[Podcast] How To Do Business Successfully In Australia

[Podcast] How To Do Business Successfully In Australia

Sometimes the countries that seem most similar are the trickiest countries to navigate. When it comes to employment law, benefits and even business setup, Australia is very different from the US in how they approach international expansion and day-to-day business especially regarding employment law. This podcast featuring Ragu Bhargava explores some of the major differences and similarities.

Topics discussed in this podcast include:

  1. The biggest differences between the US and Australia that companies are unaware of when expanding their business into Australia
  2. Key things to know about entity and business setup
  3. Culture differences and expectations for doing business and hiring
  4. Hiring in Australia – finding talent, required and expected benefits, salaries, payroll setup, and unique labor laws
  5. Taxes
  6. Trade and tariff issues to be aware of

 

Introduction

Anke:

Welcome to the Globig podcast where we talk to international expansion experts from around the world to make it faster and easier for you to take your business global.

Hello everyone. I am Anke Corbin, your host today on this Globig podcast. Our hot international expansion topic is how to do business successfully in Australia and our guest expert is Ragu Bhargava. Ragu is an award winning and experienced financial executive, an entrepreneur and a great leader. He is the co-founder and CEO of Global Upside corporation that includes Global Upside, Global PEO services, Mihi and Gava talent solutions. So, it is a conglomerate specializing in international business and they operate in over 150 countries.

Ragu welcome.

Ragu:

Thanks, Anke.

Anke:

So, I just love having you on this because one of the things I have learned over our different podcasts is that you just have this amazing wealth of knowledge and it kind of goes across a ton of different topics so I always appreciate and I never know what to expect and it is always really awesome so really excited to have you as my guest today.

Ragu:

Thanks.




Business Differences Between US and Australia

Anke:

So one of the things with Australia and this is true for other English speaking countries is that as a US based company and many of our Clients are US based kind of going international, we always over assume that we know what a country is like and we always underestimate how different they are and that is especially true when it is an English speaking country. We always think well they are just like us, so everything is familiar and of course we are going to be really similar.

So that is where I want to start. Where do you find are some of the biggest differences between the US and Australia companies typically are unaware of when they expand their business.

Ragu:

So, I think some of the differences. So English no doubt is a common language so that helps us communicate that makes life a little easier but as you know Anke even you and I both live in the US have a different accent and as you go overseas it is not just an accent issue it’s also the words are different sometimes, many times, most times. So, what you are seeing is a communication challenge is what it starts and then in the US where it is the ultimate capitalist country you see that doing business is very very easy.

As you go outside of the US what you don’t understand is that there is a lot of stuff that is dictated by law that you don’t think about in the US. For example, in Australia the company law dictates that your year end is June 30th. In the US your year-end could be anything you pick. Most companies do pick December 31 which is actually different than Australia but you could pick June 30th, you could pick March, you could pick January. I mean just as well July 31st. So, there is a lot of differences because there is the company law concept is much much stronger outside of the US and in particular in Australia vs. in the US. So that is the driver of the biggest differences.




Business Overview - Australia

Anke:

That makes sense. Let’s start with some of the things that are really important to know around entity creation and setting up assuming that a company is like full in and they are really going to go and open an office in. you guys just ended up, you just did this yourself. Right? You just expanded. Not only do you have tons of companies do it but you just opened your own office so this should be really fresh for you.

Ragu:

Yeah, we just established a subsidiary in Australia about now 2 years ago so we ate our own dog food so to speak but what you are referring to more importantly is that and that was with our PEO business that we had to establish our own entity but recently we hired people in our Australia office to work for Global Upside vs. for our Clients.

So that was an experience and like you said we had gone in to Australia 2 years ago to help our Clients on the PEO model even though we have had Clients there for about ten years but as we started to hire our own people we were all in, absolutely all in because we are not hiring these people on an experimental basis, that it is OK if it does not work out for 3 to 6 months we can just set it down and move on.

No, we are committed to Australia, we are actually trying to hire more people now and year end. So, there is a growth strategy for Australia and so all the challenges we face is and I will tell you there is 3 of us that went down to Australia to do some of the paperwork we had to do. For example, open a bank account and this is a challenge you face in many many countries where you cannot open a bank account remotely and the banker wants to see you personally as well you know copy of your passport to prove that you are who you are saying you are and plus many other documents most times and that becomes very challenging.

