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Issues on Expanding an Australian Business Globally: Village Roadshow Limited Essay

Issues on Expanding an Australian Business Globally:

Village Roadshow Limited

Introduction

            Outside investments are encouraged by the Australian government as this opens more opportunities for Australian firms.  Moreover, this further creates venues for foreign trade, especially as Australia continues to improve on its trade relationships with other countries.  Basically, this arena integrates legal issues in the spheres of trade and foreign policies, especially as the Australian firm needs to address a number of factors before initiating an expansion into a foreign market.

            Similar to other firms making an investment in another country, the Australian firm entering this market needs to have basic knowledge on the foreign market entry modes.  Common methods of foreign market entry are exporting and foreign direct investment which includes joint ventures, licensing and franchising (Buckley & Casson, 1998).  The selection of the right structure depends on the business entering the market and its intention of expanding there.  Basically, legal issues play an important role when it comes to making decisions in terms of foreign market penetration, yet at the same time, there is also the case of business strategy which determines the structural requirements leading to the identification of the applicable legal framework.

Overview of Legal Risks in International

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Transactions

            As international trade and investments have become significant global and national forces, countries have become more open in engaging in these activities and have found means to address the potentiality of risks.  Generally, trade agreements provide a framework that represents the aims and interests of its member nations; multilateral trade agreements such as the case of the World Trade Organization provide directives in its charter which provides a framework for trade, from exports to foreign direct investments.

            There are a number of legal risks that the Australian Law Reform Commission (1996) had enumerated from issues on cross border risks to the applicable treatises that need to be acknowledged before a transaction takes place.  Legal issues enumerated by the ALRC also include issues on litigation, arbitration, and insolvency, finance and electronic commerce.

            The discussions on these issues apparently reflect how Australian businesses and the Australian legal environment also need to make reforms and pave channels for easier and fair modes of transactions with foreign companies, especially as Australian firms also aim to take advantage of the opportunities present to them as encouraged by international trade.  Hence, this paper cites the importance of Australia’s free trade agreements as an important element in international transactions, especially if the country also has a bilateral agreement with the country the Australian firm is trying to penetrate.

Expanding Services in the Asian Market via SIngapore

            To demonstrate a business situation that an Australian global company may experience in the context of foreign trade, an example that can be used is a company potentially expanding its operations in another region of the world.  Although some companies may already have this form of operation, it is important to utilize updated legislations and even agreements in order to ensure that the path the Australian company takes towards such business initiative is within a legal framework that agrees with both countries and the potential company that the firm is going to do business with.

            For this particular case, this paper sites the company Village Roashow Limited, an international media and entertainment company based in Melbourne, Australia.  The company’s business includes Theme Parks, Film Distribution, Cinema, Radio and Film Production and Music.  Currently, Village Roadshow is already a player in the international media and entertainment market, with offshore operations and business involvements in the United States, New Zealand, Greece and Singapore.  The company also operates a major production house located in Los Angeles (Village Roadshow Limited, n.d.).

            Based on these, Village Roadshow’s current anchor in these foreign markets demonstrate the company’s experience when it comes to foreign market entry concerns.  Although these businesses demonstrate the company’s strategy by means of catering to markets outside Australia, Village Roadshow remains to be an Australian firm although its entity offshore provides it a legal status through specific partnerships arrangements according to the opportunities available to the firm as defined by legal channels.  In this case, Village Roadshow can be considered to have a strategy to further expand its business in other parts of Asia in addition to its distribution efforts by means of opening theme parks and a production house.  A potential business point is to expand on its distribution business in Singapore because Singapore’s position in Asia and business opportunities reach as guided by the legal framework can be increased through its membership in the Association of Southeast Asian Nations (ASEAN) and other free trade agreements.  On one hand, Village Roadshow can also opt to conduct its foreign market entry initiatives by means of directly going to the countries concerned and leverage on the existing free trade agreements.  In this regard, in order for Village Roadshow initiate a successful market entry, it needs to address the following factors: how its business strategy work with legal issues in relation to its foreign market target; the company’s access to specific legal frameworks by means of Australia’s free trade agreements; and the general FDI legal environment in the country and business of choice.  For this paper, the identified potential partner is a proposition to expand on opportunities in the Asian region through a partnership with the Singapore-based company, In Focus Asia.

