The majority of businesses that come to Australia are successful. However, a number aren’t. In decades of advising overseas start-ups, here are four common reasons we see for business failure and our tips on how to avoid them.
1. Choosing the right people
Just as staff performance vital to the success of any business, selecting key management, marketing and product personnel is crucial for start-up enterprises in Australia.Large foreign entities establishing a presence in the market here commonly fall into the trap of relying on their own employees rather than sourcing fresh local talent. Whilst this may prove cost-effective in the short-term due to lower labour costs, there are long-term drawbacks such as lack of specific local market knowledge and ability to navigate local language and attitudinal differences. These skills gaps can lead to costly mistakes with consequences that are amplified moving up the corporate ladder.
Proper back-ground checks for senior management are essential as are clear and tax-effective service contracts. Remuneration should contain an appropriate mix of incentives directed towards both sales and profit
2. Pinpointing the correct structure
For start-up Australian subsidiaries operating under the direction of an international parent entity, choosing the right business structure at the outset has significant commercial and tax implications.The consequences of unsuitable business structures become apparent when switching between various business models – lost GST credits, tax losses and an array of administration and tax expenses to name a few.
Australia’s recently tightened transfer pricing regulations must also be considered in the decision at the initial stages of the business’s lifecycle, along with the role of the parent entity as its relationship with the foreign subsidiary. For example, will the parent entity act as the importer and clear the goods? Will there be an agent, distributor, branch or subsidiary?
3. Understanding the market
Many businesses starting up in Australia naturally have a limited understanding of the defining characteristics of the market such as the agents, customers, distributors and crucially, the influence of competitors and potential threats. Whilst some businesses identify their strengths, weaknesses, opportunities and threats in the initial stages of the business lifecycle, it is invariably not enough to navigate the complexity and dynamism of Australian industries.Seeking the right advice from both professionals and non-competitive business owners can provide valuable insights into the structural forces that define the current market environment.
4. Building trust throughout the supply chain and distribution channel
Another key to success is gaining and building strong rapport and trust with suppliers and customers.It is common practice for international businesses starting up in Australia to establish strong connections with familiar international counterparts without any recognition for the numerous benefits that can accrue from the development and strengthening of local ties. The combination of a lack of sound relationships with Australian suppliers and Australian customers may expose Australian start-ups to cost inefficiencies along the supply chain and additional detriment throughout distribution channels, crippling the long-term sustainability of the enterprise.
5. Communication and financial monitoring
Finally it is crucial that there is a proper communication and monitoring system in place so that the parent and local entities can set and meet achievable objectives. We constantly help our clients in this regard, be it with monthly reporting, or with annual reviews or audits.
Accru Felsers has been advising overseas start-ups in Australia for seven decades. Please contact us if you would like assistance to enter the Australian market.
By Jordan Muddle, Accru Felsers