October 29, 2019

'Doing Business 2020' Indicates a Steady Convergence Between Developing and Developed Economies, Particularly in Business Incorporation

A post published on this blog presents a variety of risks when choosing to do international business. Such risks include government effectiveness (does political culture foster strong business environment?), stability (how stable are political institutions?), legal and regulatory (will the legal system safeguard investment?), and tax policy (are taxes low, predictable and transparent?). To help make informed decisions about effectively executing an international growth strategy, my colleagues and I find the World Bank's annual Doing Business report quite useful.

Published on Oct. 24, 2019 using data current as of May 1st, Doing Business 2020, "is the 17th in a series of annual studies measuring the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 190 economies—from Afghanistan to Zimbabwe—and over time.

"Doing Business covers 12 areas of business regulation. Ten of these areas—starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency—are included in the ease of doing business score and ease of doing business ranking. Doing Business also measures regulation on employing workers and contracting with the government, which are not included in the ease of doing business score and ranking.

"By documenting changes in regulation in 12 areas of business activity in 190 economies, Doing Business analyzes regulation that encourages efficiency and supports freedom to do business. The data collected by Doing Business address three questions about government. First, when do governments change regulation with a view to developing their private sector? Second, what are the characteristics of reformist governments? Third, what are the effects of regulatory change on different aspects of economic or investment activity? Answering these questions adds to our knowledge of development."

The report's opening paragraph correctly notes:
At its core, regulation is about freedom to do business. Regulation aims to prevent worker mistreatment by greedy employers (regulation of labor), to ensure that roads and bridges do not collapse (regulation of public procurement), and to protect one’s investments (minority shareholder protections). All too often, however, regulation misses its goal, and one inefficiency replaces another, especially in the form of government overreach in business activity. Governments in many economies adopt or maintain regulation that burdens entrepreneurs. Whether by intent or ignorance, such regulation limits entrepreneurs' ability to freely operate a private business. As a result, entrepreneurs resort to informal activity, away from the oversight of regulators and tax collectors, or seek opportunities abroad—or join the ranks of the unemployed. Foreign investors avoid economies that use regulation to manipulate the private sector.
The report's main findings include:
  • Doing Business captures 294 regulatory reforms implemented between May 2018 and May 2019. Worldwide, 115 economies made it easier to do business.
  • The economies with the most notable improvement in Doing Business 2020 are Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India and Nigeria (see image below). In 2018/19, these countries implemented one-fifth of all the reforms recorded worldwide.
  • Economies in Sub-Saharan Africa and Latin America and the Caribbean continue to lag in terms of reforms. Only two Sub-Saharan African economies rank in the top 50 on the ease of doing business; no Latin American economies rank in this group.
  • Doing Business 2020 continues to show a steady convergence between developing and developed economies, especially in the area of business incorporation. Since 2003/04, 178 economies have implemented 722 reforms captured by the starting a business indicator set, either reducing or eliminating barriers to entry.
  • Those economies that score well on Doing Business tend to benefit from higher levels of entrepreneurial activity and lower levels of corruption.
  • While economic reasons are the main drivers of reform, the advancement of neighboring economies provides an additional impetus for regulatory change.
  • Twenty-six economies became less business-friendly, introducing 31 regulatory changes that stifle efficiency and quality of regulation.

How does this report help you implement your business' international growth strategy?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

October 19, 2019

Driven by Smart Cities and Smart Utilities, Industrial IoT Connections in the Commonwealth of Independent States Will See Strong Growth

"At the end of 2018, the Commonwealth of Independent States (CIS) was home to 235 million unique mobile subscribers, of which Russia, Ukraine and Uzbekistan together accounted for 80%," explains a report published by the GSMA. The CIS (Armenia, Azerbaijan, Belarus, Georgia, Moldova, Kazakhstan Kyrgyzstan, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan) "has a high rate of unique mobile subscriber penetration at 81%, though country-level figures range from 60% in Turkmenistan to almost 90% in Russia. As saturation of the region's addressable market edges closer, future growth will be limited, with less than 9 million new unique subscribers forecast by 2025."

Authored by GSMA Intelligence, the research arm of the GSMA, Mobile Economy: Russia & CIS 2019 adds that "the CIS is now seeing an accelerating shift to mobile broadband. 4G will overtake 2G as a proportion of connections in 2019," excluding licensed cellular Internet of Things (IoT), "and will become the region's leading mobile technology in 2021."