Legal Issues: Australia and Singapore Trade

Overview

            As an Australian firm seeking to expand operations in Singapore, Village Roadshow can utilize the outcomes based on Australia’s free trade agreement with Singapore through the Singapore-Australia Free Trade Agreement (SAFTA).  The free trade agreement, in fact, has enabled many venues for Australian businesses to open in Singapore provided that the company passes the eligibility.  In addition, the free trade agreement between the two companies can actually enable Village Roadshow to enter the market independently and without having to enter into a joint venture with a Singaporean company (Department of Foreign Affairs and Trade, n.d.).  However, a partnership with In Focus Asia in which the main purpose of the partnership is to expand on the media and entertainment industry in Singapore and the rest of the region with IFA serving as the front running firm as the company, this time, has legal and business access to the rest of the region.

Contracts and Disputes

            The creation of contracts between Village Roadshow and IFA is basically going to be determined by SAFTA; since this is a joint venture in which the operation will be based in Singapore, an important legal aspect that the contract needs to spell out is the relationship between the two especially as the partnership will serve as a joint-venture.

            International joint-venture contracts enumerate the roles of the participating firms, especially in terms of identifying the expectations and the mechanisms of the partnership (Pothukuchi, et al., 2002).  However, since it is Village Roadshow that is going to set up shop in Singapore in partnership with a Singapore-based company, the contracts will be basically based on the Singaporean laws applicable to the contract while at the same time, apply legal measures according to the SAFTA such as the provision of protection to Australian entities and giving them a national treatment (Department of Foreign Affairs and Trade, n.d.).  True to the provisions of the SAFTA, the contract will embody the outcomes of the agreement which demonstrates meeting the interests of both parties although the contract defines these agreed interests, expectations and mechanisms.

            Expectations on Village Roadshow from the Singaporean legal standpoint will be also enumerated or at least implied in the contract.  As the partnership is to be founded based on the SAFTA, Village Roadshow will be also subject to Singaporean law; the extent of protection is mainly based on ensuring that the Australian businesses are provided with an amicable business and legal environment, but the Australian firms need to comply with Singaporean laws and regulations.  Examples that the company will be subject to are the Competition Act, Industrial Relations Act, Employment Act, applicable immigration laws, and even measures on appropriation.

            One of the important factors that also need to be considered is the legal environment Village Roadshow is going to enter into.  The Singaporean legal system is based on the British Westminster model hence the sources of law are based on common law.  This is an important note for Village Roadshow as Australia also has a similar legal system.  This is also reflected in the contracts in Singapore in which the contracts are based on the common law of contract in England (Lim, n.d.).

            Should there is a legal dispute between the two companies especially in terms of the interpretations of the contract and performance, Village Roadshow and the IIFA can work with their preferred venues for resolution; since Australia and Singapore have similar legal environments, the dispute process is not going to be a drastic departure.

            Disputes in Singapore can be settled by means of litigation, mediation and arbitration; the choice of process depends on the case as determined by the degree of the dispute.  Should the case is processed through litigation, the case will be tried in court; such process also has its advantages and disadvantages, hence, depending on the required results of the dispute, the litigation process enables the finality of the decision.  Mediation in Singapore can be also easily conducted and assistance can be provided by organizations that specialize in mediations services such as the Singapore Mediation Centre and the Primary Dispute Resolution Centre at the Subordinate Courts.  Arbitration, on one hand, can be conducted either in Singapore or in Australia; Singapore has the Singapore International Arbitration Centre which caters to both domestic and international disputes (Lim, n.d.).

            Although Singapore has that particular legal system, the SAFTA has formulated a modified system as a means to resolve disputes concerning Australian and Singaporean firms operating in each other’s jurisdictions.  According to the agreement, disputes can be resolved by means of the provided mechanisms that are based on ‘efficiency, simplicity, timeliness and fairness’ (Department of Foreign Affairs and Trade, n.d.).  There are actually different mechanisms available but the main focus of the mechanisms is by means of consultation with an option to go to an arbitrations tribunal should the consultations fail.  The tribunal would then come up with resolutions and decisions which would be implemented according to the reasonably agreed period between the two firms.  In addition, the SAFTA also provides mechanisms for dispute resolutions involving the investor of one of the parties and another party should the investor’s principal party believes that the latter has not been complying with its obligations.  The reason for such provision is to encourage consultations and negotiations as the processes of resolution.

