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International Business Environment

Project Report :Evaluation of Austrian Business Environment

Submitted To:Professor Sukumar Nandi

Dated 31/01/12

Submitted By:Arpit Gupta (PGP27275)Ashish Sethi (PGP27276)Ashwin Raju (PGP27277)Ashwini Saini (PGP27278)Ayushi Kalra (PGP27279)Azhar Ansari (PGP27280)Balachandran M.K. (PGP27281)

ContentsAcknowledgment.........................................................................................................................................4

1. Austria – Characteristic Parameters....................................................................................................5

1.1. Key Statistics................................................................................................................................6

1.1.1. Population............................................................................................................................6

1.1.2. National Economic Indicators..............................................................................................7

1.2. Prominent Industrial Sectors.....................................................................................................10

1.2.1. Service Industries...............................................................................................................12

1.2.2. Manufacturing...................................................................................................................12

1.2.3. Foreign Trade.....................................................................................................................13

1.2.4. Tourism..............................................................................................................................14

1.3. Fiscal Deficit...............................................................................................................................14

1.4. Inflation Rate.............................................................................................................................15

2. Government policies and role in development.................................................................................16

2.1. Austria’s External Economic Relations.......................................................................................16

2.1.1. Economic Development - Austria (2009-11)......................................................................16

2.1.2. Price Competitiveness........................................................................................................16

2.1.3. External Economic Relations – Goods................................................................................16

2.1.4. External Economic Relations – Services.............................................................................17

2.1.5. Balance of Trade – Austria.................................................................................................18

2.2. Role of Austrian Government....................................................................................................19

2.2.1 Public Sector in Austria – A historical purview...................................................................19

2.2.2 Privatization Drive in Austria..............................................................................................21

2.2.3 Deregulation – A visible deficiency....................................................................................24

3. Socio-Cultural Environment...............................................................................................................27

3.1. Culture in Austria.......................................................................................................................27

3.2. People........................................................................................................................................28

3.3. Quality of Life in Austria............................................................................................................28

3.4. Education in Austria...................................................................................................................30

3.5. Crime.........................................................................................................................................30

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3.6. Social Stratification....................................................................................................................31

3.7. Political Life................................................................................................................................31

3.8. Trade Law..................................................................................................................................33

3.9. Foreign policy overview.............................................................................................................34

Conclusion.................................................................................................................................................35

References.................................................................................................................................................36

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Acknowledgment

We owe a debt of gratitude to Prof. Sukumar Nandi for his exceptionally coherent guidance and favorable concern to lead us in understanding a distinctive subject like International Business Environment. We received a solid foundation through the volume of literature and references provided beforehand. We appreciate the enthusiastic participation from our classmates whose opinions enabled us to enumerate the attributes of our study.

Finally, we couldn’t have achieved the desired objectives without the flexible online software at our disposal. We are thankful for the outstanding online resources and student network at IIM Lucknow.

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Austria’s Business Environment

1. Austria – Characteristic ParametersAustria, with its well-developed market economy and high standard of living, is closely tied to other EU economies, especially Germany's. Its economy features a large service sector, a sound industrial sector, and a small, but highly developed agricultural sector.

Following several years of solid foreign demand for Austrian exports and record employment growth, the international financial crisis and global economic downturn in 2008 led to a sharp but brief recession. Austrian GDP contracted 3.9% in 2009 but saw positive growth of about 2% in 2010. Unemployment has not risen as steeply in Austria as elsewhere in Europe, partly because its government has subsidized reduced working hour schemes to allow companies to retain employees.

Stabilization measures, stimulus spending, and an income tax reform pushed the budget deficit to 3.5% of GDP in 2009 and 4.7% in 2010, from only about 1.3% in 2008. The international financial crisis caused difficulties for Austria's largest banks whose extensive operations in central, eastern, and southeastern Europe faced large losses. The government provided bank support - including in some instances, nationalization - to prevent insolvency and possible contagion. In the medium-term all large Austrian banks will need additional capital.

Even as the global economic outlook improved to a certain extent, the emergence of Eurozone Sovereign Debt Crisis means Austria will need to continue restructuring, emphasize knowledge-based sectors of the economy, and encourage greater labor flexibility and labor participation to offset growing unemployment and Austria's aging population and low fertility rate.

Austria has a well-developed social market economy with a high standard of living and close ties to other EU economies, especially  Germany's.

Until the late 1980s, the government and its state-owned industry conglomerates played a key role in the Austrian economy. However, state-owned firms began to operate largely as private businesses starting in the early 1990s--a trend which accelerated between 2000 and 2006, as the government wholly or partially privatized many of these firms. Since 2006, "grand coalition" governments have not reversed privatizations but have also not undertaken further privatization measures.

The international financial crisis and global economic downturn in 2008 led to a deep recession that persisted until the third quarter of 2009.  Austrian GDP contracted by 3.9% in 2009, partially recovering in 2010 with growth of 2.1%. The unemployment rate of 4.4% in 2010 was the lowest in the EU-27 (EU-27 average:

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9.6%). Crisis measures and an income tax reform pushed the budget deficit from about 0.4% of GDP before the financial crisis to 4.6% of GDP in 2010. The consolidated public sector debt rose from 62.5% of GDP in 2008 to 72.3% in 2010, due primarily to new methods of accounting for publicly-guaranteed debt. The government’s 2012-2015 medium-term budget frameworks stipulates legally binding spending limits to reduce the total public sector deficit from about 3.9% of GDP in 2011 to 2.0% of GDP in 2015. Organization for Economic Cooperation and Development (OECD) and International Monetary Fund (IMF) experts have called for structural reforms in areas such as sustainability of pensions, ensuring long-term care for Austria’s aging population, restructuring public sector salaries, streamlining administration, and improving the K-12 and university education systems.

1.1.Key Statistics1.1.1. Population

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Population Growth Rate (2000-2010)

Population forecasts

Austrian population will increase towards 9 million inhabitants during the next 20 years

Austria had a population of 8.39 million in 2010, the reference year for the new population projection. According to the assumptions for fertility, mortality and migration, the total population will increase to 8.99 million people (+7.2 per cent) until 2030 and to 9.36 million (+11.6 per cent) in 2050.

According to the main scenario, the population development will vary substantially among the nine provinces during the next decades. Lower Austria (+19 per cent) and Vienna, the capital of Austria (+18 per cent), are expected to have the most marked population growth till 2050, followed by Vorarlberg (+13 per cent), Burgenland (+12 per cent) and Tyrol (+11 per cent), Upper Austria (+8 per cent), Salzburg (+7 per cent) and Styria (+4 per cent). Carinthia is the only province being expected to lose some population till 2050 (-2 per cent).

Population growth will be accompanied by ageing

Children and youngsters under 15 years are projected to account for a slightly smaller proportion of the total population, namely 13 per cent in 2050 as compared to 15 per cent in 2010. The majority of the provinces will follow this trend, except Vienna, where rising proportions are expected. As the “baby-boom generation” (those born between 1955 and 1970) will reach the retirement age after 2015, the size of the elderly population (ages 60 and over) is projected to increase in all of the nine provinces. Thus for Austria as a whole, the proportion of the elderly population will grow from 23 per cent in 2010 to 34 per cent by 2050. By then, Burgenland and Carinthia (each 39 per cent) and Styria (37 per cent) are expected to remain the “oldest”  regions while the western part of Austria (Tyrol and Vorarlberg) as well as Vienna will still rank as the “youngest”  regions. Vienna will hold a share of 29 per cent elderly people by 2050. The average age of Austria’s population will significantly increase over the next decades from 41.6 (2010) to 47.1 years (2050).

