the bdo international business compass 2013

THE BDO InTErnaTIOnal BusInEss COmpass 2013The International Location Index for Medium-Sized Companies – Special Subject Focus Direct investment

Publ. Michael Bräuninger

BDO International Business Compass 20132

ExECuTIvE summary

MoTIvaTIon

The world map of capital flows hardly has any white, empty spots today. Companies from the traditional industrialised nations espe-cially, but also increasingly from emerging countries, now consider the entire globe as a playing field for investment activities. The varie-ty of options opening up is creating a significant degree of complexity. Globally positioned companies thus face a large number of intercon-nected factors in making location decisions. Drawing together all of these factors and assessing their consequences for a company may entail using important in-house capacities. Aggregating information of appropriate indicators and indices provides help in the decision- making process which should not be underestimated. Last year, the HWWI in cooperation with the BDO developed a country index - the International Business Compass (IBC) - which provides valuable and stimulating information in analysing business locations. The index assesses countries according to their economic, political-legal and socio-cultural conditions. These variables are subsequently converted into a single index. In addition, two sub-indices are calculated in eval-uating the location attractiveness of a country as a market and as a production location.

The information thus obtained is always derived from past data, in order to help interpreting one particular point in time. Given the dynamic evolution of market environments, new reassessments to check location attractiveness are essential. The following study has undertaken such a recalculation, using updated figures. In addition, it identifies trends in foreign direct investment as a special subject focus. Actual investment flows are examined and compared with country ratings obtained from the IBC index.

TeChnICaL DeTaILS

The study covers 174 countries, spread over several continents. As last year, countries with less than 150,000 inhabitants are not includ-ed, and nor are the following states/territories: Cuba, the West Bank, Somalia, and the Western Sahara. Luxembourg is also not included due to its very specific economic structure. Unlike last year, Syria does not figure in the index this year, because the civil war makes it impossible to outline any future prospects for the country on the basis of 2011 data. North Korea, on the other hand, has been included in the index, as the necessary data is now available.

The updating of data draws on the selection of reliable internation-al sources, already established last year. Generally speaking, this has led to the substitution of data for 2010 (used last year) by values for 2011. For variables calculated using average values over time, such as population growth, the relevant time period has been moved for-ward. The selection of indicators used to calculate the IBC index is the same as last year. Once again from a theoretical point of view, this selection reflects various components which contribute to a country‘s location quality. To this end, each indicator is standardised to a scale of 0 to 100, and assigned to one of the three pillars.

A change was then made relating to the averaging process: instead of a geometric mean, an arithmetic mean has been calculated for the indicators within each pillar. This reduces the influence of indi-vidual indicators in the overall value of the pillar, which increases the comparability of the index values over time. Subsequently, mean geometric values of each pillar are calculated as last year, in order to determine the overall index score. The calculation of values for the sub-indices on markets and production is based on the geometric average of the relevant location factors, as before. To this end, index values for non-OECD countries are expressed relative to continental averages, for the purposes of intra-regional comparisons.

ReSuLTS

Singapore and Hong Kong are both Asian financial centres, and top the BDO International Business Compass 2013. They stand out in particu-lar due to the excellent business environment they provide for firms. The remaining top 10 positions are taken by OECD countries, which dominate the upper third of the IBC 2013 ranking as a whole. Swit-zerland is in 3rd position overall, and so leads Europe. It is followed by Australia. Then, Norway, Ireland and Sweden are respectively in 6th, 7th and 8th place. Canada and New Zealand are the last of the top 10.

The largest industrialised nations - the USA, Germany and Japan - are in 13th, 19th and 21st place. The remaining top 40 positions are largely made up of European OECD countries and some oil-rich states in Asia. In contrast, the last 10 countries are mainly states in crisis. Accord-ingly, the Democratic Republic of Congo, Afghanistan and North Korea are worst positioned. Zimbabwe only does a little bit better. These four countries are also at the bottom of the ranking, concerning the political-legal environment.

www.bdo-ibc.com 3

There have been a number of ranking changes compared to last year‘s results. Ukraine has improved its position most, rising 16 places to being 99th. In contrast, Belarus has declined most, losing 27 places, due to a deterioration of its economy.

