Understand Ease of Doing Business Index

The Ease of Doing Business Index is an index created by Simeon Djankov at the World Bank Group. The Index is used by multiple international companies as an instrument to measure various aspects of a country with regard to their business atmosphere. The Index is useful to evaluate multiple areas of starting a new business in a new region which may have a different set of laws, norms, consumer behavior, economy, purchasing power, and an overall different business atmosphere. The top countries in the Index are New Zealand, Singapore, Denmark, South Korea, United States, United Kingdom, Canada, and Australia.

The Index was created through means of academic research by obtaining data from various countries. The report was built jointly by Oliver Hart and Andrei Shleife. Higher ranking in the Index denotes the ease of doing business, simpler regulations and procedures for creating a business, and also stronger property protection laws. The important factor about the Index is that the empirical research carried out by the World Bank to justify credibility of the Index shows a direct and significant impact between positive economic growth impact and improving the regulations. A nation’s ranking on the Index is based on the average of 10 subindexes:

  1. Starting a business – Procedures, time, cost, and minimum capital to open a new business;

  2. Dealing with construction permits – Procedures, time, and cost to build a warehouse;

  3. Getting electricity – procedures, time, and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse;

  4. Registering property – Procedures, time, and cost to register commercial real estate;

  5. Getting credit – Strength of legal rights index, the depth of credit information index;

  6. Protecting investors – Indices on the extent of disclosure, extent of director liability, and ease of shareholder suits;

  7. Paying taxes – Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as a share of gross profit;

  8. Trading across borders – Number of documents, cost, and time necessary to export and import;

  9. Enforcing contracts – Procedures, time, and cost to enforce a debt contract;

  10. Resolving insolvency – The time, cost, and recovery rate (%) under the bankruptcy proceeding.

The Doing Business Project also offers information on the following datasets:

  1. Distance to frontier – Shows the distance of each economy to the “frontier,” which represents the highest performance observed on each of the indicators across all economies included since each indicator was included in Doing Business;

  2. Entrepreneurship – Measures entrepreneurial activity. The data is collected directly from 130 company registrars on the number of newly registered firms over the past seven years;

  3. Good practices – Provide insights into how governments have improved the regulatory environment in the past in the areas measured by Doing Business;

  4. Transparency in business regulation – Data on the accessibility of regulatory information measures how easy it is to access fee schedules for four regulatory processes in the largest business city of an economy.

The Index was created by distributing surveys across different economies, and various forms of businesses based on the size, location, and the nature of the operation. The measurement enables the reader to evaluate the various advantages, obstacles, risks, and differences one can expect while creating a new business in a new country. The measurements enable one to obtain credible insights on the business atmosphere in the new country and significantly reduce risk factors. Information such as duration of obtaining permits, license, procedures, cost of human resource, cost of water and electricity etc. enable one to create a more implementable plan.

The Ease of Doing Business Index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation’s proximity to large markets, quality of infrastructure, inflation, or crime. As mentioned previously, the Index consists of quantitative measures of regulations for starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, taxes, trading across borders, enforcing contracts, getting an electricity connection, and closing a business. The report states in the introduction that “A fundamental premise of DB is that economic activity requires good rules. These include rules that establish and clarify property rights and reduce the costs of resolving disputes, rules that increase the predictability of economic interactions, and rules that provide contractual partners with core protections against abuse.” Since publishing the report, more than 3,000 academic papers have used the data. The literature strongly suggests positive co-relation between improving regulations and economic growth. According to the findings, moving from the worst one-fourth of nations to the best one-fourth implies a 2.3% point increase in annual growth. The Index is not only utilized by several companies to expand their market, but also by several countries to improve their economic structure and foreign investments. The value of the Index is widely noted to an extent that several countries have aimed to reach in the top 25 ranking of the Index in order to develop their national interests.

In the world of globalization and capitalism, new market development (Ansoff’s Matrix) is essential for an established brand in order to sustain in the long term. Which means, if a well-established brand in a country does not expand itself in another country, some other brand with the same product will capture multiple countries and overshadow the well-established brand. The threat of not expanding a brand to new markets/countries is a major one.

The similar scenario can also be put in another way. Out of two or multiple regionally established brands, the brand to marks its presence first on the global level will sustain more than the others, and can also lead to the globally established brand acquiring the other regionally established brands. Some examples are Amazon acquiring Indian online retailer giant Flipkart, Facebook acquiring other communication platforms such as WhatsApp and Instagram, or Coca Cola acquiring Innocent Drinks.

By following the Ease of Doing Business Index, companies are now better equipped to take on new challenges by expanding into new markets. This is not to say that companies should only be focused on this area as Ansoff’s Matrix shows, there are plenty of other areas which could use companies’ resources. However, the main take away is that by using the Index, companies and brands are now at an advantage to tackle competition and be new leaders in markets.

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