1.1.2. National Economic IndicatorsAccording to calculations by Statistics Austria the Austrian economy grew by +2.3% in 2010. In the wake of the global economic and financial crisis, growth weakened in 2008 (+1.4%) and even turned negative in 2009 (-3.8%). This meant the most significant growth setback since World War  II. In 2010, however, Austria could benefit greatly from the international economic recovery. Real growth reached 2.3%, which is both above the Euro Zone’s (1.8% in real terms) and EU countries’ average (1.8% in real terms; Source: Eurostat, September  2011).

For the first time all national accounts calculations are based on the revised statistical classifications of economic activities and products by activity from 1995

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onwards. The introduction of an updated classification system particularly aimed for taking better account of the service sector, due to its growing importance in European economy.

GDP at current prices increased by 11.4  bn euro, or +4.1%, to approximately 286.2 Billion euro in 2010. Hence, GDP per inhabitant amounted to 34 120 euro (+3.8%).

Real net national disposable income increased by 1.6% in real terms and thus fell behind GDP growth. This can be explained by rising import prices  (+4.8%), which reduced purchasing power of disposable income.

The implicit price index of GDP (derived from the GDP at current prices and at constant prices respectively, based on previous year’s prices) was 101.8. Hence, the overall price development was hardly different from the change of the consumer price index (+1.9%).

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1.2. Prominent Industrial Sectors

INDUSTRIAL SECTORS: The most important industrial sectors in Austria are:

Food and Drink industry Mechanical and Steel Engineering Chemical and Automotive industry Electrics and Electronics industry and Wood, Pulp and Paper industry.

The majority of Austrian goods exports come from these industrial sectors.

KEY REGIONAL SECTORS

The key economic sectors for each region:  

Upper Austria:

Iron, steel, chemical and mechanical engineering.

Salzburg:Electrics, wood and paper, national services in wholesale and transport.

Vorarlberg: Textilies, clothing.

Carinthia: Wood, pulp and paper industry.

Styria: Automobiles, iron and steel, manufacturing.

Tyrol: Glass, Wood.

Vienna: Financial Services.

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Austria’s economy benefited greatly from its entry into the EU in 1995, the introduction of the Euro in 2002, and its growing commercial relations--especially in the banking and insurance sectors--in central, eastern, and southeastern  Europe. However, this interdependency has made Austria vulnerable to financial instability in the region. Some of  Austria's largest banks have required government support--including in two instances, nationalization--to avoid potential insolvency and wider regional contagion. Several banks have, however, applied for early repayment of the government funds. In the medium term,  Austrian banks will need additional capital to meet the terms of the Basel III accord. Even with an improved economic outlook, Austria will need to continue restructuring, emphasizing knowledge-based sectors of the economy while encouraging greater labor flexibility and greater labor participation to offset such problems as structural unemployment, an aging population, and a low fertility rate.

Austria has a strong but slightly shrinking labor movement. The  Austrian Trade Union Federation (OGB) comprises constituent unions with a total membership of about 1.2 million--about 35% of the country's wage and salary earners. The OGB has always pursued a moderate, consensus-oriented wage policy, cooperating with industry, agriculture, and the government on a broad range of social and economic issues in what is known as Austria's "social partnership." A 2006 scandal involving an OGB-owned bank caused the OGB to lose much of its political influence and it is still trying to recover.

Austrian farms, like those of other west  European mountainous countries, are small and fragmented, and production is relatively expensive. Since  Austria joined the EU in 1995, the Austrian agricultural sector has been undergoing substantial reform under the EU's common agricultural policy (CAP). Although  Austrian farmers provide about 85% of domestic food requirements, the contribution of agriculture,

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forestry, and fisheries to gross domestic product (GDP) has consistently declined over the last decades to just 1.5% (2010).

Trade with other EU-27 countries accounts for almost 72% of  Austrian imports and exports (2010). Expanding trade and investment in the new EU members of central and Eastern Europe represent a major pillar of  Austrian economic policy. Austrian firms have sizable investments there and continue to move labor-intensive, low-tech production to these countries. About one-half of  Austria's foreign direct investment (FDI) is concentrated in the countries of central, eastern, and southeastern Europe. Many Western European and international companies have located their central/Eastern European headquarters in Austria.

1.2.1. Service IndustriesService industries, account for the largest portion of  Austria's gross domestic product (GDP), and include community, government, and personal services, which employ about a fourth of the country’s workers. The government has control of several of Austria's major companies. Community, government, and personal services also consist of the functioning of schools and hospitals. Finance, insurance, real estate, and business services are another important service industry, which are assisted by the foreign investment availed by  Austrian banks. Trade, restaurants, and hotels benefit from heavy expenditure undertaken by the numerous tourists. The other service industries are utilities, and transportation and communication.

1.2.2. Manufacturingis the most important part of the economy, both in value of output and in number of persons employed. Some industries—especially iron and steel, heavy machinery, include automobiles and other motor vehicles, locomotives, ships, tools, electrical equipment, processed foods and beverages, textiles and clothing, chemicals, and aluminum—are extremely large and modern. There are also a number of factories that produce cement, furniture, lumber, optical instruments, and paper and pulp. But many others are small enterprises of the artisan kind. From them come much of the fine-quality glassware, ceramic, porcelain objects, jewelry, needlework, textile, wood products and woodcarvings, and other handicrafts for which  Austria is well-known.

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1.2.3. Foreign Trade

Austria depends heavily on trade, especially of manufactured goods that it sends out to European industrialized nations. Other major exports include forest products, including paper and pulp; iron and steel; and magnesite.  Austria imports some types of machinery and vehicles and exports other types. The country's most important imports include chemicals, foods, and petroleum.

Major trading partners: Over 80% of Austrian exports are destined for the EU (2009). Germany and Italy are Austria’s traditional and most important trading partners, but there are also significant trading links to Scandinavia, Britain and Ireland. With the EU’s eastward expansion, Austria has also established important trading links to the new EU Member States, in particular Hungary and the Czech Republic, Poland and Slovenia. Vienna, due to its favorable geographical location and strong historical ties, has become an important hub for multinationals operating in the region.

In the wake of the financial crisis, Austria’s GDP growth stalled in 2008 and fell for the first time in decades in 2009. The situation improved in 2010, with a return to growth. Although there was a spike in unemployment after the outbreak of the crisis, Austria weathered this period reasonably well, and can now pride itself one of the lowest unemployment rates in the EU (4.8%) (Source: Eurostat).   

After reaching a 15-year record high of 3.9% in June 2008, inflation fell to near zero for most of 2009 and 1.9% on average throughout 2010 (source: Statistik Austria).

