Measuring the attractiveness of countries´ environments and conditions for business operations

The aim of our work is to develop instruments that will assess the "business friendliness" of a country´s legal, regulatory and commercial environment with respect to Sees, taking an empirical focus that provides us with insights into how such enterprises experience and evaluate the environment in which they do business.

The knowledge thus gained is potentially of interest to entrepreneurs and managers of Sees wishing to compare the relative "friendliness" of various countries. This is especially important given that the typical SME lacks the resources to find the necessary data in order to make the comparison on his own. It is also of potential value to governments and policy makers, as it provides them with information about what really makes the business environment attractive to SMEs and allows them to benchmark their own environment against that of other countries. Furthermore, it is a source of new ideas and initiatives that are working in other countries which might be adapted and even incorporated into their own policies and programmes. The identification of best practice is important in this regard.

Why place the accent on SMEs?

Despite individual differences between countries, the role that SME play in many economies, especially in the developed world, in terms of their contribution to employment and to GDP, is well documented. SMEs have long been considered the “engine of growth” of economies, with research showing that it is the high growth companies that inject dynamism into an economy and contribute to innovation, providing a sound basis for competitiveness. In many transitional and developing economies, although there may be a critical mass of micro and small companies, they are often more likely created out of necessity, to make a living, and are often no more than “me-too” subsistence businesses with little opportunity for growth.

Although many countries have instituted SME development policies to level the playing field, the degree of achievement in this respect appears to differ widely. The comparative administrative burden on small and medium enterprises in certain countries remains heavy, particularly though not exclusively in developing and transitional economies. One visible impact of this phenomenon is the comparatively significant presence of the informal economies in many countries, where the burden of “formal is at ion” drives small business underground as well as the above mentioned “missing middle”.

Even in developed countries, the burden of compliance with certain regulatory requirements is more onerous for small and medium enterprises, be that in terms of cost or because of the time needed to ensure compliance. At the same time, it is often difficult for SMEs to make themselves heard at government level, lacking the resources to undertake the lobbying more typical of the larger or multinational enterprise. One objective of the Observatory is to contribute to the mutual understanding between the policymakers and the small business community.

Moreover, when an SME internationalises and seeks to develop a presence in another country, anecdotal evidence tends to suggest that investment promotion is skewed in favour of the large, flagship investment project, leaving the smaller company with its more modest plans to fend for itself. Whilst the need to maximize limited resources of those who seek to attract foreign direct investment is understandable, this makes it all the more important to understand the differences in “SME friendliness” that exist from one country to another in order to be able to recommend the most appropriate policy actions.

Why an international perspective?

Changing political priorities, different economic conditions and the evolution of technology and globalization have added to the complexity of the environment for SME. Within this ever-changing scenario, actively supporting entrepreneurship and small and medium enterprises is an activity that in some developed countries has a history that goes back decades. Despite this, there is still much debate about what constitutes best practice. The analysis of what constitutes a facilitative environment in a range of different circumstances enriches our understanding, improving our ability to address current realities. By bringing together know-how from all over the globe and encouraging debate we will be able to leverage this knowledge and provoke new insights.

Within this global perspective, it is our aim to develop initiatives that concentrate more on transitional and developing countries, as it is these countries that are still grappling with the initial challenges of putting in place an environment that will enable competitive SME with strong potential to grow and flourish.

Below, an overview of entities that make up the landscape in which business operates. The business focus we have adopted for our work means that on the one hand we focus on needs of SMEs, and on the other hand, we consider the "readiness" of each country concerning each entity.