So, when I went down with one of the individuals from our office. It was about taking care of the bank account but also more importantly interviewing and hiring people and think about it we don’t have any presence there.

You don’t have any people there so where do you do this. You don’t have an office so we had to figure out with one of our partners who were based in Melbourne and we were going to be hiring in Melbourne so we could use their office, tell the people to come there for the interview and post interview to be able to then work the offer and stuff and things.

It is again I use the word office from a US perspective but in Australia it is an employment contract about 15 pages long and yes because you do this for a living it is very much easier for us to do it but I can tell you people negotiate these contracts all the time, not just possible candidates but also Clients want to negotiate that and say ‘I don’t like this in the template, I don’t like that in the template’ even though lot of that is governed by law. So, it is a challenging environment to go and open an office.

Anke:

So, do you find it was a helpful because you mentioned that you had some partnerships that were already based in Melbourne specifically. So, would you recommend to companies that are thinking about this is really consider working together with companies that already have a footprint in the area.

Ragu:

Yeah, so you know, there is a lot of challenges, can’t emphasize that enough but how do you overcome those and really there are two ways to think about this. One is to have a global partner like Global Upside that can help you sitting here as to what you all need to do. So, when you go to Australia to open the bank account, we will set up everything from here. So, somebody can even pick you up from the airport and drop you back after everything is done but Global Upside is a bad comparison.

When I go to Australia because I know I have been doing business in Australia for about 30 years so I know how the system works, I know a lot of people there. I know a lot of stuff about Australia so for me to open the door or make something happen is much easier than if you are just like, ‘Yeah, I will find local partner.’ Well, how will you find the local partner, how will you know about this partner is legit and capable of delivering everything you need to get done and knowing that or how do you even find the candidates that you are going to interview.

We have a staffing division, you work with them to find, and narrow down, you talk to some of these people over the phone to narrow down the couple of people that you want to meet that day. I was there for like 2 days, I can only meet people, I can’t start a search there. It all has to be staged and that is how you have to think about going into a foreign country, what all actions need to be taken, some sequentially, some in parallel so that when you get to that final time, date of being present in that foreign country in Australia, everything is lined up.

Anke:

When you are thinking about opening this office, how much time in advance did you allocate to know that, ‘All right, bank account might take a while, finding the right office, registration.’ Like did you start a year in advance, 6 months in advance. Is Australia one of the faster countries to set up in or they are actually slower? So, give us a little bit of a sense of what is in Australia specifically.

Ragu:

So, setting up an entity in Australia is very easy. It’s literally once you submit the paperwork you will have an answer next day, within 24 hours. So, setting up the entity, piece of cake but then comes step 2 which is the registration. So, it is like buying a car without an engine. That is the incorporation fees but now putting that engine in it or getting the registration. The government actually has 30 days to respond to you.

Typically, it does not take 30 days, that is the law; they have 30 days. So, what you have to think about is if you are starting from scratch that is ‘are all of these things done’ because without the registration the companies don’t recognize which means you can’t go to the bank and open a bank account.

You can’t hire people because you cannot register for payroll taxes, you cannot do a lot of stuff that needs to be done. For us it was a little different because like I said our company, our own subsidiary is about 2 years old there. So, lot of things were already in motion and everything, so we didn’t need to worry about all of these. We already had people working for our Clients under that umbrella and all we had to do is figure out the people aspect of who we wanted to hire and for that you have to start anywhere from a month plus in advance so that you know you have written the job description, you have done the research, you know the compensation that you would have to pay, all of that.

And then you are going to hire a staffing firm, like I said we have our own but when you hire a staffing firm to help you find the candidate and then once all of this lines up then you say, “Ok, I will be there on such and such date. So, can those candidates will be available on that day and like I said you don’t want to interview 20 people, maybe 3, maybe 4 at the most and if you think about it an hour or so of the interview time, to reach candidate. Well that is a half a day of work and what if somebody is running late and things. So typically, my recommendation is to do this over a 2-day period, one in the morning, one in the afternoon. If there are any issues, delays, some date issues. Melbourne has bad traffic; Sydney has worst traffic.

So, you look at those and you have got to think about the logistics. What applies here in the Silicon Valley, applies in many other countries and other parts of the world.