Austria’s budget deficit rose from 0.5% of GDP in 2008 to 3.5% in 2009 and 4.6% in 2010 (source: Statistik Austria). This is a consequence of the financial crisis. The national debt, which had fallen continuously since 2007, rose from 62.5% in 2008 to 67.6% of GDP as a result of the government’s “bank packet” designed to help financial institutions that had run into trouble. A change in accounting rules has

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pushed this figure up to 72.3% (part-privatised state institutions’ debt is now included in this figure).

Both imports and exports fell dramatically in 2009, but provisional figures for 2010 show approximately 16.5% growth in both figures. In 2009, exports and imports had fallen roughly back to their 2005 level. Austria’s major trading partners are its fellow EU states – first and foremost Germany, followed by Italy and Switzerland. Austria’s other immediate neighbours (the Czech Republic, Hungary, Poland, Slovakia, and Slovenia) also feature prominently amongst its trading partners. While Austria’s exports to its traditional markets (including the USA, the UK, Germany, Spain and Italy) have fallen substantially since 2005, its exports to China, Poland, the Czech Republic, the Russian Federation and Brazil have grown strongly (source: Statistik Austria).

1.2.4. TourismTourism plays an important role in the Austrian economy. The industry suffered in 2009; with almost all destinations recording falls in visitor numbers and overnight stays, but 2010 and the start of 2011 have seen a return to form. Between November 2010 and January 2011, there were a total of 21.2 million overnight stays by visitors to Austria; Germans, Dutch and British visitors are the largest groups.

1.3. Fiscal Deficit

Fiscal Deficit reaches 15 years high in 2010

Austria’s fiscal policy has been  largely determined by the country’s European Monetary Union (EMU) membership in the past decade. In an effort to foster economic convergence, EMU members agreed to adhere to the Maastricht criteria as laid out in the Stability and Growth Pact which require a budget deficit below 3% of GDP and government debt of less than 60% of GDP. Austria incorporated these goals successfully into its fiscal policy approach and committed itself to pursuing a sustainable budgetary and financial position.  Fiscal consolidation helped Austria to decrease its government debt-to-GDP ratio from 66.0% in 2001 to 59.4% in 2007. Due to a severe slowdown of Austria’s economy which started in 2008, the budget deficit as well as the amount of public debt is increasing at present. Decreasing tax revenues, fiscal stimulus measures, financial support for the banking sector as well as ballooning social security spending will lead to a severe deterioration of Austria’s financial and budgetary position.

The Austrian budget deficit in 2010 reached a 15-year record high, accounting for 4.6 percent of gross domestic product, Statistics Austria said Thursday.

According to Statistics Austria, however, the major increase in the national deficit was due to the implementation of statistical standards of the EU Statistics office.

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Because those standards are more stringent, a lot of items of debt, which could be balanced before, had to be presented. That led to a full 1 percentage point increase in the Austrian deficit compared to the one using the former standards.

Statistics Austria also said that because of the implementation of the statistical standards of Eurostat, it would be difficult for Austria to reduce its fiscal deficit below 3 percent provided by Maastricht criteria.

Both the Ministry of Finance and experts at major Austrian economic research institutes estimated that Austria could only achieve the deficit limit provided in Maastricht Treaty on European Union by 2013.

The adjusted total debt of Austria amounted to 205.2 billion euros (288.9 billion U.S. dollars) in 2010, and its debt rate accounted for 72.3 percent of the GDP, while according to Maastricht Treaty, which should be less than 60 percent.

1.4. Inflation Rate

The inflation rate in Austria was last reported at 3.6 percent in November of 2011. From 1990 until 2010, the average inflation rate in Austria was 1.99 percent reaching an historical high of 4.00 percent in June of 2008 and a record low of -0.40 percent in July of 2009. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well-known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.

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Austrian Inflation Rate (CPI) – Jan ’06 – Jan ‘12

2. Government policies and role in development

2.1.Austria’s External Economic Relations

2.1.1. Economic Development - Austria (2009-11)Against the background of the global economic crisis in the year 2009, Austria’s economy shrank by 3.9 percent. This is the worst decline since World War II. Affected by the downturn in the most important export markets, goods exports and industrial activity, in particular, contracted in 2009. After the trough was reached in the first quarter, the cyclical stance improved gradually over the year. In the second half of the year, the economy already showed growth on a quarter-on-quarter basis. Like most other industrialized countries, Austria introduced a large range of economic policy schemes which cushioned the downturn. Besides high real per-capita gross earnings, the tax reform and the car-scrapping premium carried private consumption expenditures, which helped to stabilize the economy.

In the second quarter of 2010, the Austrian economy expanded at a high pace, benefiting from the improved external environment, notably from the upturn in Germany. But the cyclical expansion has been uneven in the euro area and is still subdued in some peripheral countries. Moreover, the appearance of macroeconomic imbalances is likely to threaten the economic recovery in the euro area as a whole, including Austria.

2.1.2. Price CompetitivenessIn the short term, price competitiveness is one important determinant of foreign trade. From April 2009 until the end of the year, the US dollar depreciated against the euro continuously. The nominal effective exchange rate in Austria showed an increase of 0.7 percent for industrial goods in 2009. Despite this, the increase in the real effective exchange rate was only 0.4 percent compared to 2008, due to relatively high price stability in Austria. Thus, according to the real effective exchange rate, no excessive deterioration in price competitiveness took place in 2009.

However, the economic crisis significantly affected the development of unit labour costs in Austrian manufacturing; unit labor costs increased by 13.5 percent in 2009. On average, labor costs in the manufacturing sector of the EU's trading partners rose by only 9.8 percent in 2009. This indicates deterioration in cost competitiveness, contrary to the trend of the last three years.

2.1.3. External Economic Relations – GoodsThe year 2009 was characterised by a "sudden, severe and synchronised" trade. This massive decline in international demand also affected Austrian foreign trade, with Austrian exports recording the largest decline in 60 years. However, in the third quarter and fourth of 2009, exports recorded gains against the respective

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previous period Austrian exports of goods benefited from these clearly improving international conditions, especially from the unexpectedly high dynamics of Germany in the second quarter of 2010. Austrian exports rose particularly sharply in the second quarter of 2010 (+6.4 percent against the previous quarter, seasonally and working day adjusted real export values according to national accounts).

2.1.4. External Economic Relations – ServicesValue added in services grew substantially in the last decades. The services sector accounted for 69.3 percent of gross value added in Austria in 2009. In Austria's trade in services in 2009, exports amounted to € 38.2 billion and imports came to € 26.6 billion. However, the global financial crisis also had consequences for Austria’s trade in services. Exports and imports in services decreased by 9.6 percent and 8.7 percent respectively in comparison to 2008; this was significantly less than the decrease in trade in goods. Despite the crisis, exports and imports grew with an average annual percentage change of 5.7 percent and 5.1 percent respectively in the last decade. The surplus in the services sector doubled between 1999 and 2009 to € 12 billion or 4.2 percent of GDP (2008: 4.7 percent). Services are mainly responsible for the positive current account in Austria

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2.1.5. Balance of Trade – AustriaAustria reported a trade deficit equivalent to 501 Million EUR in October of 2011. Austria's economy is dependent on foreign trade and closely linked to the economies of other EU countries, particularly Germany. The major export commodity in Austria is the automobile and its components, machinery and paper products. Austria imports mainly machinery and equipment, motor vehicles, chemicals, metal goods, oil and oil products and foodstuffs.

