Essay: Impact of choice of country on starting a business

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  • Impact of choice of country on starting a business
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It is not an easy task to start a business in any country. Especially when it is not our own country then we need to look at each of the factors that could impact the business and analyze them closely. The Policy-Norm-Organization (PNO) analysis is an excellent tool to understand the different aspects of the country that can impact your decision to open the new business. Below is the PNO analysis for Austria which will help to identify and understand the various factors which will impact the decision to start an IT company in Austria.

Government and demographics

Austria is a federation of nine independent federal regions with their own provincial governments. The government of Austria is a federal republic and has a democratic government. The government consists of Chancellor – the leader of the government, the Vice-chancellor and senior ministers. The president in the head of the state and is elected for a term of six years.

The capital of Austria is Vienna. The current population of Austria is over 8 million residents. The official nationwide language in Austria is German. The country has transformed from Dual Monarchy, where only 6 percent of the entire population were entitled to vote, to a representative Democracy, with a two chamber parliament that exists today. Around 91% of Austrians are of Germanic ethnic origin. 74% of Austrians are Roman Catholics.

Austria lies within the temperate climatic zone. January is the coldest month and summer temperatures are in the high eighties or mid-nineties Fahrenheit. A sweater is mostly required for almost any time of year.

Economy

Austria is a member of the European Union since 1 January 1995. The currency of Austria is Euro. The economic system consists of a free market economy. Austria has a mature market economy, a high standard of living and a skilled labor force, similar to other economies in the European Union, such as Germany. The economy consists of a large service sector, a stable industrial sector and a small agriculture sector. Currently unemployment is at a low rate of 5.6% compared to other European countries, but high compared to its historic rates.

Around 3% of the population is engaged in small scale agriculture. The country is nearly self-sufficient in terms of food production. The chief crops are potatoes, sugar beets, fruit, rye, barley and oats. Manufacturing is pretty diversified and it accounts for over 30% of Austria’s gross national product. More than fifty percent of the industries are concentrated in the Vienna basin. The main manufactures in Austria are machinery, vehicles, iron and steel, chemicals, communications equipment and paper and wood products. Austria’s major trading partners are Germany, Switzerland, Italy and the United States.

Austria is world-famous for its arts and crafts, most notably fine hand-crafted items, customized jewelry, ceramics, and glassware. Tourism is another mainstay of the Austrian economy. Austria is increasingly becoming an international meeting point, in the global-political arena, which is illustrated by the large number of summits and conferences held in Austria.

As one of the most prosperous and stable member among the European Union states, Austria offers its investors ideal conditions to invest in Austria. Successive governments have pursued great economic reform programs targeted at streamlining and establishing a more competitive business arena, in the hope of attracting further domestic and foreign investment. This makes it a very good proposition to start a business in Austria.

Education

The Federal Ministry for Education, the Arts and Culture has competence for the entire educational system of general and vocational schools, from compulsory schooling until completion of secondary level 2 and for all University Colleges of Teacher Education in Austria. Adult education and life-long learning are also parts of its responsibilities.

The Republic of Austria enjoys a free and public school system. Austria has 98% literacy rate. Nine years of education are mandatory in Austria. Schools offer a series of vocational-technical and university tracks that involve one to four additional years of education beyond the minimum mandatory level. The School Act of 1962 is the legal basis for primary and secondary education in Austria.

The Federal Ministry of Education in Austria is primarily responsible for the funding and supervising of primary, secondary, and tertiary education. Primary and secondary education is administered on the state level by the authorities of the respective states. Federal legislation has played an important role in the education system, and laws dealing with education de facto have constitutional status because, just like the Austrian constitution, they can only be passed or amended by a two-thirds majority in parliament.

The higher education location of Austria unites three very important aspects: a large number of very high quality tertiary education institutions in all the nine federal provinces, a long academic tradition and an open-minded atmosphere for creativity and innovation. In many areas, the Austrian institutions have clearly accomplished outstanding achievements on an international level and gained great reputation . The Austrian educational system offers a myriad of educational opportunities, making Austria as great place for studying and living.

