5 Countries Where it’s Harder to Start a Business
When expanding overseas and starting a business or considering new pastures, leaders are often faced with a difficult question – which country would be most suitable to incorporate in? After all, each country has different regulations and nuances that might pose dissimilar challenges depending on type of company. Once a country to incorporate in has been picked, it may be hard to reverse the decision as there would be costly consequences, depending on complexity and the amount of legalities to traverse.
To aid business owners, the World Bank releases an annual country economy ranking for doing business. We sampled a few of the more popular but tricky countries to incorporate in and here are some of the more common challenges we found, which entrepreneurs may take into consideration when deciding on a country.
Starting a Business in India
Setting up shop in one of the world’s fastest growing economies comes with a multitude of challenges. On average, it takes almost a month to get a company officially registered in India, which is significantly slower for businessmen used to Canada or Australia’s rapid processing, which stands at five and 2.5 days respectively. Language barriers and cultural differences are also aplenty, ranging from a correct way to addressing business partners to handshake norms. The country is also known to have poor infrastructure, substantial taxes, protectionist regulations, and a troubled bureaucracy. But of course, despite its 130th and 155th rank in “ease of doing business” and “starting a business rank” (out of 190 countries) respectively, incorporating in India is a promising premise, with the domestic economy forecasted to hit 7% growth in GDP for fiscal year 2017-2018.
Starting a Business in Mexico
At the border of the two Americas lies Mexico, and its strategic positioning and geography allow for excellent opportunities in tourism, trade and industrial and mining activities. While the country has much to offer to entrepreneurs, a myriad of issues may dissuade them from incorporating in the country. For 2017, its “starting a business” rank slipped by 21 spots to 93rd position. Mexico is also notorious for delays in obtaining construction permits (69 days), and establishing electricity (74 days, compared to the OECD average of 26 days), sewer and water connections (up to 30 days). Other concerns for entrepreneurs include bribery and corruption in high government, which lends to an instable political and economic climate. Moreover, there has been noted violence involving criminal organisations and drugs, contributing to insecurity in certain areas of the country.
Starting a Business in Malaysia
Over at South East Asia, geographically advantaged Malaysia is located at a crossroads of trade between the East and West. However, in recent times, to grow certain sectors domestically, Malaysia has restricted open trade in the automotive and agricultural industries, imposing higher duty rates and taxes. Malaysia also uses a system of import permits or licenses to reduce imports in protected and strategic sectors. Starting a business is not easy in Malaysia, and its ranking for setting up shop slipped a dismal 53 positions to 112th for 2017. The government also restricts foreign involvement in government contracts, certain business services, and telecommunications, and businesses have to partner with a Bumiputra (indigenous Malaysians) company in order to compete. Other issues for consideration include corruption (Malaysia was ranked in the top third of countries in the Corruption Perceptions Index), and an overseas brain drain of Malaysian talent may make it difficult for companies to employ local talent. A volatile currency may also be cause for concern to those thinking of incorporating in the country, and moreover, private consumption is expected to slip to 3.7% this year.
Starting a Business in Thailand
A neighbouring country to Malaysia, Thailand is one of the largest economies in the ASEAN region, with a GDP of $387 billion in 2015 that was second only to Indonesia. Holding a 78th position for “starting a business”, the Thai economy is largely dependent on exports and tourism. However, companies wishing to break into the Thai market usually face high tariffs due to a protectionist government, with ad volarem tariffs reaching 80 percent, despite an average applied most favoured nation (MFN) rate of 10.7 percent. (MFN tariffs are promised rates on imports from other members of the WTO, with the exception of preferential trade agreements.) The highest ad volorem rates apply to imports that directly compete with locally produced goods, including agricultural produce and consumables, automotive parts, and textiles and apparel.
Moreover, intellectual property rights are also another area of concern, as patent registration can be lengthy and stretch to several years. Infringement of IP rights is not uncommon in the country as well.
Businesses also face higher insurance premiums, as the government recently amended its regulations to increase consumer protection, by including class-action lawsuit provisions for its Civil Procedure Code. Lastly, common corruption practices such as payments for “facilitation” as well as bribes and expensive gifts exist in the country.
Starting a Business in Spain
The ninth largest economy in the world and fourth in the Eurozone prior to being beleaguered by a recession in 2008, Spain has since seen steady growth, since 2015. Although its “ease of doing business” position stands at 32, its rank for “starting a business” is 85. Spain, like many of her European counterparts, places emphasis on protecting workers and not on empowering business owners. Regulations prevent entrepreneurs from easily giving employee stock options, and it is also expensive for owners to let go of a worker. Payment delays for reimbursement from regional and local governments in the EU are also common, and this affects Spain too, despite a recent revised legislation.
Bribery and corruption are also common in the country, and the presence of organised crime (as with other European countries) deters entrepreneurs from setting up shop.
While incorporating in a new country is not an easy decision to make, there are glaring factors present to in those countries that are considerably trickier. Corruption, protectionist policies, and intellectual property rights are common in countries that are harder to incorporate in. To make a better-informed decision, it is best to have a discussion with lawyers, investors, experts, and the authorities in the relevant jurisdictions.
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