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2.2.Role of Austrian Government

Austria is a country with a historically strong intervention of government. Specifically a large part of the manufacturing sector and electricity had been nationalized after worldwar II, combined with public ownership in telecommunication, transport and banking this created one of the largest public sectors in Europe. The government of Austria conducted various experiments on privatization in the last decade ranging from the transfer of ownership, corporatisation, and liberalization to activities promoting efficiency and competition within the government.

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2.12.22.2.1 Public Sector in Austria – A historical purviewThe public sector has traditionally played a strong role in Austrian economics, as well as in issues of education, culture and law. One reason for this may be the positive and progressive impact of the enlightened monarchy in the nineteenth century ("aufgeklärte Monarchie"), which at this time led to the development of a rather efficient bureaucracy in Austria. On the other hand, Austria did not produce a large stratum of innovative and dynamic entrepreneurs during the second half of the nineteenth century, but in contrast, experienced a lacklustre phase of liberalism. More recent roots for the high level of government interference may be that the wide-ranging bureaucratic structures of the former Austro-Hungarian Empire were concentrated within the small Austrian Republic following W.W.I, and that the economy stagnated between the two wars. After W.W.II, Austria needed and engineered a strong government in the form of a stable "grand coalition" uniting the conservative and socialist parties, and - parallel to the two blocs - the highly centralized "social partners". Both institutions helped to counterbalance the economic backwardness, to regain sovereignty, and to protect the property of former German firms from the grip of the Allied Powers, during Austria's period of limited sovereignty, from 1945 - 55. There are estimates that by the near the end of the seventies, 25% of the gross national product was produced by publicly owned firms6). The lack of large private companies and a very underdeveloped capital market characterized the other side of the coin. All the major banks were owned by the government, specifically the two largest, the CA and the Länderbank7). These banks had considerable stakes in big manufacturing and construction firms. Electricity, the post and telecommunications, broadcasting and large parts of the transportation sector (highways and railways) were owned by central or local governments. The share of value added provided by the government bureaucracy (as measured by the payroll of the civil servants) amounted to about 20%.

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While public ownership in infrastructure had long been a common feature of European economies, maintaining a large share of public ownership in manufacturing up to the nineties was an Austrian specialty among Western market economies. The larger part of the nationalized sector - specifically firms doing business in mining, oil, chemicals, steel, and aluminum – was nationalized in 1946. Socialists had to some extent, favored nationalization for ideological reasons, the People's Party joined in on that goal in part because no potential Austrian owners were available, and partly because nationalization helped hold off the grip of the Allies on former German firms. German ownership did exist in 1945, since some of the larger firms were founded by the Nazi regime to help supply the war machine. Other firms were expropriated during the Nazi regime; some owners were forced to leave Austria due to collaboration.

In sectors in which natural monopolies traditionally were supposed to exist, or in which the possession of a central facility enabled one large firm to dominate the national markets, it is well known that there are two alternative methods of dealing with market failure: continental Europe, as well as the UK and Australia, usually established public ownership, while the US chose to regulate private firms. Instead of choosing between these two options, Austria installed the double grip: ownership plus a regulatory process embedded in the bureaucracy of a ministry (also allowing the trade union and employers' organization to play supporting roles). This tactic led to a predominance of political over economic goals. In the first stage, this governance structure implied a rapid rebuilding and expansion of capacities, which proved extremely important for Austria's recovery process. Later on, the selection of managers not only according to their ability, but also according to their political orientation became the norm. Initially prices were fixed with the goal of sheltering low income consumers from unaffordable expenses; later on, prices were set with an eye on the next election date. Many of the well-known inefficiencies of cost plus regulation became apparent benefit of historical hindsight. It has to be stressed that the negative assessment evolved only after the system had operated successfully for three or four decades. The first twenty years after the war were a period of remarkable recovery in Austria. And the efficient infrastructure provided by the national champions, as well as the inexpensive and high quality products produced by the state owned basic goods industry were two pillars of that process. Equally important were the low prices for heating and transportation, which helped Austrians with lower incomes to catch up with the middle-class.

But, as the system continued over decades, the potential increase in the productive efficiency of large firms, and their Schumpeterian potential for innovation, were more than outweighed by the Leibenstein slacks and allocative inefficiencies, since profit-seeking managers, firms and political parties decreased the incentive to equate resources and demands (allocative efficiencies), while cost plus regulation inhibited the search for low cost technologies and innovation.; investment decisions were made according to regional demands and political lobbying, increasing capacity became a more important goal than innovation and service orientation,

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regulators were captured by the monopolies. These judgments are, of course being made with the benefit of historical hindsight. It has to be stressed that the negative assessment evolved only after the system had operated successfully for three or four decades. The first twenty years after the war were a period of remarkable recovery in Austria. And the efficient infrastructure provided by the national champions, as well as the inexpensive and high quality products produced by the state owned basic goods industry were two pillars of that process. Equally important were the low prices for heating and transportation, which helped Austrians with lower incomes to catch up with the middle-class. But, as the system continued over decades, the potential increase in the productive efficiency of large firms, and their Schumpeterian potential for innovation, were more than outweighed by the Leibenstein slacks and allocative inefficiencies, since profit-seeking managers, firms and political parties decreased the incentive to equate resources and demands (allocative efficiencies), while cost plus regulation inhibited the search for low cost technologies and innovation.

2.2.2 Privatization Drive in AustriaThe term "privatization" can refer to five broad types of policy:

1) Asset transfer from the public to the private sector, generally through sale;2) Deregulation or liberalization of statutory monopolies (with or without the sale of assets),

with particular emphasis on the removal of entry restrictions; 3) Franchising or contracting out the provision of marketable goods and services to private

sector firms.4) Corporatization - this is transferring the supply of goods and services from the

governmental sector to a separate company according to corporate law, while the government remains the owner.

5) Promoting efficiency and competition within the government.

We can observe in Austria examples of all these policy types. The single largest cohesive experiment ever performed, however, was the privatization of the former nationalized industry in the nineties. Up to the late seventies, publicly owned manufacturing firms("Verstaatlichte") together with firms belonging to nationalized banks accounted for 25% of Austria's manufacturing sector. In the nineties, the majority of all large industrial firms were sold in a specific attempt to realize the first type of privatization (transfer of ownership). The motive was primarily financial, namely the attempt to limit the financial losses, which were remunerated by the public budget. The method of privatization had specific, interesting features, which were different from the strategies applied in other sectors in Austria and in other countries.

As far as privatization in the mode of ownership transfer is concerned, there was a limited wave of privatization in the late fifties. Several firms, located in the eastern Austria, had been German-owned, and later managed by the Russians during the occupation period. In the late fifties, the need for restructuring was unavoidable. Some firm were sold to private owners, and some were privatized by a stock

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offering specifically targeted at employees and middle income investors ("Volksaktie"). Minority shares of the two large nationalized banks (Creditanstalt and Länderbank) were also offered to the public, although the government retained the voting rights. This experiment is considered today to have been moderately successful. No broad capital market existed in Austria, there was no popular, widespread attitude towards investment in stocks. Only a limited number of small-income investors had the patience to wait for stock prices to rise, so that the lion's share of the broadly distributed shares was sold to large or institutional buyers within a short period.

