Study looks beyond GDP growth, finds a lot to like in mature markets

Emerging markets are setting the pace at which the global economy is expanding, but results of a study by Grant Thornton International suggest companies would be shortsighted if they ignored developed markets.

The study combined surveys of 406 senior executives from around the world with an analysis of 22 indicators most likely to boost economic growth in 50 economies. The result was the business advisory firm’s Global Dynamism Index, which measured each economy’s strength as a place where businesses with growth potential could flourish. Based on indicators, each country received a score between zero and 100, with the highest score representing the most dynamic environment.

Singapore ranked highest with a Global Dynamism Index of 72.1. Developed economies in North America, Europe and Oceania took 13 of the top 20 spots. The US came in tenth place with a score of 64.1. In addition to Singapore, three other Asian economies were in the top 20 – South Korea, Taiwan and China. Chile in 12th place was the top-ranked Latin American country. China was 20th, Brazil was 30th, and India placed 40th. 

“Despite poor economic growth prospects, mature markets offer a wide range of qualities and assets that remain central to business location decisions,” Ed Nusbaum, chief executive of Grant Thornton International, wrote in the study.

“We believe that dynamic organisations need to apply both reason and instinct to decision making,” Nusbaum wrote. “For example, reason may point to the higher-growth emerging markets, but instinct may value stronger competition laws in more mature markets.”

The analysis of indicators, which was based on a model developed by The Economist Group’s business advisory service, included GDP. As expected, the study reported, emerging countries had higher scores than developed markets did in the category that measured economic growth. But when it looked beyond GDP growth, the study found strengths in mature markets that emerging markets lacked.

That squared up with results of another index that looks beyond GDP growth. The 2012 M&A Maturity Index, which measured the safety of M&A markets, ranked developed countries in North America, Western Europe and Oceania higher than the global average. Asian countries were rising, with Singapore, Hong Kong, South Korea, China and Japan ranked in the top ten. The Middle East, Latin America and Africa scored below the global average.

Looking at the world through the Global Dynamism Index, developed markets scored:

• Higher in the category that measured business operating environment, which included trade laws, regulation, and legal and political institutions. In the accompanying survey, business leaders identified foreign trade and exchange regimes and controls as the foundation for long-term business growth. Finland led the top ten, which included Northern and Western European countries, Canada, Australia and New Zealand. Emerging markets such as China, Vietnam, India and Russia were included in the bottom ten, with Nigeria scoring lowest.

• Higher in the science and technology category, which measured the ability of an economy’s infrastructure to support growth. Israel led the top ten, followed by Northern and Western European countries, South Korea, Japan, Taiwan and the United Arab Emirates. Top scores reflected significant investments in research and development that resulted in technological innovation. The bottom ten included four Latin American countries, two African countries and two European countries: Greece and Poland. Indonesia and the Philippines were also on the bottom-ten list.

• Higher in the category that measured the amount of financing available to businesses, but scores were affected by the debt crises in the US and the euro zone. Singapore led the top ten, followed by Western European countries, New Zealand and the US, but also emerging countries such as Poland, Chile and Slovenia. The bottom ten included mostly emerging countries, such as Egypt, India, Russia and Nigeria, but also the UK. Argentina scored lowest.

• Lower in the human capital category, which measured productivity, or output per worker, among other indicators. Argentina led the top ten, followed by Eastern European, Latin American and Asian countries. Australia, New Zealand and Norway were the only mature economies that ranked among the top ten. Southern and Eastern European and African countries dominated the bottom ten. South Africa came in second to last, ahead of the United Arab Emirates.

• Lower in the economic growth category, whose key indicators were growth in GDP and consumer demand. Argentina led the top ten, followed by emerging markets in Asia, Latin America and Africa. European countries dominated the bottom ten, which also included Japan. Portugal ranked second to last, ahead of Greece.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.