Among the OECD countries, Belgium and the Netherlands lead the production IBC sub-index. This stems largely from their central posi-tion in Europe and their internationally-oriented economic policy. Mauritius heads African countries by far, in terms of the production sub-index. It is followed by Tunisia, Egypt, South Africa and Djibouti. The production sub-index in Asia is marked by the outstanding values of Singapore and Hong Kong. Both of these cities are quite far ahead in the general ranking, due to their market potential and to their investment-friendly legislation. The results of the production index for countries in Latin America are quite homogenous, as all countries found themselves between 50th and 100th position, in the overall ranking. Costa Rica leads the continent, followed by El Salvador and Santa Lucia.

As expected, the United States - as a consumer nation - leads the OECD country group for the market sub-index. Japan and Germany follow, as the next largest OECD economies. Even in Africa, the largest econ-omies take the top places for this index. South Africa leads with quite an advantage, coming within the top 30 most attractive markets in the world. The next positions on the continent are taken by Egypt, Morocco and Tunisia, all in North Africa. China heads the market sub- index in Asia, and comes in 8th place overall. Hong Kong, India, Sin-gapore and Taiwan - interestingly enough small states - follow, bene-fiting from their high per capita income. The most attractive market in Latin America is Brazil, which even comes in 14th place in the world market ranking. It is followed by Argentina, Peru and Colombia.

The relationship between the values of sub-indices and levels of inflowing foreign direct investment for 2011 (the year of observa-tion) is confirmed using a simple regression analysis. Overall, it leads to a high, statistically significant relationship between the production sub-index and actual investment. This finding confirms the mean-ingfulness of the IBC index, as well as the importance of cost-related motives for multinational companies when making location choices. As for the market sub-index, from the outset it was expected to provide a weaker correlation with FDI inflows. Indeed, a country‘s attrac-tiveness as a market does not necessarily lead to high local produc-tion. The market may be served via exports. This too is borne out by

our regression analysis. Nevertheless, the relationship between the magnitude of variables is still statistically significant in this case too.

In the special subject focus this year, namely direct investment, it is not surprising to find that the two world‘s largest economies - the United States and China - are leaders in this field. Notable, howev-er, are the positions of Belgium and Hong Kong, both relatively small states. Concerning per capita flows, it is significant that both Macau and the Bahamas - two tax havens - are in the top 10.

ConCLuSIon

The updating of the index values has underlined the relevance of the IBC as a composite business location indicator. The shifts observed in countries‘ rankings largely correspond intuitively with clear changes in their circumstances. As expected, such changes have affected coun-tries more which are in the middle or at the bottom of the ranking. There have been hardly any notable position shifts among the top-ranked countries. From a regional perspective, the ranking is domi-nated by countries in the western hemisphere. This is due not least to the equal consideration of characteristics in the political-legal envi-ronment, which complements purely economic location factors. This clearly separates the IBC from indices focused on economic perfor-mance. The practical relevance of the IBC sub-indices is also substan-tiated empirically by the strong correlation between index values and observed investments.