At its very beginning, the Austrian Central Bank (OeNB) was established as quasi-public agency with majority ownership by the central government, but free from any direct interference in monetary affairs. It was even legally possible to transfer an inherent public responsibility (hoheitsrechtliche Aufgabe) to an independent company. Another early example of the early privatisation drive was the Austrian Broadcasting Company (ORF), which was transferred to a separate agency in the late sixties. The Austrian Railways were organized as a separate company in 1993, the post and telecom company in 1996. Several funds for industrial support (ERP, Buerges, FFF) are organized as companies at an arm's length; the labor service organization in 1994. Air traffic control was corporatized in 1994.

The eighties brought with them a new wave of privatization, in the sense of ownership transfer. The motives were mixed. Efficiency was among them, the Peoples Party joined the government and supported privatization as a political goal, but the potential of the revenues for reducing the federal budget deficit was the driving force. In the majority of cases, possession changed from one public owner to another. The largest single action was the transfer of the Hauptmünzamt (the central mint) from direct ownership by the central government to the Austrian Central Bank (OeNB, 1989). The second largest was the privatization of 49% of the electrical utilities company, a state owned monopoly and the sale of specific producers of electricity (1987). The largest portion of the shares was bought by other public companies or local governments; only some of the shares were purchased by the broad public. The state travel agency was sold to a private investor (1990),state owned residential flats were sold to the tenants, shares of the Austrian Airlines (AUA) were purchased by the public and to other airlines. Ownership shares in the two largest banks were reduced (1987, 1989). All in all, the volume of privatization in the eighties may have amounted to ATS 30 bn; two thirds constituted the restructuring from one public owner to another. The main objective was to reduce the federal deficit, a secondary issue was the upcoming idea that efficiency and innovation would be supported by private stakes.

The governing structure of the public firms in manufacturing changed several times over the last four decades. Sometimes the firms were directly governed by a ministry, sometimes separate agencies were installed with limited freedom in strategic and operational decisions. In the early seventies a stock company (ÖIG,

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then ÖIAG) was created as a holding company for individual firms; 100% of the shares remained in government hands. Different steering methods were tested within the conglomerate of firms; sometimes the holding company was designed as a loose financial holding. Later, it was transformed into a holding according to Austrian business law, which implied that it could implement strategic goals and extract dividend payments from the individual firms, and reshuffle them between industries. In the beginning of the seventies, all the firms within an industry were integrated in a branch holding: the big steel companies and those in the non-ferrous metals industry were merged. The planned oil/chemical merger was prevented by the firms and regional lobbies, though the law also called for this merger ("Branchenzusammenführung"). Following the large losses suffered by the firms during the eighties - centered around the steel company and its unsuccessful diversification into mining, oil speculation, etc. - a new step towards reform changed the rules of management rather dramatically in 1987. One specific feature was increasing the independence of the nationalized firms from the government: the choice of management was de-politicized; a large subsidy (ATS 33 bn) was injected to stop losses and allow for active strategies. The government announced that this was the last injection of government money that could be expected; any further losses would have to be covered by privatization. The leverage of the holding over the individual subholdings and firms was increased by defining the newly created Austrian Industries (AI) as a holding company by the Austrian Corporate Law. The vision was to form a large, professional, Austrian, multi-industry conglomerate, which was planned to go public within three to five years.

Positive restructuring took place during the following years, the quality of decision-making processes and management was upgraded, the firms invested in active internationalization. Minority stakes in the oil company were sold in 1987 and 1989, but afterwards, privatization via the stock offerings of individual firms was forbidden by the holding, which eventually wanted to place the shares of the holding company. A bond option going public was issued for this purpose in 1990, offering a preferential swap into stocks in five years. However, the attempt to restructure the firms failed. One reason was the specifically, unfriendly business climate in the steel industry, another was a mismanaged internationalization campaign by the large aluminum company (AMAG), which resulted in a loss of ATS 12 bn in 1993. And in addition to these unlucky events, the conglomerate proved to be too large, the interests of the firms too different. In this situation the strategic interference and control potential of the holding was, in various cases simultaneously too strong and too weak. In the globalizing world economy, the time for large diversified conglomerates had passed, the competitors had opted for cost reduction, leanness, flexibility, and flat hierarchies. The final stage of the Austrian Nationalized Industry and the privatization experience started in 1993. The old holding was dissolved13). A new capitalization of ATS 7.5 bn was provided by the owner and combined with the binding demand to sell all the majority stakes. The new holding (ÖIAG) was explicitly stated in the law as being not a holding company according to Austrian Corporate Law (Konzerngesetz). It could give no orders to its

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subsidiaries, except those which where necessary for the promotion of the privatization process. For some of the firms, explicit deadlines for privatization were set (e.g. 51% of the technology group should be privatized by June 1994), while for others, the method of privatization was indicated (the refined steel company should be offered to the public). The law used the term "should", which meant stopping short of enforcing the time and method of privatization by law. This created an indicative guide which did not have to be followed, if there were strong arguments against it, but otherwise did have to be accepted.

The law declared that the goal of privatization - and therefore the criteria for choosing between alternative offers and methods- is the amount of revenue gained by the seller. But the law added that the selling agency also had to "to consider that Austrian manufacturing firms and the value added in Austria should be maintained, if economically feasible." This clause had to be realized and was made operational in the so called "privatization concepts", which were to be developed by the new holding and approved by the owner (the central government). In these concepts, the detailed time schedule and method of privatization, as well as the restructuring intentions, were fixed by the ÖIAG management, and approved by its supervisory board and finally the owner. The character of the privatization concept can be assessed as equivalent to a strategic plan, which is based on the targets of the law, but which makes them one step more concrete. The "Austrian clause" was made operational by establishing a "privatization checklist". This included an assessment of the long term business plans of the potential buyers regarding investment, employment, research activities and headquarters, the probability that the firms would continue to exist or even be upgraded, the role of the Austrian firms as a center of competence, and the consequences for Austrian suppliers and consumers. The final purpose of the checklist is to assess whether the buyer will strip the firm, eliminate an unwanted competitor, use the acquired firm as a low cost supplier, or whether the bidder has a strategic interest in a quality partner with own core competencies. It does not contain a preference for the nationality of the buyer.

As of now, the majority of all of the five large holdings have been privatized. In each case a different method, speed or process was applied. All headquarters remained in Austria.

2.2.3 Deregulation – A visible deficiencyAustria is lagging in liberalization and the deregulation of its large infrastructural firms. It has many examples of off-budget companies, but often neglects specifying the objectives of these agencies, defining universal services, and monitoring them after cutting the direct links. Contracting out, tendering of services, and competition within the government are less common than in other countries.

The system of regulating natural monopolies has already been described as a double grip, consisting of public ownership and a rather strict regulatory policy for entry, prices and technical rules. Systems vary for electricity, telecommunications,

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railways, and gas. The pressure to change the system originated from the rules issued by the European Community. Deregulating or liberalizing entry is lagging in all sectors. Only a few steps were and are being taken before the enforcement of these outside rules, or the entrance of new competitors, who no longer can be deterred.

