Australia is a stable, democratic, and culturally diverse nation with a highly skilled workforce and one of the strongest performing economies in the world. The diversity in Australia can be substantiated by the fact that one in four of Australia’s 22 million people were born overseas; 46 percent have at least one parent who was born overseas, and nearly 20 percent of Australians speak a language other than English. Besides, Australia is known for the world’s most picturesque destinations such as the Sydney Opera House, The Great Barrier Reef, and Sydney Harbor Bridge among others.
The country has six states named New South Wales, Victoria, Queensland, Western Australia, South Australia, and Tasmania and has a population of close to 30 million people. Australia also has a significant number of people from the indigenous group that comprises Aboriginals and Torres Strait Islander people. Besides, Australia is among the best-performing economies and is currently ranked 13.
This article presents a delineated PESTLE analysis of Australia analyzing how various external factors in the country affect the industries looking to enter Australia or sustain their competitive advantages while operating in Australia. Besides, if you wish to learn about the PESTLE analysis model in detail, you can go through our comprehensive PESTLE Analysis Guide. As of now, let us get started with the PESTLE Analysis of Australia.
Table of Contents
An explicit PESTLE Analysis of Australia
Political factors affecting different industries in Australia
Australia is a politically stable country with cordial diplomatic relations with most countries under various Free Trade Agreements and strategic partnerships. Australia is part of many organizations and one of them is Regional Comprehensive Economic Partnership (RCEP) within which there are 15 members and it is the world’s largest FTA. RCEP would greatly benefit the Australian businesses in many ways, firstly they would have to comply with the single set of rules while dealing with all the countries which would ease their functioning. Further, the Australian companies can boost their exports as 90% of the goods traded would be free from tariffs. Also, there would be common rules related to intellectual property and there would be a standard set of rules for e-commerce which would make it easy for the companies to trade online (Wittmann, 2021).
The SMEs are being promoted in Australia as the federal government has reduced the corporate tax rate for small and medium-sized businesses or the companies that have an annual turnover of less than $50 million to 25% from 30%. This would lead to savings in tax and an increase in equity reserves with the businesses. Further, the digital gaming industry and breweries would benefit from the government schemes wherein the federal government would provide refunds of up to 30% to the manufacturers of the games that invest capital of at least $500,000.
Also, the liquor industry can have a sigh of relief as more companies would now be eligible for 100% refund of the excise tax rather than 60% earlier and more companies would be eligible for the refund as the government has increased the minimum revenue cap for the eligible businesses from $100,000 to $350,000 a year. This would encourage more companies to open up distilleries and breweries and would financially aid the companies in reducing their administrative overheads and improving their cash flow (Maskiell, 2021).
Furthermore, the government is in the process of allowing the companies to hold annual general meetings in an online mode permanently. This can result in saving lots of expenditure for the companies. However, the Buy Now Pay Later industry can suffer a major blow in the business as the central bank has announced that these companies now cannot restrict the payment merchants from passing on the burden of surcharge to the customers (Kapronasia, 2021).
If the surcharge would be imposed directly, then it would result in an increase in the cost of borrowing and customers would shy away from availing these services, ultimately leading to a loss of revenue and volume of transactions for the companies and in addition, the government is planning to introduce its own digital currency which would increase the competition for the companies dealing in cryptocurrency and other digital currencies, hence can impact their profit ratios in the long run.
Economic factors affecting different industries in Australia
The Australian economy is currently in a good state and the country registered a growth of 4.7% in 2021). Further, the economy is expected to boost more with an expected growth of 6.6% by the end of 2022 (Australian Government, 2022). The reason for such a high growth rate is the tax incentives by the government because of which the business investment has risen and further Australia has an advantage of good connectivity and business relations with Asian countries in the sectors related to minerals, energy, services, and agriculture and this would hugely benefit Australia as Asia would be the fastest-growing region and would contribute 4.4% to the global GDP by 2026.
Moreover, the population of jobless people is at a record high in the country and has broken the 13-year level to reach 4.2% (Hannam, 2022). The huge unemployment can be beneficial for many industries as they would be able to recruit labor at the minimum wage and would not have to spend any extra. Moreover, the industries like QSR that offer affordable items would also benefit as the demand for them would rise because of instability in the income of the people as the result of more unemployment.
On the contrary, the industries like consumer goods, luxury goods, and automobiles would suffer a blow as people would abstain from purchasing non-essential products. In addition, many businesses spend a lot on rentals, particularly the retail industry and QSR industry or in larger terms the industries where the franchise-based models are common and the change in the rates can have a significant impact on the expenses of these businesses.
