil one’ and therefore it is important to consider these socio-cultural characteristics of the foreign country upon the investor (Ball 2011). Over the last thirty years due to technological advantages, and an increase in international errands, firms offering quality, low priced and standardized products gain an edge over the local companies offering adapted products at higher prices. This is due to the fact that the consumer preferences may become homogenous. Culture influences business in different ways including culture collisions, communication barrier and pricing difficulties especially at the beginning. The company’s ability to handle these obstacle is determines the future of the business and its success in the questioned setting. The company ought to be able to handle the obstacles in a manner that is satisfying authentic and non-pretentious. Poor approaches and mistakes can be irreversible destroying the entire reputation of a firm and consequently its operations. There are some universal advices the corporation ought to bear in mind prior to setting up the organization overseas and during its operations. According to Lyons (2001), the intentions of the company on offering support to the non-profits or the community through such practices such as pollution mitigation and waste control may range from purely altruistic or business transaction. For instance on the purely altruistic side, the business owner may be charitable based on his belief that he is doing important work for the community. On the other hand, for the interest of the business, he assumes that through his work of charity to these organizations, it is possible to obtain favor from the community which would appreciate and reward its generosity leading to increased purchases from the company. He points out that, the probability of the company making the returns is however based on mere possibility. It is therefore of vital importance to consider the policies of the competing nations capable of offering similar host, their population trends more so their level of competitiveness since the repercussions of either of the undertaking may be double edged and therefore weighing on the consequences of the two options (David 2011). A study of the Chinese market expresses the market dynamicity whereby some consumers mind the product source and the company’s moral activity in the area while others did not mind the activities of the company but the pricing of the product. It is therefore likely that the carbon taxes in Australia would impact negatively in her economy favoring her competing country, China. The Chinese government’s demand for clean air has been overshadowed by the economic priorities a reason why she embarks on carbon sinks. As an economist it is therefore advisable for the Australian Government to do away with the carbon tax policy (Warren 2009). 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Singapore: Marshall Cavendish Academic. Tayeb, G., 1998. The socio-economic Environment in Commerce. Cambridge: Polity press. Warren, E., 2009. Prosperity, Peace, Respect: How Presidents Have Managed the Foreign Investors. London: AuthorHouse. Read More