The large PTO is still in public ownership. The creation of a separate company and the necessity to make cross subsidizations public through an explicit cost statement for the divisions "yellow post", buses and telecommunications were delayed up to 1996. The first non-public telephone supplier was permitted in the mobile phone business late in 1996, well after the PTO was allowed to start its own mobile phone line. Five decades of regulation and government backed policy to prevent entry have resulted in high prices for telephone lines, data transmission and the lack of a service sector and content providers. Specifically the variable costs of telephoning are high, long distance and international calls are expensive, while the fixed charges for installing new capacities are somewhat lower. The PTO was separated from direct government control in 1996. Plans to privatize the operating company, starting in 1999, were forced upon the unwilling company on the initiative of the People's Party in a coalition agreement. The original plan to nominate retired senior members of the PTO for the supervisory board (and the holding company PTBG) was luckily given up at the last minute. Retired managers from the old public system would have effectively colluded with the new management and its employees, to prevent the privatization efforts of the owners over an extended period.

Electricity can be imported and exported only by the nationalized company "Verbundgesellschaft" (Verbund). In addition it the Verbund has the general responsibility of providing as much capacity as needed. Electricity is, however, generated by several layers of independent units, some owned by regional governments, some by large cities, while a very small amount is produced by private generator units or by industrial firms. The Verbund owns "Sondergesellschaften" which help buffer demand, if other plants are not able to provide enough electricity. The system has resulted in large reserve capacities. The regulatory procedure was a mixture between a cost plus scheme and a return on capital regulation, both being known to lead to low cost-efficiency and to overinvestment. The electricity firms pay by far the highest per capita wages in Austria, and most clashes with environmentalists originated in unreasonable capacity enlargements. By law, the large firms must be public although it is expected that this law soon will be changed. There is no agreed strategy as to how the future of this industry will look. A unanimous opinion is that the relations between the various layers should be restructured so that the lowest cost producer will be the supplier. There is the suggestion that the losses involved in the possible contracting of large firms with foreign suppliers should be spread ("cooperative solution") among Austrian firms, but this does not comply with EU- law. A strong Austrian company able to compete internationally is always called a vision, but a

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very unlikely one. The Verbund does plan to buy local companies, just as regional companies plan to buy shares of the Verbund. It looks as if privatization will come very late, and only a few companies will retain positions as important players in the liberalized markets.

The privatization of railways has not been a topic in Austria up to now. The central railway was separated from direct government influence in 1994. Its efficiency and service quality are rated as inferior by both external analysts and business firms. Several steps towards reform were attempted and did result in marginal changes for the better. The closest the railway has come towards privatization have been attempts to allow local governments to influence the closure of regional services. If the local government pays and declares its specific interest, it can influence the schedule and extend the service of local lines originally planned to be closed. Some minor examples exist in which a local line has been privatized. One common feature common to the PTO, electrical utilit ies, and the railways (the same holds true for the publicly owned banks) is that historically, the pursuit of ownership interests and regulation have not been separated. The ownership rights for the PTO and for the State Railway are both allocated to the Ministry of Transportation; formerly, this ministry was also the regulator.

The ownership of the electrical utilities is monitored by the Ministry of Economics, as is their regulation. The ownership of the banks is monitored by the Ministry of Finance, as is their regulation (Bankaufsicht). This decision was made with respect to social planning. If there is a social optimum which can best be achieved by a single firm (due to economies of scale or some other form of market failure), this can be achieved in one step, since the interests of managers, owners and consumers cannot differ from one another. And it is historically true that the interests in post war Austria - given its destroyed capacities- were not too different: capacity had to be increased as quickly as possible, infrastructure had to be provided as cheaply as possible. The first conflict of interest arose when the producers preferred a higher price, while consumers appreciated a lower price. This conflict was managed, in part outside of the regulatory system, with the help of the social partnership system. The system worked well for a long time. The quantity and quality of such basic services as electricity, railways and the telephone matched the Western European standard as early as in the sixties, which is a great achievement, if we reflect on Austria's position in 1945. But eventually, the negative effect of lacking competition and innovation outweighed high capacities. Over time, the interests of managers and society became more complex. Managers began to prefer excess capacities (to be on the safe side, or to utilize construction units, or to maximize pride), environmental issues evolved, owners could have considered utilizing dividends for education or research, rather than of investing in overcapacities. This new situation was not reflected in reforms. The system developed many aspects of capture theory; the presumed regulators started defending the firms when they were accused of installing excess capacities, or of upholding high prices, or of creating environmental problems. The regulators

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were appointed to the supervisory boards of the firms, as if there were no conflicts between the objectives of the firms and the tasks of the regulators. It is currently being discussed whether the regulatory tasks should be rendered to a separate agency. This now appears feasible for the telecom, but not for railways and electrical units. The ministers, who control ownership, and those who enforce regulations, recently had to separate. No privatization program for electrical units or the railways has yet been called into existence. The telecom company is planned go public in 1999, its mobile telephone subsidiary sold 25% of its shares to an Italian firm in April 1997.

3. Socio-Cultural Environment

3.1.Culture in Austria

Austrian history can be traced back to the Hallstatt culture of the Central European Bronze Age and the La Tene culture of the European Iron Age. The lands of Austria were also a part of the Roman Empire with the Privilegium Minus of 1156, which gave Austria the status of a Duchy.

Austria’s culture has been greatly influenced by its neighbours, Italy,Hungary, Germany and Bohemia. The country gave birth to Art Nouveau with the rise of the 1897 Vienna Secession (Union of Austrian Artists), which included such great figures as Otto Wagner, Gustav Klimt, Egon Schiele, and Koloman Moser.

Austrian literature is a significant part of Austrian culture which began to develop from 1803, when Francis II disbanded the Holy Roman Empire and established the Austrian Empire, and also during the subsequent period, when the Austro-Hungarian and German Empires were dissolved. Austria has always been home to such famous writers as Thomas Bernhard, Arthur Schnitzler, Robert Musil and Stefan Zweig, as well as poets Rainer Maria Rilke, Georg Trakl, Franz Grillparzer, Franz Werfel and Adalbert Stifter. Elfreide Jelinek and Peter Handke are famous contemporary Austrian playwrights and novelists.

Vienna has always been a significant centre of innovation in music as well. Vienna’s status as a cultural centre began in the early 1500s, when it focused on instruments of music, especially the lute. The Baroque period saw Austrian music influenced by Slavic and Hungarian folk forms. Composers of the 18th and the 19th Centuries were attracted to the city by the patronage of the Habsburgs, when it became the European capital of classical music. The composers Wolfgang Amadeus Mozart, with his balance between melody and form;Ludwig van Beethoven, with his symphonic patterns; and Joseph Haydn, with the development of the string quartet and sonata, attributed greatly to this classical period of music.

Austria is also famous for its palaces, castles, cemeteries and architectural works. Among the most famous castles include Castle Liechtenstein, Burg Hohenwerfen

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and Schlob Artstetten. Most of the castles in Austria were erected during the reign of the Habsburgs. Austria is rich in Roman Catholic tradition as well, with one of the oldest cathedrals, the Minoritenkirche, in Vienna. One of the most famous Austrian palaces is the Schonbrunn, as well as the Belvedere, which is home to the Austrian Gallery.