InDEx

No values

0 – 30,00

30,01 – 40,00

40,01 – 50,00

50,01 – 60,00

60,01 – 70,00

70,01 – 80,00

> 80,00

Source: Authors‘ calculations

THE BDO InTErnaTIOnalBusInEss COmpass 2013

ukraine

2013: Rank 992012: Rank 115

Belarus

2013: Rank 1172012: Rank 90

The main increases of the Year 2013

The main falls of the Year 2013

www.bdo-ibc.com 5

Sierra Leone

2013: Rank 1532012: Rank 167

Rwanda

2013: Rank 962012: Rank 108

Sri Lanka

2013: Rank 982012: Rank 110

Tanzania

2013: Rank 1072012: Rank 117

Thailand

2013: Rank 852012: Rank 72

Cameroon

2013: Rank 1512012: Rank 137

vietnam

2013: Rank 1122012: Rank 97

Libya

2013: Rank 1542012: Rank 134

The main increases of the Year 2013

The main falls of the Year 2013


annex

rankIng By THE OvErall InDExPublisher

Country Conti-nent

Index economic Political-legal Socio-cultural

conditions

Rank Change Value Rank Value Rank Value Rank Value

Singapore AS 1 0 83.73 1 85.94 8 93.76 6 72.86

hong Kong A/S 2 0 82.16 2 78.45 7 93.89 5 75.30

Switzerland EU 3 0 78.62 7 66.26 6 94.19 2 77.86

australia OC 4 1 76.87 10 64.29 9 92.64 3 76.26

Denmark EU 5 -1 76.47 13 63.19 1 98.26 7 72.01

norway EU 6 0 75.84 6 66.65 12 91.85 9 71.26

Ireland EU 7 5 75.74 4 69.28 10 92.36 16 67.90

Sweden EU 8 -1 75.13 8 65.74 3 96.92 19 66.56

new Zealand OC 9 0 74.61 17 60.90 4 96.73 11 70.52

Canada NAM 10 -2 74.41 15 62.35 11 91.87 8 71.91

Belgium EU 11 2 74.33 3 70.60 17 87.49 20 66.48

netherlands EU 12 -2 73.71 12 63.39 5 96.57 21 65.41

uSa NAM 13 -2 72.65 26 56.75 19 85.09 1 79.40

Iceland EU 14 1 72.33 11 64.08 16 87.77 18 67.29

Great Britain EU 15 -1 72.21 16 61.92 15 89.44 15 67.98

Finland EU 16 2 72.20 14 62.67 2 97.07 26 61.86

austria EU 17 0 71.41 22 58.60 14 90.32 14 68.79

Qatar AS 18 -2 70.43 5 67.48 40 73.18 10 70.76

Germany EU 19 0 69.91 18 60.50 13 90.48 25 62.40

united arab emirates AS 20 0 67.78 9 64.72 48 69.09 13 69.66

Japan AS 21 6 67.68 53 50.71 23 80.82 4 75.64

France EU 22 -1 66.38 24 57.94 25 80.21 24 62.93

Chile LAM 23 0 65.90 35 54.61 18 86.95 29 60.28

Cyprus AS 24 -2 65.63 31 55.58 26 79.93 22 63.63

Bahrain AS 25 -1 65.48 20 59.50 50 67.55 12 69.85

South Korea AS 26 3 65.02 19 60.39 44 72.28 23 62.98

Czech Republic EU 27 1 64.90 29 55.88 28 79.61 27 61.46

Israel AS 28 -3 64.86 32 55.09 39 73.32 17 67.53

Spain EU 29 1 64.32 25 57.26 24 80.65 39 57.63

Malta EU 30 -4 64.30 39 53.58 21 84.08 34 59.03

estonia EU 31 1 63.68 28 56.53 20 84.82 55 53.86

Taiwan AS 32 1 63.22 30 55.66 27 79.68 42 56.97

Slovenia EU 33 -2 63.00 34 54.74 30 78.89 36 57.89

Brunei Darussalam AS 34 1 62.17 27 56.64 45 71.77 33 59.11

uruguay LAM 35 7 61.85 61 50.01 29 79.31 31 59.66

Italy EU 36 0 61.34 47 52.36 42 72.59 28 60.73

Slovakia EU 37 0 61.26 38 53.69 32 77.41 49 55.32

www.bdo-ibc.com 7

Country Conti-nent


conditions


hungary EU 38 1 60.72 44 53.06 33 77.33 53 54.55

Kuwait AS 39 -5 60.66 23 57.94 54 64.87 32 59.38

Lithuania EU 40 4 60.41 37 53.75 34 77.10 63 53.21

Poland EU 41 0 60.39 48 52.29 35 77.07 52 54.63

Portugal EU 42 -4 59.68 46 52.45 31 78.78 73 51.43