Students from within Austria or EU or other countries come to study in Austria. Students from EU or EEA member countries or Switzerland do not need a visa to study in Austria. Other students will need a visa for three to six month stay and for more than six months stay, students will have to apply for a resident permit from their home countries and get it approved to be able to study in Austria.

There are around 34 bachelor programs in Austria that focusses on Information technology. Thus, Austria has a lot of local talent to hire from. As Information technology companies expand in Austria, there will be a lot more emphasis on Information technology courses in Austria.

Unions

There are seven Unions in Austria. They are represented by a single trade union federation called the OGB and they are politically influential. They feel they have more influence because they are banded together in one federation. Union membership is approximately 28 percent of the population which equals about approximately 1.4 million members. Union membership is through application is not mandatory. Austria has been experiencing and approximate 5 percent reduction annually since 2013 and they are making union membership a top priority. Trade union membership is stronger among manual workers and public sector employees than among non-manual workers.

Even though union membership is only 28%, approximately 95 percent of workers in Austria are covered under some type of collective bargaining agreement. All workers in Austria benefit from any collective bargaining regardless of union membership. Workers can by law form work councils which are common in the work place. The work council structure seems to replace formal trade unions at the workplace and fills similar roles to those of the more formal union structure. The main exception is that work councils do not negotiate economic or financial issues. Collective bargaining in Austria takes place at the industry or company level.

Austrian relationship seems to take the “social contract” concept very seriously. They bargain aggressively as a single unit to improve conditions for all workers. The Austrian Trade Unions seem to accomplish their goals through active participation with industry federations and the government.

In addition to trade unions, the chambers of labor, the worker’s council and other interest groups represents the social, political and economic interests of employees, employers and the governm
ent. The Chambers of Labor represent around three million employees and works closely with the Austrian Trade Unions. Membership in this is compulsory.

Norms

Personal Communication and Interaction

Austrians are conservative people, in general. They are very prudent and moderate in their behavior. Punctuality is a sign of respect. Presentation and dressing are very important. Personal distance, at least an arm’s length, is preferred between speakers in a typical conversation. Eye contact is expected, as it proves your attention and interest in the conversation. Austrian behavior is typically reserved and formal, do not over animate your conversation, as Austrian’s are reserved and direct. They will be suspicious of displays of emotion during a business conversation.

Greetings are formal – A quick and firm handshake is the traditional greeting. Titles are very important. We need to address a person with last name and title until invited to use their first name. It is customary to come with small gifts when invited for an Austrian dinner. Gifts are usually opened when received. Table manners are extremely important.

Business communication and Etiquettes

First impressions are extremely important in Austria. Communication is typically very direct, no time is initially invested in small talk or relationship building, as personal relationships are secondary in the work setting. There is little joking or small talk in most office, as they are there to work. Austrians compartmentalize their life, there is a clear separation between personal and business relationships, which make it more difficult to build personal relationships. Communication is formal and follows strict rules of protocol.

Always use the formal word for you – ‘sie’ unless invited to use the informal ‘du’.

Austrians are interested in any advanced university degrees you might have as well as the amount of time your company has been in business. Austrians show respect to people in authority, so it is important that they understand your level relative to their own. It is imperative that you exercise good manners in all your business interactions. Austrians are suspicious of hyperbole, promises that sound too good to be true, or displays of emotion. Austrians follow a lot of written communication to back up decisions and to maintain a record of discussions and outcomes.

Appointments are required for meetings and should be made at least three to four weeks in advance when meeting with private companies. It is advisable to not try to schedule meetings in August, the two weeks surrounding Christmas, or the week before Easter. Punctuality is taken very seriously. If you expect to be delayed, call immediately and offer an explanation. It is extremely rude to cancel a meeting at the last minute and it could certainly ruin business relationships. Meetings are very formal. Presentations should be accurate and precise. Austrians are very particular and careful regarding details. Hence it is essential to have back-up material and to be prepared to defend everything. Meetings have strict agendas, including starting and ending times and it has to be followed. Always follow-up meetings with a letter outlining what was agreed upon, what the next steps are, and who is the responsible party.