3.2.People

The people of Austria are the residents of the Parliamentary representative democracy of Austria which includes nine federal states. Austria is now the member of the European Union and thus the people of Austria are a part of the larger European citizens. This land locked country of Central Europe is bordered by Germany and the Czech Republic in the North, Hungary and Slovakia in the East, Italy and Slovenia in the South and Switzerland and Liechtenstein to the west. Modern Austria with its capital in Vienna originated in the in the 9 th Century and slowly the people of Austria populated upper and lower Austria.

The people of Austria mainly belong to the German ethnic group with indigenous minorities around 1.5% (this includes Croatians, Slovenes, Hungarians, Czechs, Slovaks) and there are also some recent migrated groups. Religions of the people of Austria are also not homogeneous while 73.6%are Catholic, 4.7% are Protestants, and 4.2% are Muslims. The German language is the official language of the people of Austria all over the nation but Slovene, Croatian and Hungarian are also used.Austrians are a homogeneous people; about 90% speak German as everyday language. However, there has been a significant amount of  immigrants, particularly from former Yugoslavia and Turkey, over the last two decades. Only two numerically significant autochthonous minority groups exist--18,000 Slovenes in Carinthia (south central Austria) and about 19,400 Croats in Burgenland (on the Hungarian border). The Slovenes form a closely-knit community. Their rights as well as those of the Croats are protected under Austria’s 1955 State Treaty and in related national law and are generally respected in practice. Some Austrians, particularly near Vienna, still have relatives in the Czech Republic, Slovakia, and Hungary.

In the last census in 2001, 74% of Austrians identified themselves as Roman Catholic. This proportion is expected to drop by the next census in 2011, as sex abuse scandals have accelerated a trend toward Austrians leaving the church. The church abstains from political activity. Immigration has increased the proportion of Muslims and Orthodox in Austria. Small Lutheran minorities are located mainly in Vienna, Carinthia, and Burgenland. There are some Islamic communities, concentrated in Vienna and Vorarlberg.

3.3.Quality of Life in Austria

The quality of life is generally very high in Austria. With a thriving economy, a stable political system, Austria's beautiful countryside (not only the Austrian Alps

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bewitch with their majestic beauty) and its cultural diversity, all contribute to a high-quality lifestyle for locals and tourists alike.

Austria's capital Vienna ranks as one of the most attractive cities worldwide. The subjective feeling of well-being attested to by locals and tourists alike has been repeatedly attested to by leading international studies and city rankings. Vienna – the 4th ranked place in an international quality of life survey. The aim of international city rankings is to provide objective, consistent and comprehensive data of comparison.

Subjective expectations, of course, can vary but certain attributes are objectively relevant: political stability, personal safety and freedom, medical and health considerations, educational situation, public services and transports, recreational options, availability of consumer goods, housing and environmental situation.

The internationally acclaimed ranking by Mercer's overall quality of life survey 2006 evaluates 250 cities worldwide. Zurich (Switzerland) ranks first, closely followed by Geneva (Switzerland), with Vancouver (Canada) third and Vienna (Austria) in fourth place Within EU capital city rankings Vienna (Austria) is the unchallenged first. There are many reasons why Vienna fares so well in such objective and subjective evaluations. Therefore, the following list is not exhaustive.

• Vienna - city of culture: numerous activities in the area of theatre, music, art exhibitions, public readings, museums and operas that cater to all tastes!

• Imperial Vienna: Imperial buildings like Hofburg, Schönbrunn Palace, Belvedere Palace, the splendid buildings of the Ring Boulevard, the medieval narrow streets and the baroque squares that shape the city's image.

• A safe city with an excellent public transport network of underground trains, trams and buses

• Well-organized public services, a clean environment and excellent transport options

• Educational facilities are efficient and available to all

• Good price level: excellent value for money

• Moderate and mild climate. Average summer temperature is 20°C to 30°C, average winter temperature is around 0°C.

Quality of Life Index 2007

AustriaPosition 11

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Cost of Living 64Leisure & Culture 83

Economy 62Environment 90

Freedom 100Health 91

Infrastructure 57Risk & Safety 100

Climate 71Final Score 78

3.4.Education in Austria

The Republic of Austria has a free and public school system, and nine years of education are mandatory. Schools offer a series of vocational-technical and university preparatory tracks involving one to four additional years of education beyond the minimum mandatory level. The legal basis for primary and secondary education in Austria is the School Act of 1962. The federal Ministry of Education is responsible for funding and supervising primary, secondary, and, since 2000, also tertiary education. Primary and secondary education is administered on the state level by the authorities of the respective states.

Federal legislation played a prominent role in the education system, and laws dealing with education effectively have a de facto constitutional status because, like Austrian constitutional law, they can only be passed or amended by a two-thirds majority in parliament.

3.5.Crime

Austria has one of the lowest crime rates in Europe, and violent crime is rare. However, crimes involving theft of personal property do occur. As such, most crimes involving U.S. citizens are crimes of opportunity, involving theft of personal belongings. Travelers are also targets of pick-pockets who operate where tourists tend to gather. Some of the spots where such crimes are most frequently reported include Vienna’s two largest train stations, the plaza around St. Stephen’s Cathedral, and the nearby pedestrian shopping areas (in Vienna’s First District).

The U.S. Embassy receives reports of theft and pick-pocketing on public transportation lines, especially on those lines coming into and out from the city center. Secure your personal belongings and always take precautions while on public transportation and in public places such as cafes and tourist areas.

Don’t buy counterfeit and pirated goods, even if they are widely available. Not only are the bootlegs illegal to bring back into the United States, by buying them, you may also be breaking local law.

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3.6.Social Stratification

Classes and Castes: Austrian society was traditionally highly stratified, with well-defined social distinctions. In the early 1800s, the three major social classes were aristocrats, "citizens," and peasant-farmers or peasant-serfs. At the beginning of the twentieth century, a small aristocracy remained, along with a small middle class of entrepreneurs, a larger working class, and a large class of peasant-farmers (about 55 percent of the population). During the period between World War I and World War II, these classes developed separate political affiliations as well, dividing the people into camps based on beliefs in either social democracy, conservative Christian politics, or liberalism. These camps dissolved after World War II, and a growing middle class effected change in the social structure.

Prosperity, mobility, and more government benefits in the late twentieth century resulted in a higher standard of living for nearly all Austrians. There are more middle-class citizens than any other group, and education is considered the means to upward mobility. Equality is promoted throughout Austria, although foreign workers, immigrants, and Gypsies are still generally less accepted by the middle class.

Symbols of Social Stratification: An older Austrian family lineage and inherited wealth are still symbols of respect in Austrian culture. Austrians whose families have lived in the country for several generations gain more acceptance than those who are recent immigrants. Symbols of wealth today may be a second home and more material possessions, rather than land, as in earlier centuries.

3.7.Political Life

Government: Austria is a federal republic based on parliamentary democracy. Its constitution was adopted in 1920 and has been amended several times. The federal government has a legislative, an executive, and a judicial branch. The bicameral legislature is known as the Bundesversammlung (Federal Assembly). It is composed of the lower house of parliament, the Nationalrat (National Council), made up of representatives from the political parties, and the upper house, the Bundesrat (Federal Council), representing the nine provinces.

Each of the nine provinces has a provincial government that provides for enforcement of federal laws and policies, and sets laws regarding municipal affairs, education of young children, tourism, and other local matters.