Latvia EU 43 0 59.08 40 53.53 37 75.61 78 50.95

Bahamas LAM 44 1 59.05 36 54.29 58 63.54 30 59.68

Barbados LAM 45 2 58.85 79 47.62 38 74.22 38 57.68

oman AS 46 0 58.55 33 55.08 49 68.15 59 53.47

Mauritius AF 47 -7 58.32 56 50.48 22 81.44 92 48.25

Malaysia AS 48 4 58.13 43 53.23 56 63.76 37 57.88

Costa Rica LAM 49 1 57.93 72 48.65 41 72.78 51 54.91

St. Lucia LAM 50 -1 57.63 69 49.17 43 72.49 56 53.70

Saudi-arabia AS 51 -3 57.10 21 59.06 81 56.03 45 56.28

Bulgaria EU 52 1 56.99 41 53.48 55 64.19 54 53.92

Romania EU 53 1 56.87 60 50.15 47 69.15 64 53.05

Georgia AS 54 5 56.30 59 50.15 57 63.63 46 55.93

Montenegro EU 55 3 56.10 62 50.00 62 62.33 44 56.64

Croatia EU 56 0 55.99 54 50.70 46 69.84 83 49.57

Greece EU 57 -6 55.86 94 46.39 53 65.44 40 57.43

Trinidad and Tobago LAM 58 4 55.50 64 49.87 64 61.87 48 55.39

Samoa OC 59 -2 55.30 65 49.70 71 59.45 41 57.23

Panama LAM 60 1 55.07 50 51.95 67 60.91 66 52.78

Peru LAM 61 2 54.49 52 50.83 70 60.05 65 53.00

Jordan AS 62 -7 54.34 85 47.24 60 63.31 58 53.64

Mexico LAM 63 -3 54.19 45 53.01 76 57.56 69 52.16

Macedonia EU 64 3 54.16 55 50.61 69 60.37 70 51.98

Botswana AF 65 -1 53.42 70 49.01 36 76.21 126 40.83

el Salvador LAM 66 0 53.29 81 47.53 59 63.42 81 50.20

armenia AS 67 -2 53.25 75 48.10 65 61.76 79 50.82

Colombia LAM 68 8 52.94 57 50.37 83 54.91 57 53.65

Belize LAM 69 0 52.51 87 47.07 89 53.02 35 58.01

Turkey AS 70 1 52.47 67 49.40 61 62.82 102 46.55

Brazil LAM 71 3 52.07 89 46.84 73 58.93 77 51.14

Jamaica LAM 72 -4 52.01 125 43.43 63 61.98 68 52.25

Kazakhstan AS 73 -3 52.00 49 52.09 115 47.48 43 56.85

Bosnia and herzegovina EU 74 1 51.11 76 47.97 74 58.10 98 47.90

argentina LAM 75 8 51.04 88 46.88 104 50.73 47 55.93

Mongolia AS 76 5 51.00 104 45.51 80 56.74 74 51.36

vanuatu OC 77 5 50.95 58 50.20 82 55.61 101 47.37

albania EU 78 -5 50.73 95 46.34 75 57.70 86 48.82

namibia AF 79 -1 50.44 93 46.60 52 67.34 125 40.89

azerbaijan AS 80 -1 50.28 63 50.00 114 47.75 61 53.26

Ghana AF 81 8 50.10 109 45.13 66 61.51 111 45.29

Serbia EU 82 -2 50.09 99 46.02 79 56.96 97 47.93

Kosovo EU 83 2 50.00 68 49.19 86 53.59 100 47.42


Country Conti-nent


conditions


Tunisia AF 84 -7 49.63 51 51.94 109 48.99 94 48.03

Thailand AS 85 -13 49.43 118 44.24 102 51.17 60 53.35

Lebanon AS 86 1 49.32 78 47.86 112 48.66 72 51.52

South africa AF 87 -3 49,24 42 53,37 68 60,43 139 37,02

Cape verde AF 88 0 49,12 135 42,96 51 67,43 124 40,92

Paraguay LAM 89 5 48,60 73 48,51 90 52,93 116 44,70

Dominican Republic LAM 90 -4 48,48 114 44,81 92 52,57 91 48,36

Guatemala LAM 91 1 48,07 100 45,83 95 52,31 104 46,34

honduras LAM 92 -1 47,85 83 47,41 98 51,62 115 44,76

Moldavia EU 93 5 47,74 80 47,57 97 51,96 117 44,01

China AS 94 -1 47,71 66 49,70 124 45,09 89 48,46

Fiji OC 95 5 47,40 130 43,24 119 46,29 62 53,21

Rwanda AF 96 12 47,24 102 45,79 72 59,01 133 39,03

nicaragua LAM 97 5 47.24 148 41.32 93 52.38 87 48.69

Sri Lanka AS 98 12 47.15 152 40.76 106 49.81 71 51.62

ukraine EU 99 16 47.12 71 48.95 127 44.58 96 47.95

