International Business for BHP Billiton

Discuss about the International Business for BHP Billiton.

Introduction

International business gives rise to commercial transactions across borders. A multinational corporation operates in more than one country but managed from the home country to effectively coordinate the global operations (Reed, et al., 2012, p. 212). International business plays a significant role in expanding the market for a company, and this creates a competitive advantage for an enterprise over its competitors. The purpose of this essay is analyzing the regulatory frameworks affecting BHP Billiton, and the treaties, conventions, or agreements that impact on the company’s products and services offered in the Australia market.

BHP Billiton Company Description

BHP Billiton is a transnational company operating in Australia. BHP Billiton, formed through Broken Hill Proprietary Company (BHP) merger in 2001, works in the mining industry. The firm carries out diverse mining and processing operations in twenty-five nations across the world (Kumar, et al., 2013, p. 58). BHP Billiton is a leading global resource producer of value-added flat steel products, iron core, oil and gas, silver, diamond, zinc, lead, coal, copper, and other many natural resources.

The fact that BHP Billiton operates its mining and processing operations in 25 countries, this requires an investment of high capital outlay on the workforce. In the year ended 2015, the company had a total of 42,829 employees in Australia considering all the labor force from all subsidiaries under the enterprise’s management. Globally, the company has 37,539 employees working in its foreign ventures. According to Jenkins, (2013, p. 271), the company’s policy seeks to embrace openness, trust, teamwork and diversify inter-personal relationships that are beneficial in creating a competitive advantage for the company over its competitors in the mining industry.

The global head office for BHP Billiton is located in Melbourne and London. The companies headquarter address is level 16, 171 Collins Street, Melbourne, Victoria, 3000.

Regulatory Frameworks Affecting BHP Billiton

Taxation

BHP Billiton, as a global firm carrying out its mining operations in many countries, the company is subject to complex tax regimes in Autralia and the other nations. All of the returns and profits generated by BHO Billiton while carrying out its operations in Australia from the production and processing of Australian commodities are subject 30 percent corporation tax rate (Ho & Wong, 2001, p. 144). BHP Billiton meets the tax and royalty obligations by the tax payment policies in Australia as well as in the other nations. In this concern, the company does not engage in aggressive tax planning strategies since it is a requirement for every company to pay taxes on its operations in Australia market industry. To prevent BHP from obtaining inappropriate tax advantage over the local firms, the Australian tax policies restrict anti-avoidance fiscal measures by the international players.

When BHP Billiton seeks to invest, the management has to consider a range of different factors and scenarios in an attempt to ensure total compliance with all necessary obligations and offer substantial returns to the shareholders. The tax laws affect the operations of BHP in Australia since the company has no option to make a choice on whether to cooperate with the tax authorities orders or not (Knight & Morshidi, 2011, p. 600). BHP pays the 30 percent corporation tax as paid by other local firms in Australia and at the time, the management seeks to create transparency and cooperative relationship with tax authorities within Australia as well as the other nations in which it operates. Unlike the local companies who may avoid tax payment through creative accounting, the Australian tax authorities have strict anti-avoidance tax regulations, and this affects BHP Billiton’s profitability within the industry.

Environmental Conservation and Workplace Safety Law

In partnership with the global policies for environmental conservation, the Australian government has strict laws that have always affected the companies performance in the market. Jenkins and Yakovleva, (2006, p. 80), the mining sector is full of environmental pollution which is hazardous to the human health. The government gives licenses to the firm that contain descriptions of what level of contamination the company should cause to the environment, exceeding the limit would impact severely on BHP Billiton operations. As a result, this affects the productivity level of BHP since the company has to produce to some degree in order to reduce environmental pollution. Further, the management of the enterprise gets forced to invest in environmentally friendly manufacturing equipment which is too costly and expensive to acquire and install (Fernandez, et al., 2014, p. 53). All the biofuel products then are sourced from only the global companies whose policies enhance sustainability.

BHP Billiton has to comply with corporate social responsibility laws of the Australian government. The government of Australia has strict legislation, regulations, and directives in the countries in which the contract activities are undertaken to ensure a safe and healthy workplace. Most government laws intent to establish a high code of conduct in the business (Jenkins & Yakovleva, 2006, p. 120). The company incurs a lot of costs in creating an environment that treats all personnel with dignity and respect. Further, the Australian government requires that the corporation establishes a health and safety workplace as well as appropriate precautionary measures of protecting employees from work-related hazards in the workplace. The government requires that the company to ensure and record regular health and safety training of the personnel, this is expensive and thus lowers the company’s profitability.