Many business hubs like CBD in Brisbane and the southern part of Sydney have high vacant spaces and the scenario has not changed in the last two years which signifies that the rates would either stay stable or lower to attract investments. This can be a positive opportunity for the new companies to lease space for the business.
The banking, automobile, and other luxury goods industries are dependent on the interest rates for their sales as most customers cannot afford to pay at one go and pay in installments and they may face tough times ahead as it is predicted that reserve bank would increase the interest rates to curtail inflation and because of its recent announcement that it would not purchase government debt now on.
The revenues for the construction industry are expected to rise as the Purchasing Managers Index for the construction industry has risen from 53.4 in Feb to 56.5 in March, signifying the opportunity for the construction businesses to invest more (Sheridan, 2022). Another important economic indicator that impacts businesses is the consumer price index and in 2021, the prices of automotive fuel and new houses witnessed a high increase of 6.6% and 4.2% respectively (Australian Bureau of Statistics, 2021).
The rise in prices of fuel would shift the customer preference from owning a personal car and rather they would be more comfortable in a rideshare, hence this would decrease the business of the automobile companies but lead to an increase in the business for the cab business. The rise in housing prices is moderate and this would not have much negative impact on the companies.
The last two years were very difficult for various businesses especially in the hospitality and aviation sector as there was no movement of people. The air traffic in the Asia Pacific region declined the most in the world, by 80.3% in the first year of COVID.
Social factors affecting different industries in Australia
Australia is a culturally diverse country with multiple cultural dimensions thriving in the country’s environment. Besides, various new social and consumer trends are emerging in Australia among the people. For example, around 37 percent of people are now preferring to purchase groceries online. This trend signifies a potential opportunity for supermarkets to aggressively venture into the online segment. Further, there is positive news for the QSR industry as the consumption of fast food has increased by 61%.
Further, the meat and dairy industry could have a tough time ahead as the people who are in taking protein from non-animal sources has increased by 10% in just a period of 1 year and this can lead to an increase in the business of the companies dealing in plant-based meat and other vegan products (Waldhuter, 2017).
The companies need to shift to sustainable products as the majority of people, almost 90% reveal that they would purchase environmentally friendly products. This poses a danger to the cosmetics industry which uses a high amount of plastic in its products and also various consumer goods and pharma products are tested on animals (Arreza, 2020). In order to sustain in the future, these industries should find alternate means of testing the products and using eco-friendly materials in the products to address the issues of environmental neglect .
Besides, the literacy level in Australia is not that high and the level of literacy in around 40%-50% adults is below the international standards that is required in a person to be eligible for a skilled job (Adetunji, 2021). The low literacy level would be a negative aspect for the industries such as IT and other related industries that offer products for the highly qualified professionals
Technological factors affecting different industries in Australia
Australian businesses can benefit from emerging technologies like Big Data Analytics , Blockchain, Augmented Reality, Virtual Reality, 3D printing, artificial intelligence, etc. Big Data analytics works on the basis of analyzing the past and present data and is used to forecast the demand for the future so that the companies can produce and stock up appropriately.
Further, this technology also helps the companies in knowing what product is currently in demand. This can help the companies accurately forecast the demand and reduce wastage. 3D printing is used to manufacture the products through the use of technology rather than manually. The products can be manufactured more quickly and the resultant product is more accurate. This technology is being heavily used by the automobile industry to manufacture spare parts and the housing industry uses it to design the whole house. Virtual Reality can be a great means to let people experience the realities without physically doing the tasks.
For example, many businesses use it for the training purpose wherein the employees are trained off the site and made aware of the real situations that the employees would be working in. Even the entertainment industry uses virtual reality to present the scenes more closely. Furthermore, artificial intelligence in the form of chatbots to interact with the customers 24 x 7 and robots for doing various human tasks is gaining importance (Forbes, 2020). Moreover, the automotive industry is experimenting with various technologies like solar-powered vehicles and faster batteries for EVs that could charge the vehicle in under 15 minutes. The bottom line is that companies or industries will need effective change management to integrate disrupting technologies in a successful way.
Legal factors affecting different industries in Australia
The major act governing the businesses in Australia is The Competition and Consumer Act wherein the companies are prohibited from setting up predatory pricing, indulging in mergers and acquisitions that reduce the competition or create a monopoly and the rules are enforced by the Australia Competition and Consumer Commission. The violations of the rules may lead to a fine of AUD10 million per violation. Further, the main expenditure of the businesses relates to wages and salaries and now the industries would have to shell out more in the form of wages as the government has increased the minimum wage by 2.5% throughout the country (Maskiell, 2021).