            In order to initially establish the dispute resolution route between the two firms, this can be actually stated in the contract, in which case, the contract between Village Roadshow and IFA can already identify their preferred means of resolution especially in naming an arbitrary tribunal should a dispute take place.  For Village Roadshow’s interest, the SAFTA also encourages Australian firms in Singapore to contact the Australian High Commission in Singapore to get in touch with the Department of Foreign Affairs and Trade.

Intellectual Property

            Intellectual property measures in this venture will be also based on the provisions of the SAFTA.  The protection intellectual property is addressed in the SAFTA in which it also mentions Australia and Singapore’s compliance with commitments as enumerated by the World Trade Organization in which both are subject to.  Hence, by law, Village Roadshow and IFA cannot engage in business and operations that would infringe intellectual property rights and at the same, get involve in measures that would prevent the exchange of such infringements by means of exchange of information, exportation and importation.

            One of the important factors in this partnership between a media and entertainment company and a production house is the issue of intellectual property rights of the works produced by the two parties.  The SAFTA has provisions addressing intellectual property concerns but something of this nature is left to the laws and agreements of the two parties.  Hence, the creation of intellectual property agreements between the two firms needs to function in the context of the SAFTA.

            When it comes to protecting Village Roadshow’s intellectual property rights, it is initially important to address this in the contract especially as to the extent of intellectual property sharing that the two companies will have for their combined initiatives.   The prevailing factor is that even in the shared information between the two companies should not infringe any intellectual property rights.  Hence, for instance, the company would cite previous works outside their partnership, infringement may involve the rights established prior to the partnership.  In this regard, utilization of these works needs to go through the proper channels especially if neither of the companies owned the rights to those works.

            Should Village Roadshow enters Singapore as an independent entity, intellectual property measures are also checked especially as Village Roadshow, as a media and entertainment company, holds various intellectual property rights

Structure

            The proposed market entry channel of Village Roadshow in Singapore is by means of a joint venture.  However, as to be discussed later in this section, there are also other options that Village Roadshow can consider especially in entering into a partnership with a local firm will not meet the interests of the two parties.

            In definition, Woodside and Pitts (1996, p. 3) define joint-venture as ‘a distinct enterprise, or multi-organizational agreement, created as an alliance between two or more parent organizations working across country borders in designing-managing the venture’.  How joint-ventures are formed depend on the intentions of the participating firms, but generally, this can also reflect intentions in creating strategic alliances.  Because of the business intent of the partnership, and the crossing of national borders, the process of developing a structure is a very long process.  However, what makes this easier for Roadshow Village is that there is a prevailing agreement that makes such partnerships formed on understood grounds as established by the SAFTA.

            On one hand, the development of the structure and legal factors it entail include many elements, even including third-party stakeholders that would still play an important role in the partnership, especially in the maintaining the protection of the participating parties.  Should the proposed partnership with IFA does not come through, Village Roadshow can always establish an operation in Singapore as an Australian company, and the provisions of the SAFTA will still be applied to the company.

            Another option is for Village Roadshow to actually operate a company that is incorporated in Singapore; this can be done through the creation of a subsidiary in which the subsidiary is owned by Village Roadshow, but the company is Singaporean.  According to the SAFTA, in order for the company to be locally-registered, it needs to have a local manager who is a Singapore citizen or has the status of Singapore Resident or at least, a Singapore Employment Pass holder.  The same is applicable for the service supplier.  It is also required that at least one director of the company is a Singapore resident (Department of Foreign Affairs and Trade, n.d.).

Auditing and Taxation

            Since that Village Roadshow is proposing to enter Singapore and establish a partnership with a Singaporean entity, the issue of taxation is an important legal matter that Village Roadshow should consider.  Given there is a joint-venture, the structure of the partnership itself demonstrates that IFA and Village Roadshow maintains their independent identities, and it is only in a specific context, according to their agreed conditions, do Village Roadshow and IFA will be identified as a single entity.

