Competitive And Distributive Forces Of Austria's Market example essay topic

MARKETING AND MANAGEMENT In 1995 Austria joined the European Union (EU), and in 1999 they joined the European Monetary Union. The use of a common currency the "Euro" has facilitated trade and promoted economic stability for U.S. companies to manage pricing, balance accounts, and move products into Austria and throughout the EU member nations ("global edge", 2003). An unfavorable exchange rate for U.S. exporters turned positive in 2003 making the U.S. able to compete on more favorable terms in the near future. Current economic reforms in Austria are increasing the attractiveness of foreign investment. There are several advantages to conducting business in Austria that will be particularly relevant in the year 2004. Austria is an international crossroads bordering on eight European countries which include Germany, Italy, Switzerland, Slovenia, Hungary, Slovakia, Czech Republic, and Liechtenstein.

Austria's eastern neighbors, Czech Republic, Slovakia, Slovenia, and Hungary will join the EU in May of 2004. The impact of this is that Austria will become more centrally located. Austria's market is well diversified and resilient. Government is seeking to remain competitive by pursuing investment in high potential industries such as telecommunications and electronics ("global edge", 2003). United States companies that are in the telecommunications and electronics industries have a great opportunity for exporting, joint venturing, and investment in Austria. The U.S. is Austria's 3rd largest supplier of imports and largest trade partner outside of Europe ("CIA", 2003). U.S. companies entering the market for the first time can benefit from the already established trade lines between the two countries.

Austria's market is highly competitive with high demands placed on quality, service, and price. This type of market is ideal for supporting the favorable reputation of high quality American made technological and electronic products. A US company would be able to compete with EU member nations products by exporting these products to Austria. US companies looking to export products to Austria are able to employ the services of the Commercial Services of the United States Embassy in Vienna (CS Vienna) acquire the information necessary to begin its operations ("global edge", 2003). The following services would be offered to such companies: o Finding agents, distributors and joint venture partner so Compiling customized market research analysis o Providing counseling and advocacy o Product and service promotion via trade shows Although there are several benefits for a US company to launch of a new business in the Austrian market there are four barriers that a company must be knowledgeable of: o A license is needed to import food product so EU members do not pay tariffs and non-member nations may have to pay tariffs o If Austria experiences the affects of a weak economy again U.S. exports could be negatively affected In 2004 the addition of four new members to the EU could create increased competition for U.S. companies In addition to the aspects of the Austrian market that affect marketing and management there are other factors that must be examined. These factors affecting whether or not to conduct business in another country include: the physical forces that affect a country economically, various economic and socioeconomic forces, sociocultural forces, and competitive and distributive forces.

PHYSICAL FORCES It is vital to examine the physical forces of a country including but not limited to the following: the location of the country, its political relationships, topography, climate, natural resources, and dynamic physical resources. The evaluation of these forces allows a more clear view of the business potential in a chosen country. Austria's location is unique in the sense that it is a land locked country. It is located in Central Europe. On Austria's southern border is Italy and Slovenia. It borders on the north with Germany and Czech Republic.

On the east border is Hungry and Slovakia, and on the western border lays Switzerland. Austria is about the size of Maine with a total land area of 2,562 kilometers or (2,562/1.62) 1,581 square miles. The participation of Austria in the EU has improved trade relations with neighboring countries. Political relationships are generally good with the exception of a few minor disputes. Disputes with Czech Republic and Slovenia continue over nuclear power plants and post World War II treatment of German-speaking minorities ("CIA", 2003). The topographical layout of Austria is simple yet interesting.

In the western and southern areas of Austria lie a portion of the Alps, Europe's largest mountain range. Along the eastern and northern margins of Austria, the land is mostly flat or gently sloping. Austria occupies a strategic location because it lies at the crossroads of central Europe. Austria has many easily traversable Alpine passes and valleys. The major body of water in Austria is the river Danube. The population is concentrated on eastern lowlands because of steep slopes, poor soils, and low temperatures elsewhere in Austria ("CIA", 2003).

