The most attractive business locations for SMEs

Size, education, and cost of workforce are crucial to the attractiveness of a market to small and midsize companies looking to expand their export business or overseas production facilities.

The International Business Compass Index measures economic, regulatory, political, legal, and labour force conditions in 174 countries to allow SMEs a first look at prospective new markets, said Reeno Grummer, director of markets, sales, and communications at BDO Wirtschaftsprüfungsgesellschaft, the German affiliate of BDO International.

Established in 2012, the index is updated annually by the German affiliate of BDO International and the Hamburg Institute of International Economics. The focus in 2015 is labour-market performance, which addresses the availability of educated, trained, and specialised labour in industrialised and emerging countries.

“Manufacturing, logistics, distribution, and control processes are becoming ever more complex, to be optimised in ever shorter innovation cycles,” Arno Probst, a member of the board at BDO Wirtschaftsprüfungsgesellschaft, said in the introduction of the 2015 index. “Future workforces need to be capable of meeting higher levels of abstraction, complexity, and problem-solving.”

Not all labour markets are keeping up with the demands of increasing globalisation and digitisation, according to Probst.

OECD countries. Eight of the top 10 economies ranked on the 2015 index are members of the Organisation for Economic Co-operation and Development (OECD), including top-ranked Switzerland. The US is in 14th place, behind Germany, Australia, and Austria. 

Populations in industrialised countries are aging, which limits growth in labour-supply capacity. North America is best resisting the population contraction in advanced economies, due in part to above-average birth rates and high net immigration inflows of labour. Population growth and women’s high participation rates in the labour force are helping Northern European countries such as Norway and Sweden. Switzerland, Germany, and Austria are benefiting from immigration inflows.

OECD countries that score high in other labour-market performance indicators, such as share of high school graduates in the population, include New Zealand, the UK, the US, Poland, and Switzerland.

Africa. Political, regulatory, and legal systems conducive for business helped Mauritius, Botswana, and Rwanda rank 48th, 63rd, and 78th, respectively, in the overall index. South Africa follows in 93rd place. Nigeria is 151st.

African countries that scored high in share of high school graduates in the population include Equatorial Guinea, Algeria, and Swaziland. South Africa came in 15th and Nigeria 39th of 51 African countries measured.

Unlike in industrialised countries, older people account for only a small share of the population in African countries, and population growth is projected to stay strong despite catastrophic events such as war, famine, and epidemics. By 2050, Africa’s population is expected to double to 2 billion.

Asia. Singapore and Hong Kong ranked second and third on the overall index because of their exceptionally strong economies. China came in 83rd, and India was 127th.

In Asia, economic growth is forming the labour pool. Populations in China and India have almost tripled in the past 60 years, and Asia’s overall population is projected to continue to increase to more than 5 billion by 2050, driven largely by growth in India.

Of 48 Asian economies, India ranks seventh for number of high school graduates in the population, Hong Kong is ninth, and China is 38th.

Latin America. Chile scored in the top 30 overall (28th) on the index, largely because of favourable regulatory, legal, and political conditions. Uruguay (50th), Costa Rica (51st), Panama (59th), and Mexico (61th) followed. Brazil ranked 94th and Argentina 117th.

Population growth in the region is slowing due to falling birth rates, and the young population is expected to stop increasing by 2020. This temporarily raises the growth potential of these economies, because fewer dependents must be maintained by income earned. The region is, however, hampered by the lack of high-quality qualifications and mediocre education systems.

The five Latin American countries with the highest share of high school graduates in the population are Colombia, Brazil, El Salvador, Ecuador, and Argentina.

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