'Top Dogs' When It Comes To World Trade
In a worldwide study, Canada has emerged as the country offering 'the most positive experience of doing business with customers, suppliers or partners'. Canada beat Singapore into second place, with Australia, the Netherlands and the UK taking the next three slots.
Does this result matter? IACCM CEO Tim Cummins suggests it does – SSON found out why?
SSON: IACCM recently conducted a worldwide study, where Canada emerged as ‘Top Dog’ when it comes to world trade offering 'the most positive experience of doing business with customers, suppliers or partners'. Can you tell us how the study was conducted?
Tim Cummins: The goal of this study was to look at the relative ease of doing business - broadly from a contracting and negotiations perspective. We were trying to understand the primary risk characteristics associated with doing business in major trading nations. We undertook the study by going out to our members who are engaged in international negotiations and contract management. All the members approached had direct contracting and negotiations experience and the study was based upon their experiences - not their prejudices or ideas. We approached 4000 negotiation and contract members of the association through sending out a web based survey. We weren’t only looking at the general ranking of a country’s relative ease or difficulty to trade with, we also required them to benchmark against nine specific criteria - such as business culture, problems with payment and challenges with legal systems or regulations.
SSON: Where did the idea for the study come from and how did you select the criteria which decided their ranking?
Tim: The idea originated from conversations I had with a senior Russian diplomat about the challenges of doing business in Russia and the current political interest in making Russia a more business-friendly environment for overseas companies. We compiled the nine criteria based on follow-on conversations with IACCM members who deal with Russia - from the point of view of commercial risk in terms of negotiation, culture and behaviors, but also based upon the integrity and reliability of the underlying system. We also looked at local laws and regulations and the ability to enforce contracts etc. The criteria form a series of very real and significant risk factors, which you should be aware of if you seek to do business overseas.
SSON: Do you have any interesting examples or anecdotes you can share around the complexity that sometimes exists when doing business with countries like Russia.
Tim: Some of the conclusions of the study were no great shock to people. These days countries where you encounter problems like corruption and bribery are more visible and well-known. But the scale of corruption and bribery can be dramatically different – in some places there may be a major problem with government officials; in others there could be corruption at lower level. Corruption can be significantly cleaned up when it comes to senior levels, but there can still be an underlying problem. For example - challenges of getting things through customs - if you don’t pay someone $50 your shipment will be delayed.
With other countries it has been surprising just how successful they have been in changing local business culture. Belarus for example is a country which is autocratic; one would assume from many of its facets and features that it would be rife with corruption, but in fact by presidential leadership, corruption has been outlawed.
Stories about Russia did not relate to bribery; they are more based on negotiators’ experiences that may have resulted from the history of the country. For example, they perceive a fundamental lack of trust, which can lead to quite erratic behaviors within negotiations - where you feel you have established a good relationship and then suddenly it just plummets for no evident reason. A lack of basic understanding of the principles behind contracting is another real challenge.
Another interesting story came from one of our members in the insurance industry. He explained that regulation requires an insurance company to issue policies on watermarked paper, which you can only get from a government supplier and is often in short supply! In addition to that, the physical policy must be hand delivered to the policy owner and payment must be made in cash. These types of local regulations represent quite significant barriers to getting business done. Cash payments also lead to all sorts of problems when money needs to get to the bank.
SSON: Tim, who came last and were you surprised by the overall result -considering a lot of organizations are currently moving East when it comes to reducing costs and adding value back into business?
Tim: The list was made up of 50 countries. At the bottom of the list were three African countries, with significant issues like bribery and corruption, ethics and a complex business culture. Contract enforcement was another major issue in each of these.
Many countries in that region impose requirements on incoming Western companies, in order to ensure a high level of local content. These Western companies are then forced to contract with local companies, who may not have any particular competence and – in extreme cases - may just be a front which funds money to government officials. These are the real barriers and obstacles that a number of countries are wrestling to overcome.
To answer your question about surprise: no, nothing in particular shocked me in these results. But we did find some interesting facts. For example, the US is struggling in some respects with people’s perceptions in terms of local law and regulation. The litigious nature of US society, the no-win, no-fee culture of the legal community, the highly publicized mega settlements – these make outsiders very nervous and they question whether they want to be subjected to such a system.
I read an interesting article about how the UK has become the location of choice for governing law. Apparently American companies are now increasingly using the English courts and their trading partners are pushing them to do so, due to the unpredictability of jury judgments in the US. The general perception is that the US is a higher risk place in which to reach a resolution on legal cases. But let’s not exaggerate the problem – they still came in 6th place overall.
The study certainly should cause many who are ‘moving east’ to pause and question whether the superficial costs are the real costs. Some countries in Asia are excellent choices – Singapore came second in the survey. But others clearly do have hidden minefields for the unwary. This study helps to expose some of those minefields and may help companies avoid them.