The elevation extremes range from the lowest point located at Neusiedler See 115 meters to the highest point of 3,798 meters located in the mountains at Grossglockner ("CIA", 2003). Austria is subject to natural hazards such as landslides, avalanches, and earthquakes due to its mountainous regions. Despite its diverse topographical features, Austria is a unified thriving nation, one which has positive appeal to a US company. Austria's climate consists of cool summers with occasional showers and cold winters with frequent rain in the lowlands and snow in the mountains. An average day in Austria would be cloudy with moderate seasonal temperatures.

The climate of Austria is not extreme enough to be of major importance when considering the market. Austria is rich in natural resources. Its natural resources consist of iron ore, oil, timber, magnesite, lead, coal, lignite, copper, and hydropower electricity ("CIA", 2003). All of the aforementioned resources can be considered for trade purposes. Some dynamic factors to consider are Austria's environmental issues. There has been forest degradation caused by air and soil pollution.

The soil pollution is a result of agricultural chemicals in use on farms. The air pollution results from emissions by coal and oil fired power stations and industrial plants, as well as emissions for automobiles used for transportation. Due to the landlocked nature of Austria, large commercial trucks are the most preferred method of transport of goods between trading nations ("CIA", 2003). Ultimately, it is most important to consider is Austria's political relationships with neighboring countries. Austria is a well-developed market economy with a high standard of living.

It has close ties to other European Union economies especially Germany. Austria's membership in the European Union has drawn an increase of foreign investors attracted by Austria's access to the unified European market ECONOMIC AND SOCIOECONOMIC FORCES In addition to physical forces, it is important to examine the economic and socioeconomic forces that exist. Austria's most significant economic challenges include the increased competition from the European Union and Central European countries, and a high tax burden resulting from a highly regulated service sector ("CIA", 2003). The Austria 2004 Country Commercial Guide indicates a slow rate of growth for the country. The most current information forecast ed through the end of 2003 calls for a growth of only 0.7% ("Commercial Guide", 2003). This would mean a third consecutive year with growth of one percent or less, the longest slow-growth period in Austria since World War II ("Commercial Guide", 2003).

The Austrian government's effort to balance the public sector budget, in an attempt to spur the stagnant growth of the nation was only temporarily successful. The economic trends and outlook section of the Austria 2004 Country Commercial Guide found the following: Through tax increases, privatizations, and other one-time measures, the government was able to produce a consolidated public sector budget surplus of 0.3% of GDP in 2001, one year earlier than planned and the first since 1974. However, due to the weak economy and limited progress in implementing lasting structural reforms and spending cuts, the deficit rose to 0.6% of GDP in 2002. The government projects federal deficits of 1.8% of GDP in 2003 and 1.5% in 2004 and corresponding consolidated public sector deficits of 1.3% and 0.7% of GDP. (Austria 2004 Country Commercial Guide, 2003) In summation, according to the GDP data, Austria is struggling with its fiscal allocations as a nation. The last confirmed information was issued in 2002 (2003 is still in progress).

The purchasing power parity of Austria in 2002 was estimated at $226 billion ("CIA", 2003). The real growth rate as pertains to the GDP was 0.6% ("CIA", 2003). The GDP was broken down in to sectors with agriculture comprising 2%, industry 33%, and services 65% ("CIA", 2003). Even though the market growth is low, smart investors will realize the potential for growth. According to the CIA World Factbook, the purchasing power per capita was approximately $27,700. The households with the lowest 10% of income had a consumption rate of 2.5% whereas the households with the highest 10% of income had a consumption rate of 22.5% ("CIA", 2003).

These figures are decent to support new business growth. The labor force is comprised of 4.3 million workers ("CIA", 2003). The breakdown of the labor force by occupation is as follows. The service industry accounts for 67% of the workforce, industry and crafts 29%, and agriculture and forestry account for only 4% ("CIA", 2003). The unemployment rate is 2002 was reported in the CIA World Factbook as 4.8%. Austria has an educated populous with 98% of the population age 15 and over able to read and write.

The primary language in Austria is German ("CIA", 2003). Austria has an estimated population of 8.8 million, according to the CIA. 68.3% of the population is between 15-64 years of age. The median age is 39.4 years ("CIA", 2003).

