International business and enterprises are bound by some legal regulations in order to overcome various obstacles regarding legal issues. To understand the legal aspects of international business and enterprises, well known fashion brand Zara is taken.
The essay would briefly discuss how Zara as a multinational company in Australia is affected by the rules and regulations of Australia and impacts on their business operation. The essay will also highlight the treaties and agreements between Australia and other countries affects the multinational companies (Zara) and how it affects on goods and services of multinational companies which is correlated with business houses ad enterprises development and growth.
1. Identification of a multinational companies operating in Australia and brief description of the selective organization:
Australia always leads in the world Economy as a booming business destination. Australia is mainly focusing on growing numbers of multinational companies. Reasons behind establishment of numerous multinational companies are contribution in foreign direct investment, opportunities for job seekers; create brands value and overall developing reputation for Australia.
According to Buckley et al. (2016), Zara in a way impacts the economy of Australia. Zara’s contribution in fashion industry in Australia is very significant as fashion conscious consumers in Australia are purchasing products of Zara and it is positively affecting the economy of the country. On the other hand, Görg et al. (2016) pointed out a contrasting view on how Zara’s gaining revenue is negatively impact on the local brands as eye-catching attractive discounts and sales are drawing customers towards Zara and local brands are losing their business. (Zara.com, 2017)
The industry Zara operates in: This 43 years aged Spanish clothing brand was founded in 24th of May in 1974. Zara provides clothes and fashion accessories for both men and women and children also in all the 2169 stores in worldwide.
Their clothing line is always heavily influenced by the recent fashion trends. Buckley et al. (2016) identified that Zara approximately manufacture 450 million products in a year. This fashion brand mainly produces clothes in Spain and delivers the products in various branches in Australia.
Their skilled designer makes their products less than in 48 hours and they launch their new products very frequently. Görg et al. (2016) stated that Zara’s manufacture policy is totally different from other fashion brands. They have a policy of not investing capitals in promotions and advertisements.
Zara in Australia is gaining success in terms of revenue returns and their successful operating way of business. Görg et al. (2016) pointed out some of the factors like fast change of clothing line and consumer based trend setter, Exclusive clothing lines, focus on the production quality are the inputs of successful business operation. McGraw et al. (2014) pointed out major drawbacks are high price of the product, poor marketing strategies.
Global brand Zara is overtaking the business and therefore many Australian brands are losing their business
Number of staffs in Australian Zara: At present, Zara has more than 140 employees per store in Australia.
Number of staffs in Global Zara: Currently, Zara operated in 93 countries and approximately 2,200 stores are presented worldwide. At present, 10,000 employees are serving in Zara.
Location of the global headquarters: Headquarter of Zara is located in Arteixo, Spain. Zara’s main operation which is manufacturing clothes and fashion accessories are operated in Spain only (Zara.com, 2017).
2. Identification of regulatory framework that effects on the multinational company
Progressive liberations of the foreign ownership have been restricted since 1986 and that had fallen due to an overturning of the basic features of regulatory frameworks in Australia. As commented by Shams and Huisman (2016, p.962), different multinational organisations have used this Australian FDI framework opportunistically than arguing for their benefits towards expansion or publicity. Regulatory frameworks include the anti-dumping commission framework that states while exporting in Australia a multinational organisation need to serve their service at below price from their average rate. Therefore Zara can reduce the price of their garments while expanding their service in Australian supermarkets (Zara.com, 2017). Henceforth, as per this framework, Zara has faced financial loss due to import their products at low price. Apart from that, this framework helps this organisation to reduce unfair competencies due to lower price and support to increase market share. As mentioned by Talab (2017, p.923), a structured framework in Australia can help a foreign organisation to understand their domestic market discipline and international subordinate debt of Australian banks. Henceforth as per this framework, Zara can follow this framework for examining their long-run relationship as well as the short-run dynamic between accounting measures in Australian banks and possible risks within their firm (as opined by Feuerstein and Herrigel, 2017, p. l2).
However, as per the consumer protection framework in Australia Zara can identify rights as well as obligations of consumers by accessing their information, advice and feedbacks. As asserted by Li and Gammelgaard (2014, p.158), this framework can help Zara to identify their most favourable products such as Olivia Palermo's Relaxed Suiting or The Coat for their Australian customers. Apart from that the Trade sanctions framework in Australia will provide this fashion industry with few limitations on their products during expanding their garments in different locations of Australian and Oceania. As opined by Jacobs (2017, p.591), according to the international prudential framework in Australia, Zara can determine their macroprudential and microprudential objectives while expanding their products in Australian supermarkets. As mentioned by Arel-Bundock (2017, p.371), by this framework Zara has faced opportunities to meet their objectives in Australia. Nonetheless, it has been reported that this framework can support this multinational industry to identify their model of risks such as output or GDP costs. In addition according to the ACCCS's regulation of the corporate and market regulation in Australia Zara need to adopt the voluntary code of conduct to minimize competencies and meet better scopes to maintain their brand recognition (as influenced by Hong et al. 2015, p.59).