One of the challenges for the SSON community generally is that the typical driver for outsourcing tends to be headline cost reductions. What this illustrates is: yes, you might have a dramatic drop in the cost of transaction, but what is the cost of the relationship and the cost of the added management time? How much did the problem and resolution cost as a result of those outsourcing decisions? These costs are often ongoing hidden costs. This can cause the relationship to lead to disappointment and sometimes to fracture and even fail.
If we look at the behaviors of companies there is a tendency to move first and learn later. Hopefully our findings will help to change that.
SSON: How did you select the countries which were in the study? I noticed that some of the most obvious Eastern European countries for trade didn’t feature on the list.
Tim: We started off with a list of 202 countries. Some of the countries are so remote the chances are that nobody has really had much experience of doing business with them. So we chose the countries which we knew had a significant volume of international trade. To take an example, Hungary is one of the countries that didn’t make the list, because the volume and diversity of its role in world trade is too small. Obviously Hungary has become a significant place in terms of outsourcing, but isn’t that significant in terms of other international business. We were looking for countries that feature heavily in terms of their import and export activity. Of course, if anyone has specific interest in a country that was not on our list, the chances are we can establish a similar set of data for it.
SSON: Tim, did you see a big variation on the overall performance of individual states in the US?
Tim: A more detailed research study would probably reveal that to be true, but it was not something we asked in this survey. I’m sure many people will have very strong preferences and they are probably right to do so. New York is typically the state people tend to choose for international contracting because it has more experience with international trade.
There was a very interesting study three or four years ago by a US university, which concluded that a foreign litigant is 30 percent less likely to have the court rule in its favor than a domestic litigant.
SSON: Tim, does this result really matter? Will people take this study seriously and think right I’ll go to Canada now instead of Singapore?
Tim: The results matter because they generate an additional awareness and additional management questions. Taking the nine criteria as part of your risk assessment when you’re looking to do business will help you considerably. For the negotiator the study is an excellent checklist that they should consider if they look at the commercial risk, opportunity and options of doing business in different countries. If I was sitting in China and I wanted to do business with countries outside China, I would certainly be interested in that list, as it reflects the perceptions and experiences that the counter party may have already experienced.
The question is to what extent can each negotiator or each country address and overcome those issues? There is real potential in the negotiation space. If you understand and anticipate the issue, you can generally find a solution. But this survey will be of interest to quite a number of government agencies as well as corporate management; yes, you can try and address this within a negotiations context, or try to look at this as a more embedded list for capability change. The list will probably gain some reasonable levels of attention in those countries which are serious about raising their level of competitiveness.
SSON: If government agencies within the countries which did not make it into the top 10 are serious about improving their status, what can they do ?
Tim: Well, they’ll have to understand the issue in a bit more depth. This isn’t an in-depth study in its current form. The next stage for any government interested in increasing their international business trade status is to determine what specific issues and local regulations outsiders are encountering which make them feel doing business with that particular country might be difficult or risky.
We are very happy to provide an in-depth study for any government should they be interested. Governments generally understand that they are increasingly in competition with each other, particularly at this time of economic uncertainty. Governments all over are recognizing that they have got to be better at attracting internal investment and increased trade if they want to be successful. This information was noted by the Foreign and Commonwealth Office in the UK. They are now looking at re-emphasizing the role of the ambassador to drive British business. They also want to recruit people from the business world into ambassadorial roles, in order to promote British trade. The UK came number five; the government’s interest in loosening bureaucracy could push it higher in the table.
Countries are seeking to address a lot of these points. We are trying to give people data and information, that can take them beyond just talking and provide them with specific factual insights on the specific issues that people find make trade difficult. India has been trying to tackle this and the South African government is taking all the data seriously. The Central Reserve Bank in Brazil is trying to improve their competitiveness. Not only will we see an interest, but continued action because countries have to raise their competitiveness.
SSON: Finally Tim, which countries do you predict will increase their status over the next five years?
Tim: Everyone will improve. But the differentiating factor will be; which countries are extremely serious about increasing their status? I suspect there will be a lot of well established outsourcing countries trying to up their game even more. But I’m sure a number of other countries will also be eager and anxious to move forward.
Next week I’m going to the Czech Business Institute in Prague, because they were very interested in improving the Czech international business trading status. They are currently number 15 on the list, but want to raise that level even further. It’s going to be very interesting to see how different organizations and countries react to this comprehensive table. There are other sources like Transparency International who look at league tables from a corruption and bribery point of view, or the WTO that explores legal integrity, but I know of no other that offers such a holistic and integrated view of the commercial factors that impact business results.
What differentiates this study is that it does take a much wider range (nine commercial factors) into account and builds them all into one specialist study as opposed to one specialist study focusing on one subject.
SSON: Great, thanks Tim.
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