Global Economy

Globalisation tied up with red tape

Christian Martin Christian Martin

Are regulations dampening business growth prospects?

 

On the one hand, the results from our once-every-two-years look at the world’s leading emerging markets were encouraging. Business leaders across the world are looking at international expansion opportunities. Unleashing the huge amount of cash businesses are sitting on could help boost the economy at a time of continuing uncertainty.

Of course, globalisation is no longer simply a one-way street. Historically, investing in emerging economies provided businesses with access to huge consumer markets, and low cost land and labour inputs.

IBR 2012 EM report infographicIndeed, more than half of businesses are looking at opportunities in the five largest emerging markets – the BRIC economies and Mexico. According to our Emerging markets opportunity index these economies continue to offer investors significant growth prospects, whilst some of the biggest risers include Chile, Indonesia, Nigeria and Peru.

But increasingly, emerging economy peers are looking to buy assets in mature economies. Western Europe and North America remain high up on the international expansion target list, with business leaders hoping to benefit from the slowdown by picking skills and technology transfers from distressed assets at low prices.

However, the results also sounded a note of caution. The key challenge cited by business leaders in terms of expanding their operations across borders is red tape.

Clearly strong regulations and legislation can be a good thing, but we do not want to see protectionist measures adopted that simply shelter local businesses. We have seen the damage such regulations can cause for businesses in economies such as Argentina – where extensive foreign-exchange and import controls have been enforced to combat the trade deficit.

Of course economies across the globe are also opening up to FDI and I was particularly pleased to see that the Indian Parliament recently voted to open up the retail sector to foreign competition. Examples such as these show that globalisation remains a potent force for growth.

The economic outlook remains uncertain but dynamic business leaders stand ready to invest. Let’s give them the right environment and incentives to do so.

Ed Nusbaum is global CEO at Grant Thornton.