Source: Doing Business database.
Note: The score shows the average number of areas in which online systems are in use, out of a possible total of nine areas: online business registration, online submission of construction plans, online submission of applications for an electricity connection, online information on land, online access to credit information for banks, electronic movable collateral registries, online tax payment, electronic submission of trade documents and electronic filing of court cases.
3.2.1.How Competitive is the particular market?
The Global Competitiveness Index provided in this report might be a very helpful tool in assessing not only the market competitiveness of a particular state but also it may significantly influence the decision where to locate one’s business. Without any doubt, the efficiency, stability and trustworthiness of the financial and banking system as well as labor market flexibility or application by business of an innovative technology make the economic environment respectively more of less competitive and enhancing foreign business to invest.
The Global Competitiveness Report “identifies impediments to growth and thereby helps stimulate the development of relevant strategies to achieve sustained economic progress…It is the most comprehensive and authoritative assessment of the comparative strengths and weaknesses of national economies, used by governments, academics and business leaders.”
The report’s Global Competitiveness Index proves that there exists a close link between competitiveness and an economy’s ability to provide high - quality education and training as well as flexible labor markets. The leader in the ranking for the seventh consecutive year is Switzerland. Clearly its outstanding resilience throughout the economic crisis could be explained by its excellent results in all 12 categories of the index.
The next place on the podium belongs to Singapore that remains the 2nd and the United States that remains the 3rd. Germany improved its position in the ranking to the 4th, whereas the Netherlands returned to the 5th place that it held three years ago. The next countries most competitive according to the index are Japan (6th) and Hong Kong SAR (7th), both stable. The subsequent place belongs to Finland that falls to the lowest position ever, i.e. 8th. The ranking of the top 10 of the most competitive economies in the world ends up with respectively Sweden (9th) and the United Kingdom (10th).
In a nutshell, most advanced economies have best recovered after financial crisis. They were inclined either to resist it (e.g., Germany, Switzerland) or recover more quickly than countries rated as less competitive before the crisis. For instance, the United States commenced growing again by 2010, while Greece needed another 4 years to return to the positive trend.
From the comparative analysis of the results from 2007 and 2015 we can see that the financial crisis has created new obstacles for business all over the world. It highlighted existing weaknesses and changed the priorities of companies in regions at all stages of development.
The most serious problems for business, as a consequence of the global financial crisis, is the access to financing. Finding a source of financing is difficult due to deleveraging and stricter regulations in the banking sector as well as uncertain economic prospects. Access to finance mostly influences growth in most of these economies, including the United States. Similar to previous years, states with most advanced economies fill all the top positions in the rankings. However, since eurozone finance is much more difficult to be accessed than it was eight years ago, it underscores one of the factors slowing down growth on the continent. The visible result is that some Eastern and Southern European countries such as Greece occupy currently the lowest rankings.
Find out more about top European competitive economies as well as top European emerging and developing economies in our e-book: “How to set up business in Europe”.
3.2.2.How free is the Economy?
The Index of Economic Freedom is based on 10 economic pillars and it is published annually by The Heritage Foundation and The Wall Street Journal. According to the index: “the highest form of economic freedom provides an absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself.”
Why is the market and economic freedom so important? The more free and unrestricted are societies, the better they capitalize of the pros of the free economy in addressing the desires of its citizens, including individuals as well as any business forms. These economies are able to provide a larger scope of varied opportunities by which the virtuous growth is created characterized by most efficient resource allocation, value creation and innovation. There is currently no doubt that States with higher degrees of economic freedom have flourished not only socially but first of all economically.
In a nutshell, the freer the economy, the more successful and efficient your business may be there. The freer the economy, you may have the higher degree of certainty that you business will be enhanced and the economic freedom promoted via adequate changes in law, including not only the opening the gates for doing business but also restraining the scope of action of government. It is simply an environment that inspires talented people to think innovatively and to develop practical responses to emerging new social and economic challenges confronting the world.
If you choose for your business a State with limited economic freedom, you have to accept the risk that the economic dynamism will be smaller simply because the government takes some control of the economic policies and dilute the power and influence on the economy of individuals and their firms. Doing business and creating innovative solutions is restricted to a various extend depending on the scope of limitations of that particular economy.
In contrast, people are more likely and willing to engage into economic activity if they have more choices and freedom. Such a free economic and legal environment is a perfect platform that encourages to create vacancies, opportunities for investments as well as new services and products that complement our lives to a higher extent.
When the economic is maximized? It is when individuals, bigger business players and investors but also manufacturers have a chance to exercise their own individual opinion in identifying and realizing business opportunities without an excessive intrusion of any government. Maximum economic freedom should bring, develop and maintain personal but also national prosperity.