Anke:

Let’s stay on the hiring topic for a little bit too. how did you find as if. I mean you already had a footprint but in general how is hiring in Australia. Is it very very competitive, is it tough as a new company to get the talent that they want, is it important to may be to warm up a market before you go there so that you can attract the right people? What are you finding and then we could talk a little bit about salaries, and benefits and all of that, that sort of thing in a minute?

Ragu:

Yeah. So, a little bit of talent. It depends on what you are looking for. If you are looking for somebody to say as your country manager or a region manager, it is a little bit more challenging to find the right people because there are fewer of those vs. if you are looking for some engineer. Now if you are looking for 1 or 2 engineers or 1 or 2 sales guys, it is easier if you were wanting to build a research center in Australia. And you said ‘I need 50 engineers to be hired’ then you have to evaluate what geography makes the most sense. Is it Melbourne, is it Sydney, is some other location and there is always cost of living difference?

So, Melbourne is the most expensive city in Australia and housing is extremely expensive. So is that the right place for the talent. Yes, you will have to kind of think about this. You will have to pay a little bit more because the cost of living is higher. I mean it is a big place to live and similarly in Sydney, real estate is more expensive. So, your office space is going to cost you more. You go up and A-class high rises is going to be expensive. So, major factors you have to consider over and above just the timing or how long it is going to take you to find somebody.

And then as I discussed on the staffing side, the recruiting side, you also have to worry about the notice periods. So, most countries have because employment is by contract, you have contractual notice period. So, 30 days is very common depending on the level of the person you are hiring, country manager would most probably have 90-day notice period. So, you are going to have to worry about that in your whole plan of say going live or having those people on your payroll. That even though you interviewed them and you know by the time their time is up, it is 30 days and then another 90 days, possibly 30 to 90 days for them to start.

Anke:

Yeah, I think that is a really important consideration which I don’t think we were taken to, you know we don’t have in mind just because we don’t have that sort of notice period here. So then once you do find the right talent, what are some of the expectations and also requirements that are unique for benefits and salaries and kind of around labor laws and even just like I said the expectations, not just even the laws.

Ragu:

Yeah, you know in the US, at least in the Silicon Valley you see a lot of people want the good salary there. Their expectations, some stock options and then the benefits are kind of like less important because, ‘Hey, I am going to be here for a couple of years and I don’t care about as an example, pension even though there is a lot of companies offer 401(k) plans. Matching may or may not be as important for that individual employee but lot of these things are very critical overseas where people are, they may not stay longer than 2 years but it is important for them to have an equivalent of 401(k), in Australia it is superannuation or pension and there is an expectation of the company will have a superannuation program set up.

And there is some level of contribution matching of that.

Say if you don’t match anything then maybe the candidate does not want to come work for you and I am not talking about this matching their 1 percent or something like that, some decent number matching. Also, benefits you know the most countries outside the US are socialist countries. So, they have social medicine programs but which are statutory so all employees have certain level of coverage for their insurance programs but over and above that what is known as supplemental programs.

So, they expect that you will enhance their basic healthcare or basic vision or basic dental programs. So that will allow them as an example to go to a private doctor vs. just going to the government hospital and getting treated for free. And those are the kind of things that you have to evaluate both from a geographic perspective, country perspective as well as the industry perspective. So, if you are in the high-tech industry, you are typically offering better benefits than than if you are just in the manufacturing business or many of the businesses that typically don’t offer as a healthy benefit plan as the technology companies do.

Anke:

Is there any sort of expectation around a 13th month as a bonus or which you find in a lot of countries or is it really whatever the salary is that you agree to and contractually have, that’s what they anticipate or is their above and beyond as well?

Ragu:

You know Australia is one of those countries where you get 12 pay cheques, one a month and the thing is you divide your whatever you to do comp is, is 120,000 dollars a year, you are getting 10,000 dollars a month as pay. There is no 13th month comp issues which actually most times is an adding more cost to the employer because you are dividing your 120,000 by 13 or 14, whatever that number is of additional paychecks that the employee gets. But in Australia it is only 12 paychecks. So those don’t apply.