Leadership and Political Officials: Austria has a federal president, elected by the people, who serve as head of state. The president has the power to appoint the chancellor and members of the cabinet and other government posts, to dismiss members, and even, on rare occasions, to dissolve the Nationalrat. However,

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governmental power rests chiefly with the chancellor (prime minister) and the cabinet, who write most laws. They in turn are responsible to the Nationalrat, which must approve all their actions. Members of the parliament are elected by the people.

From 1945 until 1986, two major political parties, the Social Democratic Party of Austria (SPO) and the Austrian People's Party (OVP) worked together in democratic governance of Austria. As traditional political alliances broke down in the late twentieth century, however, more "floating" voters made it possible for smaller political party candidates to gain a higher percentage of the vote. These parties included the controversial Freedom Party of Austria (FPO), a right-wing party headed by charismatic young leader Jorg Haider. Other, less powerful, small parties are the Liberal Forum and the environmentalist party, the Greens.

In February 2000, the OVP and the Freedom Party formed a coalition, causing the European Union to impose sanctions against Austria because of Haider's alleged racism and Nazi sympathies. Austrians demonstrated to protest the EU's interference in its national politics. Haider stepped down from the party, and the EU lifted its sanctions in September.

Social Problems and Control : Austria has traditionally been a peaceful nation with a low crime rate. Police and the law are respected, but since the 1980s some security personnel have been accused of improper conduct and excessive use of force. A variety of political beliefs are tolerated in Austria, and Vienna has long been a center of peace talks between foreign nations and a meeting place for international organizations such as the Organization of the Petroleum Exporting Countries (OPEC). As a result, violence and terrorist attacks have occasionally broken out against visiting members of nations in conflict, although involvement of the Austrian army and tough sentencing of terrorists by Austrian courts have curbed such incidents.

Austrian police divisions are the Federal Police, whose jurisdiction includes Vienna and other urban areas, and the Gendarmerie, responsible for rural and all other areas of Austria. The State Police is a national secret service division.

The criminal court system hears cases of crimes and misdemeanors. Jail and prison sentences tend not to be lengthy, and an effort is made to rehabilitate those incarcerated. Certain acts, such as vagrancy and prostitution, have been decriminalized at the federal level but may still be prohibited by local governments.

Although it remains a neutral country, Austria is prepared to defend itself from attack with the Bundesheer (Federal Army), which has an air force but no navy. Military service is on a conscript and volunteer basis. Austrian women have never served in the military. Main objectives until the 1990s were to deter outside forces from crossing Austria in military campaigns against surrounding nations by defending Austria's "key zones" (major routes of military advance) and "area

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security zones" (remaining Austrian territory). The Austrian security policy was restructured from 1993 to 1995, under the New Army Structure, which focuses on resolving border crises that might occur during instability in neighboring nations, resulting in an influx of refugees.

Austria accepted observer status in the Western European Union in 1995 and participates in the North Atlantic Treaty Organization's (NATO) Partnership for Peace. It is a long-standing member of the United Nations, the Council of Europe, and the Organization for Security and Cooperation in Europe (OCSE).

3.8.Trade Law

Trading regulations

As a general rule, a company can only be operated in those cases in which it has secured the appropriate authorization. A trading operation is defined by the trading regulations (GewO) to be an activity undertaken on one’s own on a regular basis for purposes of achieving an economic advantage. The trading regulations do not apply to agriculture or forestry, to the arts, and to the kinds of professions and transactions which are regulated by special-purpose acts (for instance: banking and legal counsel).

Kinds of trading operations

The GewO distinguishes among non-regulated, regulated and ‘sensitive’ trades. The former two categories have to be registered with the appropriate authorities. Once this has been taken care of, the trades can be pursued. The latter require the securing of a legally-applicable notice from the trades authorities. The sensitive trade cannot be pursued until this notice has been secured.

Pursuers of non-regulated trades have to satisfy generally-applicable stipulations prior to their launching of their activities. Regulated trades require a certificate of qualification. Pursuers of sensitive trades have to prove their reliability.

Legally-responsible managing director

To pursue business, a GmbH, AG, OG, KG and the branch office of a non-Austrian company have to secure an authorization to conduct their trade, and have to employ a managing director who lives in Austria (except in those cases in which the services of process and enforceability of penalties levied by courts of administration are secured by inter-state agreements, with this also applying to areas outside Austria), possesses the qualifications needed to undertake his or her position, and is legally capable of ensuring the adherence to the regulations applying tothe company’s trade. The managing director responsible for adhering to trading regulations does not necessarily have to be the same as the managing director as defined by commercial codes and as appearing in the commercial register as being empowered to represent the company, or as a shareholder. It

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suffices for the former to be an employee (in the sense that he or she works on at least a halftime, social accounts-paying basis) for the company. All managing directors—with this applying to those as defined by the commercial codes and those appointed by the shareholder with a controlling stake in the company—have to satisfy the applicable criteria of trustworthiness and integrity.

3.9.Foreign policy overview

The following priorities top the Austrian foreign policy agenda:

Within the European Union Austria is committed to strengthening the EU’s role as a successful international player and therefore supports all steps directed at deepening the Common Foreign and Security Policy (CFSP), promoting external relations and developing the European Security and Defence Policy (ESDP).

Regional Priorities include :

• intensifying neighborhood policies

• The Western Balkans, where Austria supports the implementation of the countries’ European perspective in line with the individual progress made,

• The New Neighbors of the enlarged European Union,

• The Strategic Partnership with the Russian Federation and

• Supporting all initiatives aimed at creating peace, stability and wealth in the Mediterranean region and in the neighbouring countries of the Near and Middle East.

Thematic Priorities include :

• Trans-Atlantic relations based on the common values and economic ties,

• Strengthening the authority and the structures of the United Nations,

• Making full use of the instruments provided by the OSCE and the Council of Europe,

• Respect for international law, particularly with a view to universal respect for human rights and the rights of minorities,

• Non-proliferation of weapons of mass destruction and the strengthening of the relevant organizations and control regimes (IAEA, OPCW, CTBTO; HCOC) as well as the ban of land mines and cluster munitions and the containment of small and light weapons

• Combating international terrorism

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Conclusion

Austria traditionally has been active in "bridge-building to the East," increasing contacts at all levels with Eastern Europe and the states of the former Soviet Union. Austrians maintain a constant exchange of business representatives, political leaders, students, cultural groups, and tourists with the countries of central and Eastern Europe. Austrian companies are active in investing and trading with those countries as well. In addition, the Austrian Government and various Austrian organizations provide assistance and training to support the changes underway in the region. Austria has identified the Black Sea region and countries along the Danube River as additional focus areas of its foreign policy. To conclude, we believe Austria represents a favorable and healthy business environment for investment purposes.

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References

IMF - http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/aut/eng/curaut.htm World Bank - http://data.worldbank.org/country/austria Stastik Austria - http://www.statistik.at/web_en/ External Affairs - http://www.advantageaustria.org Austria’s External Economics Relations – Research Centre International Economics WTO – www.wto.org Everything Culture - http://www.everyculture.com/A-Bo/Austria.html#b Wikipedia - http://en.wikipedia.org/wiki/Culture_of_Austria

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