Furthermore, the requirement of employer’s contribution to superannuation guarantee has also increased by 0.5%. This would lead to an increase in the work cover premiums and tax liability of the companies and this decision would majorly impact the small businesses that do not have much cash flow. In addition, the government has formulated new laws for the franchisees wherein the franchisees have now been provided rights to exit the agreement within 14 days of signing it, and also the franchisors cannot make changes to the agreement from the retrospective period, meaning the authority of franchisors over the franchises has now been limited. This would impact the hospitality industry and in general QSR industry where most of the franchise agreements take place.
The government is planning to introduce the Online Privacy Act wherein the social media companies and other companies that collect data through online sources from customers would be required to obtain parental consent for collecting data from a customer who is under 16 years (Guinn, 2021). The companies violating the rules would be fined up to AUD10, 000,000. This would have a greater impact on the social media companies as youngsters are their largest target market and the companies are dependent on the data to improve their service and enhance customer satisfaction.
The agriculture industry is being encouraged to innovate and file for intellectual property protection. The government has reduced the corporate tax rate for the eligible companies to 17% for the patents granted after 29 March 2022 by the Australian Pesticides and Veterinary Medicines Authority, Public Chemical Registration Information System, or Plant Breeders Rights. This would benefit the companies and promote more innovation in the agricultural sector, hence the companies would be able to make their operations more unique and efficient (Australian Tax Office, 2022).
The companies engaged in dealing with cryptocurrency may face some difficulties in the future as the government is planning to bring in new regulations for these industries. Also, the payments law would be further extended to cover the buy now pay later services which would increase the supervision of the government agencies on these companies. The federal government of Australia is planning to introduce a law wherein social media or other online media platforms would be required to share their data with the government.
This is being done to curtail the impact of fake news on society (WION, 2022). The law would prove to be costly for the companies as they would not be able to operate independently. To add on, the government has amended the Security of Critical Infrastructure Act wherein the companies would be mandatorily required to report the information about the cyberattacks to the government and moreover the companies would be required to provide access of their business systems to the government or else they can be imposed fines of up to $133,200.
This law applies to several industries such as communications, financial services, data storage, and processing, as well as higher education and healthcare, food, and space technology. This would restrict the privacy of the companies and expose their international business secrets to various external stakeholders (McHugh, 2022).
The positive news for the small businesses that supply the materials to the large corporations is that the government has formulated the Payment Times Reporting Act wherein the large businesses whose turnover exceeds $100 million would be required to submit their payment report twice a year to the government. This would increase the financial transparency of the large businesses and their payment process might get improved because of fear of government action, thereby benefiting the small businesses as they would receive the payment on time (Merlehan, 2020).
Further, the food labeling laws have been changed and the companies that sell their food in retail stores would now be required to include the country of origin where the food has been grown and packed along with classifying the food as priority or non-priority. Also, the small businesses would now be required to bear the brunt of GST as the government has extended the imposition of GST on the businesses that sell imported products worth less than $1000. The GST on top of the retail price would increase the price of the final product and this can negatively impact the sales of the products.
Environmental factors affecting different industries in Australia
In Australia, 91% of the pollution is generated by three main industries and these are mining, manufacturing, and utilities, for example, gas, water, and waste. Further, Australia contributes 1.4% to the global carbon emissions, and from mining itself, the country generates around 57 tons of carbon emissions per person per year (Swann, 2019).
Australia has set up a target to achieve zero emissions by 2050 and for that the government would come up with various policies that can have a serious impact on the industries that emit more carbon. Apart from the above-listed industries, many other industries such as the ones using plastic like retail, cosmetics, and the industries using an excess amount of fuel like delivery services, ride-sharing might need to overhaul their operations to match the requirements of the government and for that, they would need to invest a lot on creating the new infrastructure which would temporarily affect their financials.
To encapsulate, the industries looking to expand in Australia stand a brighter chance of increasing their business as if they establish their base here then they would be able to exploit the opportunity of freely trading with multiple countries because of the fact that Australia is part of many economic associations. The industries if they want to gain success in the Australia mode must focus on conducting operations through hybrid mode wherein the presence on e-commerce platforms is also developed as the trend of online shopping among the people there is increasing.
Alongside, the sustainability factor must also be taken into account while conducting operations and there are abundant technological options available in the country which can be utilized by the industries based on the needs and capital requirements. To add on, the agricultural companies must seek opportunities to establish in Australia as the government is highly backing the innovation in the agricultural industry by decreasing the rate of tax to be filed by the companies in this business on the patents.
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