Moreover, "Greater use of data-intensive services and demand for higher speeds will drive further adoption, with 4G accounting for more than two-thirds of total connections by 2025. Only Belarus and Russia are expected to launch 5G by the end of 2020; networks in the region's other 10 markets will be live by 2025. The CIS will be home to around 54 million 5G connections by 2025, representing an adoption rate of 13%."

Source: GSMA Intelligence

On the topic of the mobile industry's significant contributions to jobs and the economy, "In 2018, mobile technologies and services generated 4.7% of GDP in the CIS, a contribution of $101 billion of economic value added. In the period to 2023, this figure will increase to $122 billion (5.1% of GDP). The mobile ecosystem supported 620,000 jobs in the CIS in 2018, either through direct employment or indirectly through activity in the wider economy. Mobile also contributes to the funding of the public sector, raising $12 billion in 2018 – mainly via general taxation. 5G technologies are expected to contribute $34 billion to the CIS economy over the next 15 years, impacting key sectors such as manufacturing, utilities and construction."

Regarding regional innovation being underpinned by mobile connectivity, the report points out that IoT "is an area where mobile operators can grow their business beyond traditional communications. Industrial IoT connections in the CIS will see strong growth out to 2025, driven by increased interest in smart cities and smart utilities. With IoT revenue set to reach $26 billion in 2025, operators are implementing strategies designed to capture opportunities at the applications, platforms and services layer."

Source: GSMA Intelligence

The GSMA further says "operators are seeking to invest or formalize partnerships in the e-commerce market, particularly as smartphone and mobile broadband adoption rates grow. The industry is also exploring potential applications of, and devising solutions based on, artificial intelligence (AI) and blockchain technologies, and injecting greater funds in the start-up ecosystem to protect itself from disruption and diversify revenues."

I concur that "5G mobile networks offer the potential to underpin a range of solutions for enterprises, in addition to serving the consumer market." I also agree that "[p]olicymakers should consider the rollout of 5G a vehicle for driving socioeconomic growth and the transformation of traditional industries. The regulatory framework should foster the mobile industry's development within an environment that is conducive to investment. Launches of 5G networks in other markets indicate that key factor behind their successful deployment and operation is the creation of a comprehensive national 5G development plan."

Infographic: GSMA Intelligence

What investment or business opportunities are you seeing in the CIS' mobile industry?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

October 15, 2019

China's Three Major 'Icebergs' That Businesses, Investors and Strategists Should Put on Their Radar

Doing business in China over the past several years, I can attest to The Economist Intelligence Unit's assertion: "Chinese businesses are not just changing China, they are changing the world."

While doing business in China carries a great number of risks (e.g., government regulations, intellectual property protection, and foreign exchange risk), I often encourage startups based outside of China to consider commercializing their products or services in the world's most populated country. In fact, The EIU "projects that 480m Chinese consumers (more than the whole of the US population) should reach upper-middle and high-income status by 2030. Amid continued urbanization, China’s lower tiers (smaller and less developed cities) are likely to be growth dynamos as investment and capital fan out from tier-1 cities such as Shanghai, Beijing and Guangzhou."

Sponsored by PineBridge Investments, an American private, global asset manager, China icebergs: Forces that could reshape the world "examines hidden strengths in the Chinese economy—'icebergs'—that existing and potential investors into the world's second-largest economy should be watching."

The report's executive summary explains that the U.S. "may have held its position as the world's largest economy since 1871, but in the 1820s the world's economic powerhouse was China, at almost 20 times the size of US GDP. China's decline began in the 19th century and lasted until the country's economic reforms that began in 1979. Since then, China has rapidly re-emerged as a major economy."

Moreover, "China's boom has helped fuel global growth, but it has also raised the country's debt levels and prompted questions about economic endurance and global impact. Trends may be visible on the surface, but, like an iceberg, bigger implications lie underneath. To get a better understanding, this report aims to go below headline numbers and explore the nation’s commercial strengths and potential weaknesses."

Key takeaways of the report include:
  • The economy is shifting, and consumers are the driving force. Liberalization of the private sector is shifting China from a state-backed to a consumption-led economy, which could fully transition by 2030.
  • Chinese technological advances are compounding. From mobile internet to fintech to artificial intelligence and flying cars, Chinese firms are innovating and advances are feeding into the local economy as well as going global.
  • New growth centers are emerging—exponentially. China's lower-tier cities are growing fast and catching up to the mega-cities in terms of technology, commerce and infrastructure.