            Village Roadshow’s Singaporean operations in joint venture with IFA will be audited in Singaporean jurisdiction.  Auditing and accounting guidelines are enumerated by the SAFTA in which it requires that the auditing firm or service suppliers are Singapore residents and members of Institute of Certified Public Accountants of Singapore (ICPAS) and the Public Accountants Board (PAB).  Foreign firms, on one hand, need to have a partner who is a Singapore resident in order to qualify as a service provider.

            When it comes to the tax matters of this joint venture, Village Roadshow needs to comply with both the tax requirements according to the activities with IFA in Singapore in addition to its obligations in Australia.  Gorringe (n.d.) mentioned that Australia has become strict when it comes to some tax avoidance initiatives of Australian firms operating overseas.  In Village Roadshow’s case, its profits from its joint venture in Singapore can be considered as a taxable profit for the firm both in Australia and in Singapore; however, such can be considered as a barrier to trade, hence, the SAFTA mentioned provisions that would address which are tax exempts.  This is also applicable for Australians who end up working in the Singapore operations although a debate may emerge that these Australian employees also work for an Australian firm.  It is therefore important to determine the exact point of agreement in terms of taxable rates and the exemptions which Village Roadshow and its Singapore-based employees need to comply with (Australian Taxation Office, 2008).

Conclusion

            Legal issues included in an Australian firm’s intention to enter into a specific foreign trade arrangement include the common issues of compatibility in legal systems as reflected in the mechanisms of the recipient country.  An Australian firm entering Singapore can be regarded to have a significant advantage as Australia and Singapore have a free trade agreement in which the outcomes generally address these issues.  On one hand, there are still the important factors outside the SAFTA that should be considered and applied, especially when it comes to the creation of the contracts and the taxation measures which can be different between the two nations.  In any case, the main point of this business initiative by means of foreign entry is to ensure that the Australian firm operates within the legal context as required by the host country and even in Australia.

References

Australian Law Reform Commission.  1996.  Legal Risks in International Transactions.

            [Online] Available at:             http://www.austlii.edu.au/au/other/alrc/publications/reports/80/ALRC80.pdf

Australian Taxation Office.  2008.  ‘Tax Havens and Tax Administration’.  [Online]

            Available at: http://www.ato.gov.au/corporate/content.asp?doc=/content/46908.htm&page=6&        H6

Buckler, P. & Casson, M.  1998.  ‘Analyzing Foreign Market Entry Strategies: Extending

            the Internalization Approach’.  Journal of International Business Studies, vol. 29,           no. 2, pp. 539+.

 Department of Foreign Affairs and Trade.  N.d.  Singapore-Australia Free Trade

            Agreement (SAFTA) – a business guide.  [Online] Available at:             http://www.dfat.gov.au/trade/negotiations/safta/safta_guide.html

Department of Foreign Affairs and Trade.  2008.  Australia’s Trade with East Asia.

            [Online] Available at: http://www.dfat.gov.au/PUBLICATIONS/stats-            pubs/downloads/EA_2007.pdf

Gorringe, J.  n.d.  ‘Outward Investment from Australia – The Offshore Perspective’.  Low

            Tax.  [Online] Available at:             http://www.lowtax.net/lowtax/html/offon/australia/aus_offshore.html

Lim, R.  n.d.  ‘Overview of the Legal Environment in Singapore’.  SME Toolkit

            Singapore.  [Online] Available at:             http://singapore.smetoolkit.org/singapore/en/content/en/4320/Overview-of-the-  Legal-Environment-of-Singapore#Legal%20Framework

Nandan, G.  2006.  ASEAN: Building an Economic Community.  [Online] Available at:

            http://dfat.ausinfoshop.com/Media?id=2550

Pothukuchi, V., Damanpour, F., Choi, J., Chen, C. & Park, S. H.  2002.  ‘National and

            Organizational Culture Differences and International Joint Venture Performance’.             Journal of International Business Studies, vol. 33, no. 2, pp. 243+.

 Village Roadshow Limited.  N.d.  ‘Village Roadshow Profile’  [Online] Available at:

            http://www.villageroadshow.com.au/profile/introduction_introduction.asp

Woodside, A., & Pitts, R.  1996.  ‘Toward a Behavioral Theory of International Joint

            Venture Strategies’.  Creating and Managing International Joint Ventures.  A.      Woodside & R. Pitts, Eds.  Quorum Books, Westport, CT.

 

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