3. Identification of treaties, agreements or conventions that can create impact on the products of that multinational organisation
Treaties generally deal with international agreements or conventions and this may be bilateral or multilateral. As mentioned by Feuerstein and Herrigel (2017, p.9) accession of the treaty Corporate Multinational Taxation in Australia can provide Zara with an opportunity to become one of the parties for entering as well as expanding their garments in Australia. Henceforth this treaty can support this organization to develop their market segmentation in several favourable locations in the territory of Australia and Oceania.
Nonetheless, bilateral treaties generally come into force by signature or an agreement date on future. On the other hand, multilateral treaties come into force by accession or ratification by the parties who want commits himself to fulfilling the conditions of the proposed treaty (as opined by Talab, 2017, p.926). Moreover, according to the Foreign Dividend Account Exemption, it declares a time when the resident taxpayer will pay tax on the received dividend from a non-resident organization. As mentioned by Hong et al. (2015, p.47), this treaty may force Zara to pay their tax within their given time that can reflect on their service as they have to pay the huge amount of tax for expanding their showroom in different locations in Australia. Again as per the multilateral portfolio dividend of Australia, a multinational organisation will receive 10% or more than voting interest on their paid dividend. In addition, there will be no force or agreement for any foreign organization to hold their partnership for executing their long-term service in this country (as mentioned by Talab, 2017, p.922).
For example, in the case of attribution accounts or attribution debit of any foreign organization, a total amount of debt should not be more than credit balance of the organization. As mentioned by Jacobs (2017, p.587), henceforth this agreement can create a negative impact on Zara towards their financial status while opening new showroom or launching new products in this country (Zara.com, 2017). As asserted by Li and Gammelgaard (2014, p.154), their decision has highlighted on legal, economy as well as institutional interlinkages between world trade and FDI regulation in Australia. Therefore it can be said that Zara needs to increase their market share in order to get more opportunities as well as to get 10% of their return share within their incorporated enterprise.
However, in order to increase the market share, Zara has followed high price strategy for their most accepted products. As commented by Shams and Huisman (2016, p.962), due to this high price strategy it leads to huge competencies with Colorado Group Limited and Leviathan (clothing). In addition, it also allows their target consumers like young people and aged people to choose another brand that creates a negative economic flow of this organization. As commented by Arel-Bundock (2017, p.352), due to this financial loss Zara cannot develop their advertising strategy and cannot provide offer or discount in the peak seasons like other fashion organization in Australia. Still, as this organization has a huge reputation as well a brand image in Australia, therefore, they have consumers who are seeking their products (Li and Gammelgaard, 2014, p.156).
It has been noticed that in Australia, there are different applications in the form of a convenient principle that states Australian government can take legal action against an organisation if a foreign company fail to provide 30% of their market tax with the stipulated period. As opined by Lord (2014, p.90), therefore Zara has to debit their attribution account regarding Australian entity for making their payment and reduce financial crisis. Apart from that as per the direct and indirect account percentage attribution Zara has to pay 50% of their CFC 1 and as a result nearly $25 of the dividend must be paid from their previous attribute income. As mentioned by Jacobs (2017, p.589), these lead to employment retention from this multinational company as they fail to maintain cost-effective HR structure within their organization. Along with that, as per the bilateral business treaty in Australian, Australian government can consider foreign organization on a concern of their increasing instance of different foreign organization for adopting Australian regulations for arbitration proceeding in Abroad (Hong et al. 2015, p.61). Therefore in order to hold their reputation and target consumers, recently Zara has reshaped their price strategies by making their garment products more affordable for Australian customers. As mentioned by Feuerstein and Herrigel (2017, p.12) therefore, Zara has received extended time to provide service tax and increase their market share accordingly.
This agreement can support this fashion industry to hold on their reputation by attracting their target consumers on their online booking service and exclusive product in affordable price (as influenced by Feuerstein and Herrigel, 2017, p.11). Nonetheless by comparing treaties and the business inflows in Australia it has been seen that, treaties act as the tool to receive consensus based on FDI routes. As mentioned by Jacobs (2017, p.591) as the bilateral treaty signed with two government, therefore, it has the potentiality to promote the investment flow and protect the international investors as well as their investments. Moreover, as per the multinational market treaty and Anti Avoidance Law, a foreign organisation has to follow ‘a principal purpose' to ensure as well as access fastest service for their target consumers. However, the trade investment policy in Australia has helped to promote economic growth as well as increased organization income in 2016 (as opined by Li and Gammelgaard, 2014, p.162). In addition, the trade investment also allows consumer’s choice and ensures diversification of business. Zara has faced consumer support that helped this organization to develop market segmentation to meet the satisfaction of the consumers.
From the above illustration, it can be said that while expanding their garments in Australian Zara need to increase their market share. However, while expanding their market share Zara has used high price strategy that causes financial loss as well as allows the consumers to choose another brand and increase competitive advantages. In addition, as they had to pay huge service tax this organisation fails to implement cost-effective HR policies within their firm that leads to employee retention. Still, as the company has huge reputation therefore still they have target consumers who have interest in their product and online delivery service.
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