Austrians are more concerned about long-term relationships rather than making a quick sale. Business is conducted slowly; hence one needs to be patient and not appear ruffled by the strict adherence to protocol. Austrians are very detail-oriented and want to understand every minute details before committing to an agreement. Always be wary to avoid confrontational behavior or high-pressure tactics as it could work against you.

Business dress is conservative and follows most European conventions. Men should wear dark colored, conservative business suits with white shirts. Women should wear either business suits or conservative dresses, complimented with elegant accessories.

Work ethic

Austrian workers’ extraordinary loyalty and identification with company goals are key factors in the nation’s high productivity and quality standards. Employees in Austria identify themselves through their work, so it is fair to expect high quality outcomes. An Austrian’s word is their bond, you should never make a promise that you cannot keep, especially in the work setting.

Austrians respect structure and hierarchies. In the work environment, a hierarchy provides clear roles and responsibilities. Organizations rely on process, and work routines mirror these processes, you can expect most decisions to be ran through a committee. Rank is typically earned through job performance and accomplishments.

Work practices

There are different types of workers in Austria. Fulltime, Part-time, Minimally employed, Self-employed and Apprenticeships. Different type of employment requires different type of contract. Fulltime and part-time work require either a written, verbal or implicit contract. An apprentice contract must be in writing. There is a different contract for employment, freelance and contract work. A typical contract will include the place of work, the assignment, wage information, entitlements, working hours and the date the employment relationship will start and end.

Online presence and Internet usage

More than three out of four persons aged 16 to 74 years use the Internet “on the move” via mobile phone, laptop, netbook or tablet, according to Statistics Austria. In the group of persons aged 16 to 24 years, more women than men use a mobile phone to surf on the Internet away from home or work. 82% of all Internet users surf the web daily.

4% of domestic enterprises with at least 10 persons employed sold their goods or services via websites or apps in 2014. Thereby, the enterprise’s size plays an important role: 28% of large enterprises (250 and more persons employed), 20% of medium-sized (50 to 249 persons employed) and 13% of small enterprises (10 to 49 persons employed) sold via website or via apps.

A website was run by almost nine out of ten Austrian enterprises (88%) in 2014. Online presence was evident for 99% of large enterprises, 95% of medium-sized and 86% of small enterprises. 39% of the enterprises used social networks. The enterprise’s size is significant in this context, too: 58% of large, 49% of medium-sized and 37% of small enterprises are represented on social networks.

Policies

Pay and leave

In Austria, you typically work a 38-40 hour work week and receive 4 weeks off or 20 days per year. Additionally, you would receive up to 10 days per year off for careers leave, you would receive community service leave and 13 public holidays. Minimum wage varies by industry around €1,500 per month while the average is around €3,600.

Austria also has laws in place dictating a rest period of no less than 24 hours beginning at midnight (the earliest) or 6 am (the latest) on the public holidays. If you do work overtime, you would be compensated 50% of your wages for those hours worked.

At the end of each day, all employees are entitled to an uninterrupted rest period of at least 11 hours. There is an actual regulation protecting rest time, to include the weekends. Most employees are entitled to uninterrupted rest periods starting on Saturday at 1 pm and includes all day Sunday, totaling 36 hours.

Remuneration is paid 14 times a year, plus one month’s pay for a Christmas bonus and one month for a holiday bonus. Wages are taxed. Regular working hours are an eight hour working day, within a 24 hour period, leading to a 40 hour working week, Monday – Sunday. Collective agreements with labor unions typically shorten the 40 hour work week, but also may extend the regular work day. Overtime is paid if working hours exceed 8 hour per day or 40 hours per week. Overtime must be remu
nerated with an additional bonus of 50%, or what the US typically calls time and a half. If part-time workers work beyond the number of hours stated in their contract, they are eligible for a bonus of 25%.

Breaks are mandated after the working shift exceeds 6 hours, a break period is defined by a rest period of a half hour or more. At the end of the day, all employees are entitled to an uninterrupted rest period of at least 11 hours. There is an actual regulation protecting rest time, to include the weekends. Most employees are entitled to uninterrupted rest periods starting on Saturday at 1 pm and includes all day Sunday, totaling 36 hours.

