Wednesday, March 21, 2007

Commerce is More than Ease of Doing Business: SG Lags in Key Entrepreneurial Factors

Following up on my recent post on the deficiencies of GDP as a metric for Quality of Living, here's a post on the deficiencies of "Ease of Doing Business" as a metric for the business environment. Here's a recent extract from an article in today's business times:

S'pore scores low on several counts in big-city lineup
But survey finds it pips 10 other global cities as best place for business
BT March 21, 2007

"What sets the study apart, however, is not the choice of cities but the indicators used. The nine indicators and 32 variables go beyond the traditional cost factors to 'provide a more broad-based picture of what drives business location decisions in the 21st century'.

Singapore ranked last in 'technology IQ and innovation' - perhaps the one indicator which, more than any other, defines, in the popular mind, the 21st century city of opportunity, the study says. The variables assessed here included percentage of self-employed and number of registered patents.

Singapore ranked near-last, unsurprisingly, in 'intellectual capital' - an indicator that looked at, among other things, the number of Top 500 universities in a city and number of Nobel Prize winners in the past eight years.

Similarly, Singapore ranked above only Shanghai for 'financial clout', which took into consideration things like the number of Fortune Global 500 headquarters and domestic market capitalisation. The other indicator where Singapore did poorly was 'lifestyle assets', covering entertainment, recreational space and number of hotel beds - though its ranking is expected to improve with the completion of the integrated resorts in 2010."

I shouldn't extract the whole article, for then I'd be at risk of violating copyright. But the message from this article is clear: Focusing single-mindedly on the ease of doing business provides a skewed picture of the "business-friendly" environment here in Singapore.

Particularly in a 21st century developed economy like Singapore, where a country cannot simply rely on low-cost manufacturing to create jobs, there is a premium on entrepreneurship and business startups to renew and drive economic growth. This necessarily makes factors like "Intellectual Capital, Financial Clout & Innovation" particularly important, since these are the factors that help create a strong environment that breeds entrepreneurship.
  • Intellectual Capital is important because entrepreneurs often draw upon the knowledge banks which a city has built in order to create new products and services. It is often an important source of competitive advantage since intellectual capital is difficult to replicate and patents can be filed to protect companies'/individuals' intellectual capital.
  • Financial Clout is important because startups need more than just entrepreneurs and good ideas, they also need strong financial backing to get their projects off the ground.
  • Innovation and Technological IQ is important because without an innovative spirit, we will find few ideas with which to start companies and create new products and services. A low technological IQ means a country runs the risk of falling behind other more innovative cities, and hence losing businesses and jobs to the competition.
However, Singapore is ranked rather poorly in all these metrics, far behind its peers whom it seeks to compete against.

Yet, the government likes to brandish the "no.1 in ease of doing business" metric about, as if trying to say Singapore has the best business environment in the world. Yet they fail to acknowledge that the city lags far behind in other crucial metrics that the determine business & entrepreneurial success of a nation.

So, the lesson is, just as you should take GDP with a pinch of salt, so should you take "ease of doing business" with an equally big dose of salt. Just because it's easy to start your business, doesn't mean your business has a high chance of succeeding. The business environment should be measured by many more metrics than the lack of administrative hurdles to get your business started.

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