New Delhi: First the bad news. An International Business Report (IBR) by global accounting and consulting firm Grant Thornton International says businesses the world over rated regulation and red tape as the biggest source of frustration and the largest obstacle to growth for the fifth year in succession.
When asked to rank constraints on ability to expand, nearly four out of 10 respondents to a survey commissioned by Grant Thornton across 7,200 companies in 32 countries put red tape on to their list, compared to just two out of ten, or fewer, quoting cost of finance, shortage of working capital or shortage of long-term finance. The next most important constraint was shortage of skilled labour, quoted by more than three out of ten businesses.
The good news is that India seems to have fared much better, with just 37% of the businesses surveyed blaming bureaucratic delays for their woes. That’s a tad lower than the global average of 38%, and way below Brazil’s 60% and Russia’s 59%.
What’s more, only 23% of Indian businesses consider cost of finance to be a significant constraint as against Russia at 40%, Brazil at 36% and China at 35%. The numbers on working capital being a significant constraint to growth are very similar.
The numbers catapult India to pole position amongst the BRIC nations. (See table: Constraints on ability to expand the business).
Interestingly, in a world of optimism about demand and orders, three countries in Asia - Japan (59%), Thailand (54%) and mainland China (50%) - have significant concerns about shortage of orders and lack of demand constraining their ability to expand. This compares with just 29% of businesses worldwide and an impressive 83% of Indian mid cap businesses that said that they had no dearth of demand or orders.
Vishesh Chandiok, national managing partner, Grant Thornton India commented, “Clearly as far as medium sized businesses is concerned, we seem to be doing better than the other BRIC counties and in fact better than even some EU countries. The lack of money or market is not a problem in India today — it is the acute shortage of senior management talent and the ability of medium sized businesses to attract such talent”.
In the global scene, Brazil topped the red tape table with 60% of the respondents in that country expressing angst over regulatory hassles. It was followed by Russia (59%), Poland (55%) and Greece (52%). More than four in ten businesses in Germany, Argentina, South Africa, Turkey, Italy, Mainland China and New Zealand felt red tape and regulation were a constraint on their ability to grow.
Businesses experiencing the least restraints by red tape were from Singapore (16%), Spain (17%) and Sweden (19%).
Alex MacBeath, global leader of privately held business services for Grant Thornton International comments: “Although many governments continue in their efforts to simplify red tape, many have been unsuccessful. In today’s global economy, with increasing pressures from emerging economies, governments must ensure their regulatory environment responds to the speed of business change.
“The plea must be that governments work closely with business, and those organisations which understand the privately held business sector, to identify their future needs and aim to address the regulatory issues ahead of the need rather than constantly playing ’catch up’.”
A significant number of businesses also feel that accessibility to skilled labour is holding them back. This varies considerably by country with New Zealand (60%), Australia (59%) and South Africa (58%) experiencing greater problems with skill shortages than any other countries.
MacBeath added that finding skilled labour is a big issue for the growth economies of New Zealand, Australia and South Africa. These countries have not benefited in the way that the EU, for example, has in terms of substantial inflows of skilled migrants from Eastern Europe.
“The lack of demand issue is a real worry in two major Asian economies. In Japan, it is possible that businesses are yet to be convinced that consumer demand has emerged from the doldrums of the past decade. In Mainland China’s case it is likely that with the US taking almost one quarter of exports, that businesses are concerned about their sales. This is probably due to the US economy’s slowdown this year and the impact on domestic demand of mainland Chinese authorities taking action to cool the economy.”