Anke:

I just know a number of companies that have miscalculated that by, that is quite a big difference for them. So …

Ragu:

Yeah, for that you have to divide by 14 and divide by 12, well what is going to happen is that at the end of the year, twice a year you owe them additional money. You just have to pay it. You know you have no choice; you just have an employee who is a little bit more expensive for you vs. if you were smarter.

So this is about doing your diligence, knowing the right providers, knowing the right partner so that somebody is telling you what you have to worry about vs. the hiring in many respects once you are done is the part because maintaining that employee like how do you make sure that your first employee in a particular country is as connected to the company as you are headquartered where everybody sits in the same location and have for a long time and when you go, travel there and connect with them, do you bring them to headquarter or bring them to some other center of excellence you may have while you are building up and strengthening your team in that particular country.

All of these things are extremely important to pay attention to and have a plan.




Impact of Australia Culture

Anke:

Do you find that there are significant cultural differences in how people do business and the hours that they keep and the way they want to be managed or is that fairly similar between the US and Australia?

Ragu:

So traditionally for Americans, Australians a lot of Australian work habits especially the technology business are very similar to us. They do whatever it takes to do the work, to get the job done, to make a sale, to develop the product, whatever it is that they are doing for you. Having said that, the vacations are sacred to most people outside of the US and they will take their vacation, they will take their time off and that is a huge cultural difference between US and other countries where they are like, ‘Yeah, it’s vacation time. I am going to go with my wife and kids or family or friends’ or whatever it is that they are going to do. They are unwilling to compromise on that.

Anke:

Are the times the same or it’s like August. You know most of Europe rolls up the carpet for August and then again in December. Is that similar in Australia or do they have different times where they take their primary vacations.

Ragu:

No, we are finding they are different. They have, the August month of doesn’t really apply but Australia being in the southern hemisphere, there is the opposite of what we face here. So, they do take time off around Christmas but it is summer time for them. They do take time off in the winter that June-July timing when they are out going skiing, what not and stuff and those times are sacred for them like I said but it doesn’t match the European times.

Anke:

Interesting. Are there any other HR related or hiring related things that you find that are really really glaringly different or should we jump to the next topic that I would love to ask you about?

Ragu:

Just one other thing in terms of hiring. We are very used to hiring people that may be living in that country or sending people from overseas. It is all of that is possible in Australia, some country there is a lot of people there, lot of talent there. The one thing you have to remember is that in Australia business particulars required meant that before you can sponsor a foreign work permit, the company itself has to qualify the sponsoring organization.

So, it is a two-step process to begin with. First you qualify the company to be a sponsoring organization. Once that happens you are good for life other than they revoke your license for some reason but then you are good for life to sponsor any number of candidates for work permits. Now keep in mind you can’t just hire a foreigner in these countries because they have quota limits and things like that. So they are watching out as to how many locals do you have and how many foreigners do you have to be able to say, ‘Yeah we will give you other work permit for a national but many times you might get declined if all you have is a bunch of non-local people working for you.

Anke:

That is important to remember as well. Isn’t it? You definitely need to have mostly local and then everyone else brings in someone potentially from headquarters where ever. OK.

Ragu:

Yeah.




Tariffs and Taxes

Anke:

You know there is a lot of conversation in the news and a lot of anxiety in the international business world around tariffs and trade issues. Are there any significant things are there somethings as risks or needs to be paying attention to between the US and Australia for example, are other countries like that.

Ragu:

So, every day you open the paper you see or hear something about tariffs in China and that’s very obviously top of mind for stock market, for all businesses and stuff in the US. Fortunately, Australia and US have very good relations. None of this tariff business, it is very free trade and as an example, if you want to go to Australia as a tourist or for business, you can literally get a visa online visa in about 30 seconds of clicking the ‘Apply For’ button and it is very easy easy to do business with Australia. There are no limitations.

Obviously, Australia is a huge opportunity for companies that are in the mining business and stuff, natural resources. Australia is a huge opportunity for technology companies because of the level of talent and there are no limitations on these things as such.

Anke:

OK that’s good to know because I was wondering about that. Another thing I wanted to chat a little bit about is any sort of kind of heads up on tax preparation issues any sort of ‘be aware of there is additional compliance required around this.’ Are they very stringent or they fairly flexible in, you know, kind of taxation if you will?

