A clear understanding of a business’ operating environment is vital for minimising risks and maximising commercial potential in any investment destination. This process involves answering a number of questions in relation to the regulatory burden, corruption, political stability, physical infrastructure and labour force and there’s a challenge between risk and operation costs.
The most expensive countries present the least risk because of higher wages and tax rates. However, cheaper countries present greater operation risks in thanks to low wages and taxes. Functioning in a globalised world, business organisations are confronted with such choices on market entry, operations and logistics. There are a wide-array of indicators that provide a clear idea of what to expect, the best alternatives and what are the most effective strategies to overcome operating challenges.
Business dynamics data informs government policies, addressing gaps such as a low literacy rate, inadequate physical infrastructure and cumbersome government regulations hampering investments and potential economic growth. Businesses and organisations normally rely on a wide range of data sources including OECD, World Bank, Eurostat for different indicators. However, the benefit of working with Euromonitor International is that data on business environments is consolidated in one place. In addition, we complement the data with interesting insights highlighting emerging opportunities.
Euromonitor International’s business dynamics data allows companies to identify a wide array of indicators.
Top 5 Uses for Passport Business Dynamics
- Assess the unemployment and employment rates of a market across the total population and split across male, female and youth
- Analyse the potential cost of the workforce by tracking labour costs: monthly minimum wage, wage per hour and manufacturing wage per hour
- Understand the educational levels of the workforce by adult literacy across the total population, male and female
- Evaluate the cost of doing business, including tax rates and export and import costs
- Mitigate risk by assessing the political stability of the operating environment by looking at corruption, government stability rankings and crime rates
Five critical business questions that population data answers:
How friendly and competitive is the business environment?
One of the first questions business organisations ask themselves before deciding to enter or expand in a given market is: how competitive is the business environment? Difficult operating environments can withhold or slow down activities for a considerable period of time which affects profit margins. It is imperative to know these details prior to launching a product or service. The Global Competitiveness Index is a widely used index illustrating how a country uses its resources to drive prosperity. Simply put, the index answers these questions:
- How robust is a country’s infrastructure in order to facilitate smooth operations?
- How strong is the economy to provide economic stability for business operations?
According to Euromonitor International’s Global Competitiveness Index, Indonesia is an up-and-coming economy, offering a more conducive operating environment compared to its peers, Vietnam and the Philippines. L’Oreal identified this opportunity, setting up a regional hub in Indonesia to serve both the local and neighbouring markets, which cut costs.
Global Competitiveness Index 2011-2016
Source: Euromonitor International from World Economic Forum
Note: Countries are scored on a scale of 1-7 with 1 being the lowest and 7 the highest
What is the size and skills level of the workforce?
Finding the right size and skill-level of the workforce is vital for a company’s success. Infosys, a global technology services company in India is a clear example. Much of the population has higher education and a good working knowledge of the English language. In 2016, India accounted for 14.8% of the global total for people in higher education, the second highest after China. This, combined with lower wage rates, makes India a lucrative investment destination. Upon learning this information, Infosys developed a business model that provides office support at a much cheaper rate. While the model was founded in 1981 with only US$250 dollars, it has become so successful, that it has grown to become a multi-billion dollar company .Its’ latest figures are quoted at US$10.1 billion in revenue for 2016.
Higher Education Students (including Universities) 2016
Source: Euromonitor International from national statistics/UNESCO
How well established is the physical infrastructure?
Well-developed physical infrastructure is important for business organisations in order to carry out day-to-day functions such as transporting goods. A business must also use ports and customs efficiently when it comes to moving goods across international borders. This is important for manufacturing companies that rely on developing countries for the production of goods in order to take advantage of cheaper wage rates. The readymade garments industry falls into this category with foreign apparel brands relying heavily on factories in China, India and Pakistan for manufacturing purposes. Logistics in these countries are less sophisticated than others, which can cause unnecessary delays with damaging consequences; apparel has a short fashion span and any delay could make products redundant, sustaining a heavy loss for the companies. With more countries vying for a share of the lucrative readymade garments manufacturing industry, some players, including Pakistan and India are improving their logistics performances to ensure delivery deadlines.
Top 5 Countries by Textile and Leather Products 2016 and LPI Rankings 2011/2016
Source: Euromonitor from trade sources/national statistics/World Bank
Note: Logistics Performance Ranking out of 160 countries in 2016 with lower number representing a better position
What are the risks associated with corruption, terrorism and political stability?
In the wake of frequent terrorist attacks, companies must safeguard the security of workers. In addition, business operations are impacted by corruption and political stability. For example, a group of US companies who import readymade garments from Bangladesh threatened to cancel orders and take business elsewhere due to on-going blockades on account of political turmoil in 2015. During this period, 11 companies in Bangladesh reported losing US$51.1 million just within a span of ten days. Indicators such as Rule of Law and Political Stability and Absence of Violence under Government Stability can help to avert such catastrophic outcomes through demonstrating better alternatives. For example, Vietnam which competes with Bangladesh in the readymade garments sector has better records for government stability, which makes it a more lucrative location for operations
Bangladesh vs Vietnam: Political Stability and Absence of Violence Index: 2011-2015
Source: Euromonitor International from World Bank
Note: Countries are scored on a scale from -2.5 (weak) to 2.5 (strong); Vietnam scored 0.0 in 2014 and 2015 and hence does not show in the chart
How long will it take to set up a business?
Companies need to comply with government regulations when setting up a business. This takes time and can affect revenue. In some countries, setting up a business can be complex with numerous time consuming procedures. On the other hand, some countries have a more simplified process that can help encourage more people to set-up their own business. Ideally, business organisations are lured to countries where the process is simpler. Developed countries boasting of a more efficient process are more viable candidates. The indicator, ‘Starting a Business under Ease of Doing Business’ in our Passport database, shows the length of time and cost of starting a business across different countries.
Source: Euromonitor Business Dynamics Dashboard
A significant part of a business orgnisation’s success is rooted in picking up the right destination for future investments to eliminate unnecessary operating costs associated with corruption, heavy regulatory burdens, long delays and political instability. At the same time, a skilled labourforce at competitive rates are extremely beneficial for businesses. Therefore, it is important that companies carry out due diligence in understanding the operating environments presented by different countries before making the final selection.
CONCLUSION
A clear understanding of a business’ operating environment is vital for minimising risks and maximising commercial potential in any investment destination. Utilising Business Dynamics data from Euromonitor International can assist your organisation in addressing gaps such as a low literacy rate, inadequate physical infrastructure and cumbersome government regulations hampering investments and potential economic growth.
For more information about how Business Dynamics data can help your business strategy, download the full briefing here.
