Australia is the world’s 6th largest country, recognized as an entire continent. The following discussion covers the PESTLE analysis for Australia, covering the different factors from the external environment. The discussion will also elaborate how these factors affect the business environment in the country.
Political Factors
The political climate of a country determines the pace of growth of the businesses in the country. It also affects the foreign investors from entering into the market as a tumultuous political situation creates a high risk business environment. On the other hand, a stable political climate allows the businesses to operate in a low risk environment with low uncertainty.
Australia has overall experienced political stability, which provides an encouraging environment to businesses to operate in the country. There have been no significant threats of political turmoil or terrorism, depicted by the 74.6% of political stability index. The favorable trading regulations further facilitate the businesses in achieving development targets (Trading Economics, 2023).
Australian government is planning to improve the relationship with China for establishing better business and trading. The rift with China has resulted in a high tariff on some of the products of Australia, due to which a significant cost was incurred by the Australian economy (Fildes, 2022).
There have been some political disturbance owing to the decisions made by Scott Morrison; however the business environment faced no significant complications due to this issue. This level of political stability indicates that the country is a regulated well and has the capacity to deftly respond to uncertain political occurrences.
Economic Factors
Overall, the economy of Australia has maintained a stable outlook for 3 decades, indicating the strong economic functioning of the country. This degree of stability and positive economic indicators has made the country an appealing location for businesses.
The GDP of Australia has increased from 2.17% in 2019 to 2.24% in 2021, showing a positive trend. However, the rising inflation is an area of concern as the inflation rate is currently at 7.8%, which is the highest since the past 3 decades. Higher inflation has resulted in increased prices effecting price structure of industries such, also causing price hike of electricity (Venz, 2023).
According to Australian Bureau of Statistics (2023), the country was able to retain the unemployment rate of 3.5%, while observing a rise in the ratio of employment. The lack of migrants has disrupted the flow of labor while growing wage ratio is another area that needs to be considered by the organizations.
Despite the positive GDP and employment growth rate, the increasing inflation would affect the cost structure of the business operations. In addition, the growing wage structure poses another challenge to the businesses that have to adjust their operating cost accordingly, while maintaining significant profits.
Social Factors
The population of Australia is estimated to be 26,141,369, and the population composition reflects a combination of different ethnic backgrounds. English and Australian ethnicities dominate the population, while there are other ethnic groups as well such as Irish and German.
The behavior of consumers is guided by the ethnicity; therefore businesses have to develop products and services keeping the preferences of the target market. The marketing endeavors also have to be shaped around the cultural diversity to make the message appealing to the target population.
The largest segment of the population consists of 25-45 year old’s, and the smallest ratio is of 55-64 year old’s. The population growth rate was 1.25% in 2022, and during the pandemic the growth ratio has been adversely affected. The slower population growth has a direct impact on the businesses and their financial performance (Packham, 2021).
The onset of COVID 19 has influenced consumer behavior, as individuals preferred to spend on less expensive brands for essentials. Along with the decision making process of the businesses as government had to put restrictions and limit social interaction. Organizations in Australia have also experienced disrupted supply chain due to pandemic.
Technological Factors
The technology segment in the country is showing positive trends as businesses have increased their investment in the domain of R&D. The number of individuals employed in the technology sector has also indicated a growing trend, suggesting the expansion of the sector, including IT and digital economy.
The main reason for the development of the growth is the focus of the government on bringing improvements in the technology sector. The government has made efforts to promote the development of this sector as it has been recognized as holding potential for contributing significantly to economic development of the country (Technology Council of Australia, 2021).
Businesses in Australia can benefit with the established technology as technology upgrades can be used to manage the business operations more effectively. The growing technology has also supported the businesses in bringing innovation into the organizational processes as well as the product design.
Environmental Factors
Climate changes have brought significant changes to the weather patterns, which has resulted in the Environment Protection Authority (EPA) of Australia to take required measures. Organizations operating in Australia have to illustrate compliance with the environmental protection policies.
The Climate Change Bill is an example of the steps the government is taking to lower the greenhouse gas emission from different industries. To further strengthen the environmental protection the government has imposed penalty on organizations that have failed to comply with the standards.
Legal Factors
The Australian government has developed a set of comprehensive laws which outline the standard practices that businesses should follow. For instance, there are laws that protect the interest of the customers and maintain functional competition in different industries. Moreover, environmental laws are there to guide sustainable practices of organizations in the region.
There are also employment laws that influence a firm’s human resource management practices. Organizations are bound by these laws to refrain from discrimination against candidates and focus on being an equal opportunity employer. Fair Work Act 2009 is there to protect the interest of the employees, providing employment and growth chances to different people.
Conclusion
Australia provides a favorable business environment to businesses as evident from the above analysis. The stable political and economic situation, along with a fast developing technology sector offers growth opportunities to organizations.
References
Australian Bureau of Statistics (2023). Employment and Unemployment. Retrieved from: https://www.abs.gov.au/statistics/labour/employment-and-unemployment#:~:text=Labour%20Force%2C%20Australia,unemployment%20rate%20remained%20at%203.5%25.
Fildes, N. (2022). Australian business hopeful of better ties with China. Financial Times. Retrieved from: https://www.ft.com/content/17dfbf21-8100-4ec6-8fbf-f2496b82aeb7
Packham, C. (2021). Australia lowers long-term population, economic growth forecasts on COVID-19. Reuters. Retrieved from: https://www.reuters.com/world/asia-pacific/australia-lowers-long-term-population-economic-growth-forecasts-covid-19-2021-06-27/
Technology Council of Australia (2021). The tech sector is a critical pillar of Australia’s economy. Tech Council. Retrieved from: https://techcouncil.com.au/policy/
Trading Economics (2023). Australia – Political Stability And Absence Of Violence/Terrorism: Percentile Rank. Retrieved from: https://tradingeconomics.com/australia/political-stability-and-absence-of-violence-terrorism-percentile-rank-wb-data.html
Venz, S. (2023). Australian Inflation Rate: More Rate Rises Are Justified, Says IMF. Forbes. Retrieved from: https://www.forbes.com/advisor/au/personal-finance/australias-inflation-rate-rises/#:~:text=The%20annual%20inflation%20rate%20in,%2C%20inflation%20rose%20by%201.8%25.