The report correctly addresses the challenges Chinese tech companies have encountered in their expansion beyond their home market: "China's size and room for growth have satisfied most domestic tech firms to date, but they still look to expand overseas. However, this presents a more complicated landscape, with trade tensions morphing into tech disputes, with the US in particular, and regulatory tightening in the EU, Australia and Japan.

"Challenges include the complexity of local markets. Chinese companies going abroad must find ways to localize, and use local talent, but some market segments may prove beyond their capabilities."

The report adds, however, that "[s]crutiny of Chinese technology in the West may push Chinese companies towards more-welcoming developing nations, particularly within the Belt and Road sphere. The result could see Chinese capital and technology catalyze development there, just as US and European capital spurred economic development in China through the 1980s and 1990s.

"US companies like Microsoft or IBM have dominated global markets on the strength of their products and services for decades. Today, more Chinese firms are reaching that level, as Fortune's Global 500 list illustrates. Given the speed with which China has become the second-largest economy, and is pursuing technologies of the future, it would be a mistake to underestimate the odds of its top companies also becoming global leaders."

What do you think?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

October 13, 2019

How Will New Technologies Impact the Food and Beverage Industry?

"Our preferences, and taste, for food are not as static as they seem," explains a report produced by The Economist Intelligence Unit. "But some combinations do tend to stick. Is there a science behind taste and what we find appealing?"

Sponsored by The Japan Food Product Overseas Promotion Center (JFOODO), The science behind taste: impact on the food and beverage industry of a better understanding of the human palate is a report that "explores how new technologies, new lifestyles and scientific research have contributed to new understandings of the human palate. Better insight may dispel long-held beliefs about which tastes work best together, leading to new pairings which may not only taste better together, but are also healthier. This could not only indicate new opportunities for the food and beverage industry but also challenge these traditional industries to adjust their product development and business strategies."

The key takeaways of the report are:
  • How technology is informing our tastebuds: technologies such as machine learning are being developed to deal with the complexity and variety of data in the food industry and our very own taste buds. New technologies inform some of the biggest consumer companies on taste preferences to adequately meet consumer needs.
  • How technologies are helping society explore new taste, and new combinations of taste: new technologies have also enabled companies to extract different aromas from food ingredients, and digitize them, to make entirely new flavors and food products—as well as revealing non-traditional combinations of food ingredients that will go well together.
  • New technologies have the potential to contribute to improve our food waste issues: Algorithms such as Consumer Flavor Intelligence inform major companies to optimize food production, by meeting the preferences of the larger consumers, helping them to reduce waste and/or over-production. Artificial intelligence (AI) and big data have also been instrumental in giving consumers awareness of where and how their food ingredients have been grown, while giving producers more precise forecasting models of supply and demand.
  • Globalization and the homogenized diet: as people travel more and are exposed to a wider range of food through various media, we are eating a more homogenized diet no matter where we live, which is straining resources. Therefore, supporting global diversity in tastes while keeping food systems sustainable is becoming a significant challenge.
  • New scientific findings will continue to redefine our optimal diet going forward: the more we develop an understanding of our palate, the more it becomes apparent that taste preferences relate to numerous factors such as sensitivity thresholds, learning, genetics, nutritional deficiencies, and early exposure to certain foods.
  • The new ordinary: new information about food ingredients and taste not only confirm the obvious ways to consume food, but also predict new and less expected ingredient pairings. There is creativity in blending human and artificial intelligence, which may open many more doors in how we could taste and perceive food in future.
In addition, the report presents the following conclusion:
Today, data analytics and AI tell us about what we prefer and why. Our lifestyle and travel preferences also have an impact on our diet and what we choose to eat, and the choice ultimately remains with us. However, what we do not have control over, where our food comes from, and how it was fished, farmed or caught, is where science can help by giving us the reassurance of digitally tracking provenance.
By monitoring consumer preferences, companies are able to accurately meet consumer needs, thereby avoiding food waste. Moreover, it also allows for new and more innovative ways to sell products, while providing access to healthier foods and more balanced diets.
We, as a species, are still evolving. While we remain unconsciously and genetically open to the five taste profiles of sweet, sour, salty, bitter and savory, our conscious palates, driven by consumer trends and external forces, have evolved to enjoy other flavors and pairings not known by our ancestors.
And in tandem, machines are working to develop new tastes and flavors that seek to mimic the choices we make ourselves. The next time you're browsing the aisles of your local grocery store, that tasty-looking pasta sauce you sling in your basket may have been the product of the latest in AI working in harmony with the human brain.
How do you think AI will influence your next dining experience?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.