Morocco AF 100 5 46.89 97 46.19 77 57.35 134 38.92

Maldives AS 101 -6 46.66 91 46.64 130 43.43 82 50.14

egypt AF 102 -3 46.61 124 43.46 105 50.18 103 46.42

Surinam LAM 103 -7 46.54 143 42.44 118 46.32 75 51.30

Gabon AF 104 0 46.40 74 48.15 108 49.13 120 42.22

Philippines AS 105 1 46.31 96 46.25 122 45.28 99 47.43

Bhutan AS 106 -3 46.30 147 41.86 99 51.50 105 46.06

Tanzania AF 107 10 46.24 108 45.18 87 53.47 123 40.93

Madagascar AF 108 -1 46.21 110 45.02 110 48.84 113 44.87

Indonesia AS 109 2 45.89 86 47.15 121 45.52 112 45.04

Kirgizstan AS 110 -9 45.83 131 43.19 133 42.39 67 52.56

Russia EU 111 1 45.66 84 47.30 139 40.07 80 50.21

vietnam AS 112 -15 45.58 138 42.79 126 44.82 84 49.37

Guyana LAM 113 -4 45.40 113 44.86 120 45.54 109 45.80

ecuador LAM 114 2 45.12 77 47.90 143 39.16 85 48.98

uganda AF 115 -2 44.87 146 42.11 116 47.36 110 45.30

Solomon Islands OC 116 5 44.35 106 45.34 134 41.85 106 45.98

Belarus EU 117 -27 44.32 161 38.72 136 40.72 50 55.22

Benin AF 118 4 44.26 116 44.50 100 51.45 135 37.86

Senegal AF 119 4 44.13 82 47.46 103 50.87 141 35.61

Swaziland AF 120 -1 43.88 92 46.64 88 53.24 148 34.04

Bolivia LAM 121 -1 43.78 134 43.01 132 42.50 107 45.89

algeria AF 122 -8 43.63 90 46.83 147 36.95 95 48.00

Sambia AF 123 2 43.63 137 42.84 78 57.17 149 33.91

Cambodia AS 124 3 43.47 132 43.11 117 47.18 130 40.37

India AS 125 6 43.43 139 42.77 125 45.07 119 42.48

Papua new Guinea OC 126 -2 43.34 144 42.27 129 44.10 118 43.67

Burkina Faso AF 127 -9 43.33 115 44.80 85 53.94 151 33.67

Malawi AF 128 -2 43.11 154 40.73 91 52.62 137 37.38

Iraq AS 129 6 42.73 140 42.57 146 37.83 90 48.46

www.bdo-ibc.com 9

Country Conti-nent


conditions


Bangladesh AS 130 2 42.72 98 46.08 137 40.11 121 42.18

Tajikistan AS 131 -3 42.43 142 42.53 148 36.90 88 48.67

Laos AS 132 -3 42.13 122 43.65 135 40.93 122 41.86

Lesotho AF 133 0 41.64 105 45.42 96 52.29 162 30.40

Timor-Leste AS 134 10 41.41 103 45.54 142 39.24 131 39.73

Mali AF 135 -5 41.33 129 43.27 107 49.27 154 33.13

niger AF 136 2 40.89 121 43.86 111 48.71 157 32.01

Sao Tome and Principe AF 137 5 39.91 171 35.04 113 48.56 138 37.35

Kenya AF 138 1 39.81 141 42.57 128 44.25 152 33.50

uzbekistan AS 139 -3 39.57 127 43.35 167 27.86 76 51.29

Yemen AS 140 1 38.97 128 43.34 149 36.45 136 37.46

Gambia AF 141 -1 38.94 172 33.66 101 51.39 147 34.13

Pakistan AS 142 6 38.87 120 43.98 157 34.06 132 39.20

Liberia AF 143 4 38.83 164 38.26 131 43.30 145 35.33

Togo AF 144 1 38.51 133 43.07 141 39.27 150 33.76

nigeria AF 145 -2 38.28 112 44.89 156 34.46 140 36.26

Congo AF 146 0 38.12 117 44.44 153 35.18 143 35.43

Mozambique AF 147 4 38.10 126 43.37 84 54.38 173 23.44

nepal AS 148 1 37.95 136 42.95 163 31.38 128 40.57

haiti LAM 149 4 37.27 123 43.58 151 36.16 156 32.85

Burundi AF 150 8 37.25 167 36.90 140 39.57 144 35.39

Cameroon AF 151 -14 37.23 111 44.95 144 39.15 165 29.31

Iran AS 152 -2 36.88 101 45.79 169 23.90 108 45.84

Sierra Leone AF 153 14 36.80 166 37.70 123 45.15 166 29.28

Libya AF 154 -20 36.63 168 36.57 162 32.92 127 40.81