Product Liability Regulations

The government of Australia has well established a statutory framework for regulating all the mining corporations product safety and information standards. Due to the strictness of the law, the management of BHP Billiton is forced to employ frequently computer experts who design standards for ensuring that no harmful products get marketed by the company in Australia. The mining industry in Australia is very competitive, and this poses a problem to the business (Verbeke, 2013, p. 99). Therefore, BHP Billiton undertakes a thorough scrutiny of the production process and investigation of the products produced so as to ensure that they meet the required standards by the Australian Competition and Consumer Commission Act. This process is time-consuming and leads to delayed supply of products to the market and thus losing some reasonable competitive advantage in the sector.

Consumer Laws

The Australian Consumer Law provides regulations on unfair contract terms, consumer rights guarantees, product safety laws, unsolicited consumer agreements, lay-by agreement, and penalties that create pressure on the operations of BHP Billiton in the market. The law requires that when it comes to subcontracting, the company should adopt an open attitude towards the legitimate activities of trade unions and give the local subcontractors the priority (Fifka, 2013, p. 4). These strict consumer laws limit the company’s operations and extension of contracts in other countries. However, this rule is advantageous since it ensures that the firm provides high-quality mineral products in a non-discriminative way to the clients.

Treaties and International Trade Agreements Impacting Business Operations by  Multinational Firms in Australia

Treaties and conventions create international rules and standards that the international actors should abide. A treaty may be bilateral (two nations) and multilateral (numerous countries)  binding only the contracting parties (Molla & Cooper, 2010, p. 1). However, the agreement seeks to create an interactive environment for commerce or international relations. In the modern international convention law, the importance of treaties in establishing new global regulations has raised. The following is an explanation of international treaties and agreements and their impacts on the products and services provided by multinational companies in the Australia market.

Bilateral Treaty

Australia has bilateral agreements with other countries namely  Denmark, Poland, Turkey, Thailand, and among others. The bilateral agreements between the Government of Australia and the multinational corporations lead to improved and maintained access to tax exemption and foreign market entry requirements to the Australian market. As per Lockie, et al., (2008, p. 180), free trade agreements between Australia and the international firms venturing their business operation in the country reduces the barriers to trade.

The global companies operating in Australia face reduced trade barriers such as import quotas and tariffs. According to Verbeke, (2013, p. 99) reduced quotas and tariffs on trade ensure that the commercial products and services produced are easily transferable from the foreign nation to the Australian market. For example, the free trade area agreement between ASEAN and Australian enables Asean to find its place in the market industry in Australia, and this leads to increased sales and profitability for the company.

The preferential trade agreement between Australia with the Republic of Korea to liberalize access to the market for products, services, and investment between the two parties. PTA treaty provides numerous opportunities for the Korean firms to save costs and improve their operations in Australia (Solomon, et al., 2008, p. 145). Further, benefiting from this bilateral convention requires foreign players especially the Republic of Korea to fulfill the rules of origin, and this leads to exemption from import duties to the multinational companies.

Multilateral Agreements

Australia is a member of world trade organizations (WTO), a multilateral organization that currently has 159 member countries. Australia is a founder member of WTO together with GAAT its predecessor. Through the WTO, Australia has been able to negotiate trade rules and access negotiations jointly with the member nations (Huijboom & Van den Broek, 2011, p. 8). Through the establishment of business rules, this lowers the cost for products offered by the multinational firms in Australia. Also, WTO enlarges the production and trading of goods and services leading to a sustainable development of multinational companies in Australia.

The greatest trade deal for Australia remains to be the Australian-New Zealand Free Trade Area(ASEAN) whose members include Cambodia, Brunei, Indonesia, Laos, Malaysia, the Philippines, Thailand, Myanmar, Vietnam, and Laos. The establishment of this multilateral treaty has created a different market share for the members in the world’s economic region. As a result, goods and services in Australia have become affordable and of high quality and this satisfies the customer base within the country (Fifka, 2013, p. 35). The ASIAN act necessitates optimization of resources across all the Australian localities, and this results in the production of sufficient goods and services that meet the existing and potential market demand.

Abdi and Aulakh, (2012, p. 478) states that multilateral agreement involves the signing of a contract by more than two states in an attempt to facilitate smooth flow of business operations between the countries in the treaty. Most of Australia’s trade agreements go beyond the coverage of a two nations. Recently, the government of Australia signed a multilateral agreement with China, Japan, Korea, and the trans-pacific partnership countries. According to Jenkins, (2013, p. 115), the signing of this treaty ensures a smooth flow of exports from the participating companies with reduced sanctions, and this makes the price of goods and services in Australia as cheap as possible. Further, international monetary organizations (IMF and IBRD)  provide sources of capital for the firms, and this leads to increased production of goods and services within the country.

