Low wages are not all

Small- and medium-sized enterprises (SMEs) are the backbone of the German economy. Many companies operate globally and assert themselves in glo­bal competition. But it is neither easy to tell where in the world a new market may be emerging, nor what country might be a good location for production purposes. The Hamburg Institute of International Economics (HWWI – Hamburgisches WeltWirtschaftsInstitut) and BDO, an accountancy firm, have designed a new index that is meant to give guidance. Their new International Business Compass rates countries as potential markets and manufacturing locations.

The ranking reflects the economic, poli­tical and socio-cultural conditions in 174 countries. Among other things, it takes into account the stability of government, taxes, the quality of infrastructure and how well people are educated. The underlying data is taken from official inter­national sources, says Katharina Stepping, the author of the survey.

OECD countries hold the front positions, but Singapore is in the first place and Hong Kong comes second. Overall, Germany ranks 21st. On the whole, Latin America gets better marks than Asia, and Africa does not do well, though individual countries like Tunisia (rank 67), Botswana (70) or South Africa (77) are in the upper midfield. Japan’s low ranking (140) is due to its high sovereign debt. Many issues play a role in assessing the chances and risks of an investment. Many countries probably have a better reputation than the new index would warrant. The G20 members Brazil (rank 65), China (85), Russia (108) and India (110), for instance, are not among the frontrunners, and are clearly behind smaller nations like Costa Rica (47) or Malaysia (50).

The author of the survey has come up with two separate assessments – first considering countries as potential markets and then as manufacturing locations. The data indicates that Brazil and Argentina are the best markets in Latin America, whereas the most promising places for production are in Central America. In the overall ranking, Chile tops Latin America.

In Asia, the divergence between countries’ market and production potential is considerable too. China is by far the greatest market, but for production purposes, Singapore, Hong Kong and Taiwan look more attractive – and none of them is a low-wage country.

Some of the rankings don’t seem to make sense at first sight. For instance, it is not clear why instable, but oil-rich Libya (164) is rated only one grade ahead of equally instable, but very poor Pakistan (165). The reason may be that Pakistan has a huge population and may yet become a great market. Detailed explanations would be welcome, but the BDO International Business Compass does not supply them. It is only meant as a “useful guide for small- and medium-sized companies“, says Arno Probst of BDO.