The 10 elements of economic freedom analyzed in the Index may be divided into four pillars:
Rule of law – the rule of law responds to the scope of recognition of private property rights and reflects the existing (or not) legal instruments that protect them. In order to enhance the better functioning of the economy, property rights, including enforcement of contracts should be effectively secured. In this way, people have more confidence to undertake business activity, save their income and plan in the long-term concerning their income and savings, because they have certainty that their property and rights are safe from theft, extortion or unfair expropriation. The foundation of the free economy, its further specialization, the proceeds from commercial exchange and trade across-borders is the voluntary and responsible undertaking of contractual obligations.
With respect to the scope of the government’s interventions when reconsidering the new placement of your business, it will probably concern you to the smallest extent. Nevertheless, we all know that sometimes high governments spending might negatively influence us all, because the higher governments’ share in national wealth, the lower is the income for individuals engaged in business activities. One of the aspects of negative and too extensive governments’ intervention are high tax rates that in fact provide more resources to the States but at the same time they reduce the ability for business to conduct economic activities within the free market.
By regulatory efficiency we understand business, labor and monetary freedom. The former in particular sh
ould guarantee an individual or a company the right to set up business activity without an undue State’s interference. Burdensome and redundant regulations can make it difficult for entrepreneurs to succeed in the marketplace. This includes the problems starting from the very beginning of the entrepreneurial existence, i.e. relating to obtaining a business license. It some States that procedure can be uncomplicated and encompass only a mail in a registration form with at least a minimal fee, like in Hong Kong. However, there are places like South America or India where the process of obtaining a business license can be really burdensome and require a lot of time and obviously money to succeed.
As far as the latter component is concerned, market openness is meant to immanently include trade, investment and financial freedom that require a stable currency and the prices determined by the market itself. In particular, the degree to which the State hinders the free flow of foreign trade impacts directly on the ability of individuals and companies to pursue their economic goals and maximize their productivity and well-being. Furthermore, trade barriers and obstacles may also put innovative technology services and products beyond the reach of local entrepreneurs, limiting their own productive development.
In this contribution, I intend to provide sufficient information in order to facilitate the choice where and how to set up business in Europe. It is because in cases where individuals and companies are free to choose where and how to invest, capital can flow to its best use: to the sectors and activities where it is most desired and the profits are most considerable. The government action to redirect the flow of capital and limit choice puts unfair burden on the freedom of both the investor and the person seeking capital. The more restrictions are imposed on investment, the lower is the level of business activities.
You can learn more about European States and their scope of economic freedom in our e-book: “How to set up business in Europe”.
3.2.3.Could corruption influence your business?
There is no doubt that a business climate, including business credibility and profits, is diminished when the public trust is put at risk as a result of corruption. It might have a wide variety of economic impacts, such as the inefficient use of resources, inflated prices as a result of bribes for corrupted governments officials or additional costs of increasing employee ranks that were inflated to cover up the corrupt professional’s activities.
When you plan to buy an existing business, you should be rather careful if you intend to do business with a company or within a country that are known for corruption. Clearly, your risk as an investor is additionally multiplied by changing business environment that follow corrupt business practices. Even potential due diligence of the target must be defeated when the facts change as a result of the actual levels of corruption.
At first, it follows from the ranking that in the USA corruption is not a significant business risk for foreign investors nor for the companies themselves that could be an obstacle to their operations. Although the US market is highly competitive, investors must take into consideration additional costs and time spend on requirements for compliance with anti-corruption laws as well as internal controls.
As far as Europe is concerned, there is no secret that in particular Eastern and Southern Europe is inherently tied up with corruption as a part of doing business there. On the other hand, most of the Western European States have a moderate level of corruption, which makes them an attractive place for investment and does not interfere with conducting a successful business.
Corruption Perceptions Index (CPI) is based on published annually by the Transparency International of a survey of corruption worldwide and it is to show how corruption may actually affect not only doing business but also just a daily life, economy and politics.
According to 2016 CPI ranking, Denmark takes the first place for the 2nd year running, with North Korea and Somalia the worst performers. Top performers have common some key characteristics: high levels of press freedom; access to budget information; independent judiciaries. In contrast, some political conflict and war, poor governance, weak public institutions, including police and the courts as well as a lack of independent media characterize the countries with the lowest ranking.
Ranking - corruption level in the European countries 2015
#1 Denmark
#2 Finland
#3 Sweden
#4 The Netherlands
#5 Denmark
#6 Norway
#7 Switzerland
#8 Germany
#9 Luxembourg
#10 United Kingdom
#11 Belgium
#12 Austria
#13 Ireland
#14 Estonia
#15 France
#16 Portugal
# 17 Poland
# 18 Cyprus
# 19 Lithuania
# 20 Slovenia
# 21 Spain
# 22 Czech Republic
# 23 Malta
# 24 Latvia
# 25 Croatia
# 26 Hungary
# 27 SLovakia
# 28 Greece
# 29 Romania
# 30 Italy
# 31 Monténégro
# 32 Turkey
# 33 Bulgaria
# 34 Serbia
# 35 Bosnia & Herzegovina
# 36 Albania
# 37 Armenia
# 38 Kosovo
# 39 Belarus
# 40 Russia
Start your business in Europe: Introduction Page 5