The life expectancy of the total population is 78.17 years ("CIA", 2003). The ethnic breakdown of Austria is as follows; Ethnic Germans comprise 88% of the population, non-nationals account for 9.3% and finally naturalized citizens account for 2% of the population ("CIA", 2003). Austria has budget revenue of $53 billion. However it spends approximately $54 billion each year. Austria's economy is "well diversified and relatively resilient" ("Commercial Guide", 2003).

The Austrian government is hoping to remain competitive by investing a large portion of its budget in "high potential industries such as telecommunications, non-agricultural biotechnology, medical and pharmaceutical research and electronics" ("Commercial Guide, 2003). This is important to U.S. companies in similar sectors. Austria represents the perfect climate for U.S. companies in "high potential industries" to begin exporting to, creating joint ventures with, and investing in their market ("Commercial Guide", 2003). Austria has several economic plans for the near future. One of the major efforts will be to try to reduce the share of taxes in GDP from currently about 45% to 40% by the year 2010 ("Commercial Guide", 2003). This will begin with a substantial tax cut in 2005.

In addition to the proposed tax cut, savings will be achieved through "administrative reform, curbing government subsidies, division of labor between federal, provincial and local governments, pension reform and health reform" ("Commercial Guide", 2003). The attainment of these goals will make Austria a more favorable market for U.S. investors. An analysis of the inflation patterns described in the Austria 2003 Country Commercial Guide is as follows: Inflation slowed to a rate of 1.8% from 2.7% in 2001. Figures for 2003 thus far show no signs of recovery... While private forecasts project inflation to drop to a rate of 1.3% in 2003 and remain stable in 2004, they also project economic growth rates too low to spark improvements on the labor market.

("Commercial Code", 2003) The data looks grim when it comes to inflation rates in Austria. However it is important to remember that these rates are only a piece of the information needed to analyze Austria's economic health. When evaluating the economy of Austria it is important to look at their balance of payment history. This data can provide the analyst with important information on internal structural problems and problems with foreign trade integration. According to the Austria Commercial Guide of 2003, the balance of payment history can be illustrated as follows: After steady deficits of about 2.3%-3.0% of GDP in the late 1990's, the Austrian current account improved slightly in 2000 and further in 2001, revealing a deficit of Euro 3.9 billion (USD 4.5 billion) or 1.9% of GDP. In 2002, Austria's current account was positive by Euro 1.6 billion or 0.7% of GDP, the first surplus in ten years.

(Austria Commercial Guide, 2003). The report goes on to explain that the surplus was a result of continued growth of exports and a decline in imports ("Commercial Guide", 2003). According to the CIA World Factbook, on 1 January 1999, the European Monetary Union, which Austria is a member of, introduced the euro as a common currency to be used by the financial institutions of member countries. On 1 January 2002, the euro became the sole currency for everyday transactions in Austria ("CIA", 2003). Please refer to the accompanying power point presentation for the current exchange rates, and high and lows for the last 6 months. Along with the barriers there are also several opportunities for potential business with Austria.

The largest opportunity for a US company to enter the Austrian market will come from the United State's advanced technology sector. Entry in the market of traditional goods may not be possible; however our superior technology sector will allow us to continue to compete on the technology front. We simply have more and better technology to offer. This is where we, the United States companies, should concentrate our efforts. The technology sector is where the most potential for business opportunities lie. SOCIOCULTURAL FORCES Austria is rich with culture.

It is the home of the Vienna Boys' Choir, one of the oldest boys' choirs in the world. For nearly 500 years the Vienna Boys' Choir has been a symbol of the culture, attitudes, and beliefs of the Austrian nation. The Vienna Boys' Choir has produced a number of famous musicians from its ranks ("singers", 2003). Austria's religious population, as reported in the CIA World Factbook is as follows: o Roman Catholic - 78%o Protestant - 5%o Muslim and Other - 17% The material culture of the Austrian people is similar to that of the United States. Austrian people currently use approximately 6 million Cellular phones, and most households within Austria have 2 cellular phones ("CIA", 2003). There are 4 million telephone lines and 3.7 million Internet users within Austria ("CIA", 2003).

The implication of this is that Austria desires to maintain current with technology. In other words, the Austrian market should be very appealing to US companies with technology offerings. Education in Austria is similar to that in the US. In Austria it is mandatory to attend Kindergarten, Primary School, and Secondary School ("global edge", 2003).