venezuela LAM 155 4 36.59 151 40.88 168 24.89 93 48.14

Djibouti AF 156 7 36.54 153 40.74 94 52.32 174 22.90

equatorial Guinea AF 157 -2 36.43 107 45.21 161 33.47 158 31.96

Mauretania AF 158 -2 36.09 162 38.60 138 40.08 163 30.38

Côte d’Ivoire AF 159 -5 35.91 156 40.17 150 36.43 160 31.65

angola AF 160 -3 35.29 157 40.02 145 38.64 168 28.43

ethiopia AF 161 -9 35.08 159 39.30 154 35.06 161 31.34

Comoros AF 162 0 34.77 170 35.13 155 34.65 146 34.52

Guinea-Bissau AF 163 -3 34.17 165 38.13 152 35.81 167 29.22

Central african Republic AF 164 4 34.13 158 39.80 158 33.80 164 29.56

Sudan AF 165 0 33.74 160 39.06 165 29.85 155 32.95

Guinea AF 166 -5 33.68 169 35.64 160 33.55 159 31.96

Turkmenistan AS 167 -3 33.64 119 44.24 164 31.30 169 27.50

Chad AF 168 -2 32.97 149 41.12 159 33.63 172 25.92

Myanmar AS 169 0 32.29 150 40.89 170 23.17 142 35.55

eritrea AF 170 0 31.58 174 26.90 166 28.96 129 40.43

Zimbabwe AF 171 0 29.26 163 38.36 173 19.60 153 33.32

north Korea AS 172 0 28.84 155 40.64 174 13.17 114 44.81

afghanistan AS 173 0 28.43 145 42.14 172 20.63 171 26.44

Democratic Republic of Congo

AF 174 0 26.09 173 28.98 171 22.75 170 26.93

* oeCD member countries; aF=africa, aS=asia, eu=europe, LaM=Latin america, naM=north america, oC=oceania.

IMPReSSuM

authors Simon Piaszeck, Lars Wenzel, André Wolf (responsible author)

Publisher Prof. Dr. Michael Bräuninger Hamburgisches WeltWirtschaftsInstitut (HWWI) Heimhuder Straße 71 | 20148 Hamburg Tel +49 (0)40 34 05 76 – 330 | Fax +49 (0)40 34 05 76 - 776 [email protected]

BDO AG Wirtschaftsprüfungsgesellschaft Fuhlentwiete 1220355 HamburgTel.: +49 40 30293-0 Fax: +49 40 337691www.bdo.de

© 2013 BDO AG Wirtschaftsprüfungsgesellschaft All rights reserved

Chairman of the Supervisory Board: Johann C. LindenbergBoard: WP StB RA Dr. Holger Otte (Chairman) • WP StB RA Werner Jacob(vice-Chairman) • StB Frank Biermann • WP StB Christian DyckerhoffWP StB Klaus Eckmann • WP Dr. Christian Gorny • WP StB Dr. Arno ProbstWP StB Manuel Rauchfuss • WP StB Kai Niclas Rauscher • WP StB Roland SchulzRegistered Office: Hamburg Amtsgericht Hamburg HR B 1981

This document has been prepared with care. But it takes general approach andcan therefore only be considered as a broad guideline. It is therefore not suitable in covering concrete consulting needs, so that the information contained hereinshould not be used without obtaining additional professional advice.Please contact the BDO audit firm to discuss further the subjects in this report, in the light of your specific consulting needs. The BDO audit firm, its partners, officers, employees and agents accept no liability or responsibility for damages resulting from decisions based on acts or omissions which draw on the information contained herein.

BDO AG Wirtschaftsprüfungsgesellschaft is a public limited company under German law. It is a member of BDO International Limited, a UK company limited by guarantee, and is part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO member firms.

the bdo international business compass 2013

Documents