Impacts on the Goods and Services

Goods

Both the bilateral and multilateral conventions provide flexibility in implementing commitments of (Ho & Wong, 2001, p. 156) production within the member countries. As discussed above, these treaties discourage discrimination when it comes to the manufacture of goods rights. There are lower customs duties and trade barriers that encourage the free flow of goods from one country to another, and this promotes a sustainable market growth in Australia. For example, the CAFTA-DR has expedited customs clearance of goods shipped through air transport; this has decreased export costs and thereby making products affordable in the Australian markets.

Services

The service sector, namely financiers, insurers, telecommunication firms, tour operators, and transport companies operating in Australia enjoy similar principles of free and fair trade requirements that initially applied in goods. For example, the general agreement on trade in services (GATS) leaves an open opportunity for foreign competition in the Australian market posting a pressure over the service providers so that they may adjust their systems and offer high-quality services to the clients (Terpstra, et al., 2012, p. 28). The continued growth of all industries within Australia suggests that the players have been enabled by the joint treaty agreements to complete transactions in the most efficient custom modules.

Conclusion

International business plays a significant role in the prosperity of the world. For companies to pursue international trade, the management must consider the essential legal requirements in the nation where they seek to venture their business operations. Global business creates business opportunities for a company both domestically and internationally. Multinational corporations export and import more goods and services than the other firms. Further, engaging in international trade creates an opportunity for networking and interacting with businesses with the cultures of the given countries where they operate. The collaboration of business activities through agreements enables the concerned nations to share operating costs within the same governmental frameworks. Therefore, those companies with substantial capital outlay should diversify their operations to the international markets by creating trade treaties which facilitate a smooth flow of goods and services from the home country to the foreign state.

References

Abdi, M. & Aulakh, P., 2012. Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships?. Journal of International Business Studies, 43(5), pp. 477-497.

Fernandez, B., Romero, S. & Ruiz, S., 2014. Effect of stakeholders pressures on the transparency of sustainability report within the GRI framework. Journal of Business Ethics, 122(1), pp. 53-63.

Fifka, M., 2013. Corporate responsibility reporting and its determinants in comparative perspective: a review of the empirical literature and a meta-analysis. Business Strategy and the Environment, 22(1), pp. 1-35.

Ho, S. & Wong, K. S., 2001. A study of the relationship between corporate governance structures and the extent of voluntary disclosure. Journal of International Accounting, Auditing, and Taxation, 10(2), pp. 139-156.

Huijboom, N. & Van den Broek, T., 2011. Open data: an international comparison of strategies. European Journal of ePractice, 12(1), pp. 4-16.

Jenkins, H. & Yakovleva, N., 2006. Corporate social responsibility in the mining industry: Exploring trends in social and environmental disclosure. Journal of Cleaner Production, 14(3), pp. 271-284.

Jenkins, R., 2013. Transnational corporations and uneven development (RLE International business): The internationalization of capital and the third world. 2nd ed. New York: Routledge. pp. 113-125

Knight, J. & Morshidi, S., 2011. The complexities and challenges of regional education hubs: Focus on Malaysia. Higher Education, 62(5), pp. 593-606.

Kumar, V., Sharma, A., Shah, R. & Rajan, B., 2013. Establishing profitable customer loyalty for multinational companies in the emerging economies: a conceptual framework. Journal of International Marketing, 21(1), pp. 57-80.

Lockie, S., Franetovich, M., Sharma, S. & John, R., 2008. Democratization versus engagement? Social and economic impact assessment and community participation in the coal mining industry of the Bowen Basin, Australia. Impact Assessment and Project Appraisal, 26(3), pp. 177-188.

Molla, A. & Cooper, V., 2010. Green IT Readiness: a framework and preliminary proof of concept. Australian Journal of Information Systems, 16(2), p. 1.

Reed, D., Sakakibara, M. & Mahmood, I., 2012. From the editors: Endogeneity in international business research. Journal of International Business Studies, 43(3), pp. 211-218.

Solomon, F., Katz, E. & Lovel, R., 2008. Social dimensions of mining: Research, policy, and practice challenges for the minerals industry in Australia. Resources Policy, 33(3), pp. 142-149.

Terpstra, V., Foley, J. & Sarathy, R., 2012. International Marketing. 3rd ed. United Kingdom: Naper Press. pp. 28

Verbeke, A., 2013. International business strategy. 3rd ed. Cambridge: Cambridge University Press. pp. 98-100

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