Which Country Is Best to Start a Business?

Creating a company is a process that many inhabitants of the planet must face. However, depending on the country to which we refer, this process can be more or less long and expensive. To know this, in StudyHQ we have developed a ranking in which we study carefully in which countries it is easier to start a business or company.

The term “business” comes from the Latin “negotium“, a word formed by “nec” and “otium“, which means (“what is not leisure”). It is about the occupation, the work or the task that is carried out for profit.

Among the most notorious debates within the economic world, it is worth highlighting the debate that faces those economists who are more in favor of a market economy, and other economists, who demonstrate less confidence in “the invisible hand” of Adam Smith and, therefore, they propose a planned economy model. A very widespread debate across the planet, which, to date, has not found a valid conclusion.

And it is that, in the same way that throughout history the benefits of the market economy, the free market and the benefits of allowing the interaction between supply and demand for the free formation of prices have been demonstrated, Among other things, Keynes‘s theories are also known, as well as other economists who demonstrated how interventionism, or what we economists know as a planned or mixed economy, can be very beneficial in correcting imbalances caused by this free market, where the regulation proposed by its defenders is minimal.

Thus, it is said that state intervention is necessary to correct what we know as “market failures“, motivated by this deregulation and lack of intervention by the state. However, with the passage of time, many economists have investigated another term, which they have called “the state’s failure,” and which defines how the state, like the free market, also generates dysfunctionalities that could damage the scenario. economic. Well, although the end is the same, a greater well-being, the means that they value to achieve that end are very different.

For this reason, we find very different regulations in all countries. In the same way, it is worth highlighting the changes that occur in policies after a change of government. All this is motivated by debates such as the current one, where some governments position themselves more in favor of liberalization, while others try to increase their weight in terms of their ability to intervene in the economy.

Positions that, in a certain way, are those that generate, among other things, that in some countries it takes 13 days to create a company, while in others it takes 1 day. Or that in one country it costs to create a company 3,000 euros and, in another, 1 euro.

These types of regulations, in a certain way, are motivated by the position adopted by the Government on this matter. A series of regulations, among which we highlight that capacity to do business that we mentioned at the end of the previous paragraph, so decisive for the economic growth of a country.

Let’s see!

Businesses: the Engine of Every Economy

“The company is an economic agent that constitutes one of the fundamental pillars of economic activity.”

As stated earlier, an economic agent is any natural or legal person who participates in some way or in some part of the process of an economic activity. In other words, an economy is made up of economic agents that carry out an economic activity.

Among these economic agents, it is necessary to highlight the role of the company within them. The company, in this sense, is an economic agent that constitutes one of the fundamental pillars of economic activity. And, although there are always exceptions, as a general rule the company usually performs a series of functions that are decisive for the proper functioning of an economy, as well as for the development of the different societies that inhabit our planet.

Highlighting among these crucial functions, it is worth stating the role of the company in terms of coordination, direction and control of the production process. In other words, the entrepreneur is the one who, through the allocation of productive factors, produces the goods and services that, later, will satisfy the needs of these societies. As we see, an essential function, since the supply of an economy depends, to a large extent, on it.

Likewise, these goods produced by companies, in the same way, are modified by others that make these goods present alternative uses, at the same time that they generate value by modifying them. In other words, companies create or increase the utility of goods.

Well, as we know, these companies transform raw materials into products, increasing their capacity to satisfy human needs. In summary, companies seek at all times to adapt to the needs of the market, adding value as long as it demands it.

Among other functions, it is also worth highlighting another very decisive for an economy, since without it little could be developed. Thus, this function we are talking about is to create employment, while providing a salary to the inhabitants of a territory. Part of the main functions of a company is the fact that it is company that create employment and, therefore, generate wealth. In this sense, a job that is constituted as a fundamental part of the income and wealth of families; being able to say that this company also depends, to a great extent, the demand of an economy.

And this, taking into account, in the last place, that they are the ones that assume a risk, since they are forced to pay in advance to the production factors without knowing the results. That is why, also, among the existing production factors, this entrepreneurial capacity is taken into account, since without the role of that entrepreneur who assumes the risk and coordinates everything so that the company works, the company would not be so determinant as we expose here.