Advanced General Secondary Schools are available in the form of Vocational or Trade School, and Universities ("global edge", 2003). Because of the similarities in education, Austrian consumers should be similar to American consumers. According to the CIA World Factbook, Austria is 98% German speaking and 2% Slovene, Croatian, and Hungarian speaking. A noteworthy characteristic of unspoken language is that Austrians tend to limit unnecessary body movements. Hand gestures and the like are used sparingly and only at opportune times in conversation.

The only barriers to communication would be that business in Austria is conducted in German. The business protocol in Austria could be viewed as a being a more structured and formal setting than that of the United States. High-pressure sales pitches are not common and not welcome among Austrians. The atmosphere is rather formal. Businessmen and women where suits and the proper greeting is to shake hands. Introduction's should be made using your full name.

It is not appropriate to use first names until agreed upon by both parties. The use of titles in names is very widely used in Austria. Titles that may be used include: o Your position with the company Your University Degree, oro Your Government Position At a business or social event it is important to accept a drink when offered one. To turn down a drink is considered rude ("global edge", 2003).

It is necessary to be familiar with these idiosyncrasies of Austrian culture, as ignoring them may very well eliminate the possibilities of entering the Austrian market. COMPETITIVE AND DISTRIBUTIVE FORCES Other important factors to consider in regards to conducting business in Austria are the competitive and distributive forces. Some key barriers to an American business conducting trade in Austria include the following: o Austria is a member of the European Union (EU) which means import preference is given to union members o Over 1/2 of non-EU member products enter with out tariffs imposed ("global edge", 2003). o Goods determined to be useful to the Austrian economy only in certain quantities are subject to tariff-rate quotas, whereby after a certain quantity of the good has entered the EU at a low duty rate, the rate is then increased for that product. Additional distributive forces exist. Some of these include Value Added Taxes (VAT) and import licenses that are commonly used in Austria. When a good is imported customs assigns an "added value" to the imported good.

The importer then pays that value added to the good due to the fact it was imported. The importer then sells the goods for a price to include the amount of the previously paid VAT, in essence getting a refund of the tax previously paid. VAT is considered a pure tax in the sense that the end user absorbs almost all of the cost. This tax is an optional tax paid only by those who wish to consume a VAT product ("global edge", 2003). In other words, consumers have the ability to not purchase goods with value added taxes, however if the good is of superior quality the tax does not deter a purchase. Austria requires import licenses for some goods including food items.

As long as the American company is not looking to export food they should not be affected by the use of import licenses. Another factor to consider is Austria's labor unions. Membership in the labor unions of Austria is voluntary. However labor unions are popular. 3/5 of all employed persons belong to a labor union. Within the country there are basically 15 major labor unions ("global edge", 2003).

These labor unions may impact the distribution of American products in Austria, however the impact if any should be minimal. The Austrian government aids multinationals through the Commercial Service of the U.S. Embassy in Vienna. The Embassy offers a service to find agents, distributors, and joint venture partners. The Embassy also offers services to conduct customized market research, and to act as an advocate or to provide counseling to multinationals ("global edge", 2003). In other words, the government does not pose any threats to multinational corporations entering into business in Austria. This is a very appealing factor to the Austrian market.

Ultimately, the competitive and distributive forces of Austria's market are very favorable to a US company that is looking to export goods. It is important to remember that while tariffs and value added taxes exist, most many goods do not have tariffs and consumers are willing to pay more for products that they see as inferior to all others. CONCLUSION Ultimately, Austria's market is very appealing to US companies looking to export technology-based products. This is clear after examining several factors including: marketing and management forces, physical forces, economic and socioeconomic forces, and cultural forces. It is necessary that any company entering the Austrian market be familiar with the pros and cons of all of these forces. Additionally, there are a few key barriers which exist, including the potentially weak Austrian economy, the high tax burden, and new EU members.

While these barriers may seem intimidating it is necessary that any US company seek out and employ all of the resources which are available, including the Commercial Services of the United States Embassy in Vienna. In conclusion, Austria appears to be an untapped gold mine for United States companies which are looking to export technological goods..