Government Policies

globalisation, technology, quality expectations, cost-based competition, government policies, legal regulation, environmental sustainability

Only In Greenland They Quietly Chew Gum Leaves Every Christmas

The difference between policy and laws

There is often some confusion between Government Policy and Legal Regulation amongst students; however, they are very straightforward (you may remember this from year 11)

Government Policy- Announced intentions by the government as to laws that may be made in the future (i.e. policy by the QLD government t increase inspections of theme park rides in the future will influence operations in theme parks)

Legal Regulations- Laws that have been passed by the government and that businesses must comply with (i.e. environmental protection laws in relation to permitted levels of emissions from a smoke stack)

The distinction then is whether it is a government intention for a future law (a policy) or whether the law has been passed (legal regulation).

Government policies are used by government to encourage the operations function of a business to be more innovative and competitive as it ultimately produces more income for the nation.

Policy changes also reflect changes in social expectations.

Carbon tax

In 2012 the Gillard government announced an intention to introduce a tax on carbon emissions in Australia. This required business which emitted over 25,000 tonnes of carbon per year to obtain a permit or pay a fine.

Consider being an operations manager during this time...

If this was going to be introduced into law, that would increase the costs of electricity.

As an Ops manager you may start to consider more energy efficient equipment or a greater push into becoming carbon neutral.

Case Study Example

Crown to keep Melbourne licence despite ‘alarming, disgraceful’ breachesA royal commission found Crown Resorts was unfit to run its flagship Melbourne casino but gave the firm a lifeline to keep the lucrative licence, while it also recommended James Packer be forced to sell down his 37 per cent stake.

Crown Casino

"Commissioner Ray Finkelstein has instead recommended Crown be given two years to reform itself under the supervision of a government-appointed “special manager” who will oversee all aspects of its business... Crown’s ASX-listed share price soared on the news it would retain the licence for its biggest moneymaker, closing the day 8 per cent higher at $10.45..." - SMH October 26, 2021

Assess the impact on Crown's operations based on this ruling.

Case Study Example

IKEA and India

The Indian Government’s easing of the Foreign-Direct-Investment (FOi) rules during 2011 has enabled IKEA to access a potential 1 billion customers in India whilst retaining 100% ownership of their operations. Previously, foreign, single-branded firms such as IKEA could only have ownership of 51 % or below, in their Indian operations.

IKEA’s first store opened in Hydrabad in 2018

What policy support do you expect from the government?

There are a few things the government can do to provide a boost. We don’t have a retail policy because we are clubbed with other industries. The policies per se are not designed for retail as a standalone sector. Retail needs to be given an independent industry status.

To invite large investments in retail, the government has to think about how it can extend incentives to the industry, encourage setting-up of manufacturing facilities. From a policy perspective, it has to realise that retail is providing as much growth and employment as any other sector.

The government also needs to help with the easy availability of land parcels with their titles in the cities. Other key focus areas are helping with local sourcing and making modern production technology available.

- IKEA Group India CFO, August 13, 2019

Australian Labor Government plans to reduce tax avoidance by multi-nationals

Swedish furniture giant Ikea has for years paid billions in "franchise fees", royalties and licence payments to its European parent to reduce its taxable income.

It is currently under investigation by the European Commission about whether its tax arrangement with its Netherlands subsidiary allows it to heavily reduce its tax bill on revenue from stores around the world.

In 2020, IKEA recorded its fourth year of losses in a row in Australia despite its sales growing 11% to over $1.5 billion. It made a loss of $8.6 million. In that year IKEA Australia paid $48.7 million in "franchise fees" and $142 million in "other expenses".

The common trick multinationals use to cut their tax bill and how Labor is planning to stop itLabor wants to deny multinationals a tax deduction for royalties paid to related companies in low-tax countries, which it says are costing the tax office hundreds of millions of dollars in lost revenue.

Australian Labor Government to provide more bargaining power to employees, which may lead to higher wages.

The government's Secure Jobs, Better Pay bill will go before Parliament in November.

The 249-page bill promises to lift wages by giving greater leverage to workers and unions in collective bargaining, including by expanding the ability for employees across multiple workplaces to force their bosses to the bargaining table.

Question: Explain the impact of government policies on IKEA’s operations in Australia.

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