Creating Companies: Necessity & Requirements

“While we have economies that allow companies to be created in 3 days, we have other economies that establish a period of 15 days.”

Given the importance of companies for an economy, the role of a State is, among others, to generate a favorable framework so that companies can operate in harmony, and without generating imbalances and dysfunctionalities that result in less well-being.

And thus, while promoting business creation. A framework that, as mentioned earlier, and due to that position adopted by the Government, varies greatly depending on the country to which we refer.

Along these lines, for years now, economists have been warning about the need to promote a more favorable framework, integrating the digitization of institutions, while reducing bureaucracy, we are moving towards a more facilitating administration model for these Business. However, while we have economies that allow companies to be created in 3 days, we have other economies that, even within the same economic bloc such as the European Union, establish a period of 15 days. A divergence that is observed, in the same way, in the costs of incorporation.

Observing an example, that of the European Union, we have been able to observe how countries such as Denmark or France present, among their requirements to establish a company, a constitution period that lasts between 3 and 3.5 days, respectively. Meanwhile, in other economies such as Spain, this constitution process lasts 13 days.

On the other hand, in terms of cost, countries like the United Kingdom do not charge anything to create a company, while the previous one, France, charges 1 euro. However, going back to the example of Spain, the peninsular economy establishes the requirement to contribute 3,000 euros for its constitution.

Taking into account that mission of governments to increase the number of operating companies in the country, as well as enlarge the existing ones, few reasons remain for economies such as the Spanish one, as well as many others, with models such as the French or the Danish ones, keep setting such demanding requirements. Some requirements that, however, have been reduced globally over time, as shown in the graph below.

In short, demands that, even though they are lower than in previous years, must continue to be progressively reduced in all economies. Well, as we can conclude in this section, it is those countries that are most committed to the creation of companies and their productive fabric, which also present greater development and greater economic growth.

Which are the country it is easier to start a business?

“We are talking about the most reliable report in terms of information related to the ease of doing business in a given territory.”

To extract these data that we provide in the previous point, and that show us these divergences in the regulations of the different countries, we have used one of the most reliable reports with regard to information related to the ease of doing business in a certain territory: the “Doing Business” report.

This report, prepared by the World Bank, analyzes the regulations that affect 12 areas of the life cycle of a company. Areas including starting a business, managing building permits, obtaining electricity, registering property, obtaining credit, protecting minority investors, paying taxes, cross-border trade, compliance with contracts and the resolution of insolvency.

In the same way, the report also measures the regulation of the labour market and contracts with the government.

Regarding the latest data collected in this study, we have selected those that refer to the 37 economies of the OECD, as well as other countries of great relevance to the organization and with which it has agreements; as is the case in China.

Thus, the days that these economies establish to open a business are as shown below:

As we can see, these divergences are such that we have economies like New Zealand, where it will take 1 day to set up aur company and be able to operate normally. While, on the other hand, we have economies such as Poland or South Africa, where the process could take up to almost 37 and 40 days, respectively.

In the same way, the Doing Business report also provides us with information on the cost of registering a company in each of these economies. A cost in which divergences are also observed, the best example being the one set out in the previous section. An example in which it is observed how, while we have economies such as the United Kingdom, where registering a company costs us 1 euro, in others such as Spain, this registration requires the contribution of 3,000 euros.

Thus, the following table shows this cost, which is normalized and presented as a percentage of the Gross National Income (GNI) per capita of said territory:

This table that we show collects the cost or capital requirement necessary to register a company as a percentage of gross national income (GNI) per capita in each territory. As we can see, and as in the previous table, we still have many economies that, as reflected by their position in both tables, continue to show many obstacles that prevent further business creation. An example of this could be South Africa or Egypt. Countries that, observing the analysis carried out by Doing Business and taking into account everything mentioned in the first two sections, show a position that leads them to apply more restrictions and, therefore, generate fewer companies.

In short, it can be seen that, despite the existence of more efficient and effective government models in terms of the application of policies related to business start-ups, many countries are still behind in this matter. These divergences that we have been pointing out in this last section are an example of how, despite the multilateralism and globalization that the planet has experienced, there is still much to do.

Well, as the writer Robert Townsend once said very well : “Large multinationals are small companies that have been successful.”

That being the case, let’s bet on its creation!