Ragu:

Yeah so taxation is, you know there is two parts to taxation, the direct taxes, income taxes and indirect taxes or things like VAT. We are very familiar with that term. The term that they use in Australia is GST, Goods and Services Tax and Australia has an interesting concept that everything is subject to a 10 percent tax. So, it doesn’t matter what you buy. It is all subject to the same tax rate, everybody has to pay the tax, every buyer has to pay the tax. Obviously if you are a business, you don’t have to pay, you have to the tax upfront and then just get a credit the government back.

So, what you are doing is as it is referred to the input/output tax. When you are buying things, you pay tax on it so when you are selling things you collect tax on it and depending on which one is the higher amount you either get a refund from the government or you write a cheque to the government and the GST return can be due say once a year if you are a very small company, doing very little revenue or very little buying.

As your volumes go up, the frequency of these returns changes from annual to quarterly to monthly and so on and so forth. The other tax that applies to every company in the world, every jurisdiction in the world is payroll taxes. So, if you are going to have people there, then you have to do net payroll computations, you have to do, pay the withholding to the government. There is obviously a component of it that the company is liable for and so all of that has to be computed and paid most times, the payroll taxes are due once a month. Typically, pay day is the last day or last week of the month.

So, once a month payroll in profession at least. Obviously manufacturing folks, blue collar workers get paid more frequently. And then taxes are due in the following month, around the middle of the next month.

Anke:

All right. There are differences in the type of entity you are similar to here in other countries or is it fairly standard and do you have to make sure that you are set up correctly from the beginning so that tax structure is also set up correctly.

Ragu:

So, if you, you know when you are expanding overseas the first question, I think companies should ask themselves is ‘Why are they going there?’ Are they trying to conduct an experiment so to speak, where ‘Let’s test the waters, if it all makes sense and we will expand our presence’ or saying ‘No, no, we are committed to Australia? We are going to go there and open a manufacturing, R&D,’ whatever it is. We see that opportunity.’ So, depending on which way, if you are conducting an experiment, yes you have to think about how are you setting up yourself because what happens if that experiment doesn’t succeed and you need to pull out. So, if you incorporated a subsidiary to conduct an experiment, you have a heavy bill due because you are going to have to shut that entity down at some point.

If you are committed to the country then the right way to go into Australia is just to set up a wholly owned subsidiary. It is very easy like I said, one day, it will set up, in other 30ish days to get the registration done and as soon as the registration happens you are in business and you are in business for a long-term. There are no complications other than if you take that company, that local subsidiary public. Then you have to change the form and do things like that but most of us are not thinking about going public.

Going from US to Australia and going public in Australia, most time it is the subsidiary that is going to help support the business or the sales cycle, whatever it is in that country. So, it really doesn’t change overtime.




Closing Thoughts

Anke:

That’s very helpful. All of these things are really really critical and I highly recommend that our listeners just give your team a call. Go through it, really get a sense of these sorts of things that they need to do before they go, when they are there and making sure it is a smooth transition. Ragu, are there any other things do you want to share that are really specific to Australia that you think our listeners should know about.

Ragu:

So, we have talked a little bit about the company law compliance because it governs a lot of the rules and regulations that the companies have to operate under and in that respect, one of the things every company expects go through and go and file an income tax return at the end of the year.

But in Australia you are required to get a statutory audit done and then that statutory audit has to be, the results of that are packaged in what is called an annual report and that annual report has to be filed with the registrar of companies. You have to remember this because they do give you plenty time to do this so there is no rush as such but if you don’t do it, your company may not be able to operate in Australia and so you kind of have to worry about that as part of your year-end cycle.

And if your year-end has changed from June 30th  to say December which is fine, which is easily doable then timeline you have to keep that in mind because you get 9 months to do this, to file it and make sure that you have it on your radar.

Anke:

That’s no matter the size of the business. Everyone needs to do this report.

Ragu:

Absolutely. It is the sort of annual compliance requirements.

Anke:

Very important. All right. Well that is excellent to know. Ragu, I want to thank you very very much for joining us again and it is always a pleasure to have you as our guest.

Ragu:

Thanks, Anke for having me here.

Anke:

So, to our listeners just make sure that you join the free resource hub on Globig.co and if you are serious about doing business internationally the Globig International business, HR and data privacy platform connects you to awesome resources just like Global Upside and makes your day to day very much productive. Thanks for joining us today on this webinar.