This article has been excerpted from Doing Business Beyond America's Borders by Lawrence W. Tuller, available from Entrepreneurpress.com
The World Economic Forum , an organization that brings together the world's top government and business leaders to discuss the state of the world's economy, meets annually in Davos, Switzerland. For 20 years, the Forum has published its annual competitiveness report comparing the economic, political, and business climates of countries throughout the world. Since 2001, the methodology used in this report has been based on a model developed for the World Economic Forum by noted economists Jeffrey Sachs and John McArthur. It is called the Global Competitiveness Index (GCI).
The World Economic Forum's definition of competitiveness is the "collection of factors, policies, and institutions which determine the level of productivity of a country and that, therefore, determine the level of prosperity that can be attained by an economy." Its basic premise is that "a more competitive economy is one that is likely to grow faster over the medium- to long-term." If you have a choice about which country to devote resources and energy to, it just makes sense that you give serious consideration to one ranked near the top of the GCI.
The GCI is composed of three separate indexes: the technology index, the macroeconomic environment index and the public institutions index. The 2007 survey consists of 122 countries divided into two groups: innovator countries and all others. Innovator countries are those that have more than 15 U.S. patents registered per million population. For innovator countries, the weighting of the three subindexes is that GCI equals one-half of the technology index, plus one-fourth of the macroeconomic index, plus one-fourth of the public institutions index. For all other countries, each subindex is given an equal one-third weighting.
The technology index consists of several pieces of hard data plus answers to a survey of 11 subjective questions. The hard data are:
- U.S. patents granted per 1 million population
- Gross tertiary school enrollment rate
- Cellular mobile subscribers per 100 inhabitants
- Internet users per 10,000 inhabitants
- Internet hosts per 10,000 inhabitants
- Main telephone lines per 100 inhabitants
- Personal computers per 100 inhabitants
The macroeconomic index survey asked "Is your country's economy likely to be in a recession next year?" and "Has obtaining credit for your company become easier or more difficult over the past year?" The additional hard data are:
- Government surplus/deficit
- National savings rate
- Inflation rate
- Real effective exchange rate
- Lending/borrowing interest rate spread
- Government debt
The public institutions index consists of a survey of seven subjective questions dealing with judiciary independence, crime, public contracts, financial assets, and bribes paid to public officials.
The purpose of the GCI is to alert businesses who are considering either exporting, foreign sourcing, or opening a plant, warehouse, or retail establishment in one or more of the 122 countries to the potential benefits and difficulties of choosing one country over another. This is a valuable tool and should be incorporated into your strategic marketing program. But this doesn't mean that everyone should choose Singapore, Hong Kong, Taiwan or Israel merely because they are the top four on the ladder. Any of the other countries might have better markets, distribution channels, or less competition that would make them a more logical choice. But at least with the GCI, you have more information with which to make a decision.
In addition to the GCI, the World Economic Forum publishes an annual Business Competitive Index (BCI). Instead of looking at countries from the macroeconomic level, the BCI looks at microeconomic factors to determine sustainable levels of productivity and competitiveness. The underlying concept of the BCI is that "while macroeconomic and institutional factors are critical for national competitiveness, these are necessary but not sufficient factors for creating wealth." The BCI specifically measures two areas for each country: 1) the sophistication of private sector company operations and strategy, and 2) the quality of the overall national business environment in which companies operate.
The BCI is an important adjunct to the GCI in that it is a fairly good measure of what to expect from local businesses in a given country. This will give you a feel as to the amount of resources you will probably have to commit to be successful.
Without a doubt, government intervention in the form of regulatory barriers to trade and foreign investment is one of the most difficult obstacles you'll face when choosing a country in which to do business. Yet, in any country, developing a strategy to deal with these regulations has to be a primary goal in your marketing plan. Although coming up with such a strategy may seem a daunting task, with detailed planning and preparation, there is no reason why you cannot succeed.
It might help to look at which countries tend to be the easiest to do business in from the perspective of government regulations. Such a ranking will also give you a feel for which countries are more difficult to enter. The World Bank Group publishes an annual report, the latest edition of which is Doing Business in 2008, which measures the impact of government business regulations in 178 countries.
Rankings are based on 10 criteria:
- The ease of starting a business
- The ease of dealing with licenses
- The ease of hiring and firing workers
- The ease of registering property
- The ease of getting credit
- The ease of protecting investors
- The ease of paying taxes
- The ease of trading across borders
- The ease of enforcing contracts
- The ease of closing a business
The results of this study show that out of 178 countries, Singapore, New Zealand and the United States, in that order, are the top three "easiest to do business in" countries. This means that overall, government regulations are less onerous in those three countries than anywhere else. In Latin America, Chile (33rd) is the easiest in which to do business. In Asia, Singapore followed by Hong Kong (4th) is the easiest. In Eastern Europe, Lithuania (26th) is the easiest, and in the Middle East, Saudi Arabia (23rd) is easiest. In all four BRIC countries, government regulations pose a serious obstacle to doing business with Brazil ranked 122nd, Russia ranked 106th, India ranked 120th, and China ranked 83rd.
This index should be helpful in determining which market to go after and, equally important, which countries require extra effort to maneuver around government regulations. However, the ease of doing business index does not take into consideration economic and social factors such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or major social issues such as crime rates and joblessness. For your purposes, these factors may be more important than onerous government regulations.
Lawrence Tuller is the author of Doing Business Beyond America's Borders: The Dos, Don'ts and Other Details of Conducting Business in 40 States, available from Entrepreneur Press. He has been active in international trade for more than 40 years as a management consultant, corporate executive, exporter, entrepreneur and investor. He was also CEO of Latin America/Caribbean Productions, a seminar production company.