In addition to the 13 public holidays Austria observes, employees receive a minimum of 5 weeks per year. Annual leave is separate from sick leave. Remuneration continues to be paid, but only for a specific period of time that is driven by seniority. Once remuneration ceases, the health insurers starts to pay for lost wages. Maternity leave begins 8 weeks before birth and continues to 8 weeks after. The employment relationship still exists during this time and employees are paid a maternity allowance. Self-employed / freelancers also receive this benefit. Parental leave also exists for parents (mother and father), allowing a release from work in lieu of salary. This is available to employees until the child reaches 2 years old. During this time, employees are eligible for childcare allowance, which is granted through an income based model.

Typical employment contracts begin with a probationary period. During this probationary period, the employment contract can be terminated at any time, by either party without reason. Mutual consent terminations, do not require a notice period. A termination that is driven by a white collar employee, the required notice is one month to the employer. For blue collar employees, the notice period is 2 weeks. If the employers is driving the separation, they are required to give white collar employees at least 6 weeks’ notice and blue collar workers at least 2 weeks.

Employment Policies

In Austria, specific laws exist that cover different types of employees per industry. The employment act covers white collar workers and it specifies the working conditions and terms. The Contract Law Adjustment Act specifies that the employer must be transparent and disclose those terms and expectations. Different type of employment requires different type of contract. Fulltime and part-time work require either a written, verbal or implicit contract. An apprentice contract must be in writing. There is a different contract for employment, freelance and contract work.

A typical contract, otherwise known as Dienstzettel, will include the place of work, the assignment, wage information, entitlements, working hours and the date the employment relationship will start and end (if available). Remember, we like consensus in Austria, so terms are agreed upon prior to starting employment.

The equal protection act protects employees against discrimination based on age, race, religion, sexual orientation, gender and disability. Austria also has laws to protect you from how “much” you work, those are mandated through the Holiday Act, Working Hours Act and Daily Rest periods act.

Regarding retirement age for men is 65, for women it is 60. That is kind of crappy, since men die before women. It will be equalized by 2033, when the retirement age for both will be 65.

Austria Legalities

Business isn’t as easy in some countries as it is here in the UK. You need to be aware of the cultural and legal implications of your business operations in Austria, because you could face heavy punishment for transgressing. It is therefore important to acclimatize yourself with the law in Austria. There will be many legalities that you will have to adhere to, and you may even find that some laws you are familiar with here in the UK are no longer applicable. Likewise, you may find some new laws which strike you as strange or even oppressive.

• Labor Laws

The body of laws, administrative rulings, and precedents which oversees the legal rights of, and restrictions on, employees and their organizations. This will include things such as minimum wage, holiday and maternity entitlement, ergonomics, trade unions, disability, etc.

• Commercial Laws

The body of laws which oversee business and commercial activity. It may encompass such areas as principal and agent; freight and shipping; guarantee; marine, fire, life and accident insurance; bills of exchange and partnership; contracts; food and health regulations; safety laws; privacy rights; copyrights; trademarks; etc.

• Civil / Common Law

The body of law that oversees sociality. It is invariably culture specific. It is important to familiarize yourself with these laws, especially as you will be adopting a new environment and culture.

EMPLOYER HEALTH INSURANCE

Everyone living and/or working in Austria must contribute to the healthcare system. This is mandated as part of the social security insurance system in Austria. Exact contribution amounts will vary based on the type of employment and income bracket. Due to this approach, nearly 99% of people living in Austria are covered by the social health insurance schemes. Employers do not directly contribute to health insurance coverage for workers.

Legal formalities to start a new firm

Below given is a high level summary of the bureaucratic and legal hurdles faced by entrepreneurs wishing to incorporate and register a new firm in Austria. Detailed summary can be found in the appendix. Obtain the confirmation from the Economic Chamber that the start-up company is really a new enterprise

• Notarize the statutes/articles of association or the declaration of establishment

• Deposit the minimum capital requirement in the bank

• Register the company at the local court

• Tax Office registration – obtain a VAT number

• Register trade with the trade authority

• Register employees for social security

• Register with the municipality

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