Third Party Risk Monitoring

Need for the “Kaizen” approach to improve Ease of Doing Business

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“Kaizen”, a word with Sino-Japanese origins, refers to the philosophy of continuous improvement. This approach has witnessed widespread adoption among corporates and has been implemented in many different contexts, be it corporate strategy or workplace improvement. But why are we talking about Kaizen and where exactly does it fit in with the context of ‘ease of doing business’? To answer this question, let’s start with Business Risk.

Each sourcing location, be it country or city, has an inherent risk associated with it in terms of doing business, it could be unnecessary bureaucratic procedures, archaic laws or lengthy time-consuming processes that lend a negative image to the said location as a business hub.  For example, in India, Business Risk remains high owing to risk factors such as archaic procedures and red tape involved in starting a business, obtaining construction permits and registering a property. Absence of exhaustive credit coverage further contributes to the risk. Another relevant example from the Latin American region would be Mexico, where the time involved in making tax payments and the lengthy process of registering a property are discouraging elements with respect to ease of doing business.

Recent measures to address business Risk

On a case-by-case basis, let’s look at major reforms in the above two major IT/BPO markets that have improved ease of doing business and lend a competitive edge to these locations:

Mexico

Mexico has made continuous progress in this regard and it’s most recent reforms aim at easing tax payments and improving access to credit by resolving insolvency via a measure of allowing a general description of assets granted as collateral. These reforms have been followed up with an initiative to expedite the process of tax refunds. As part of the Service Administration Taxation (SAT), this reform will enable automatic tax refunds for SMEs (Small and Medium Scale Enterprises) and employees.

The Mexican administration also simplified the process of paying taxes for companies by eliminating business flat tax. The administration implemented an electronic single-window system that streamlines several processes, significantly reducing time involved in trading across borders. Additionally, with the creating of small claims courts that allow for oral proceedings for both civil and commercial cases, enforcement of contracts has been simplified. Mexico also eliminated the minimal capital requirement for limited liability companies to ease the process of starting a business.

India

The current government aims to bring India to the top 100 before the release of Doing Business 2017 rankings, with higher focus on Delhi and Mumbai, the two key centers that are assessed by the International Finance Corporation. Working towards the same, in recent quarters, the Indian government brought down the number of mandatory documents required for import and export of goods and has also adopted an online single-window mechanism for customs clearances to improve the ease of doing trade while making the process less cumbersome in terms of time and lower transaction costs.

Both Delhi and Maharashtra State governments have been asked to initiate measures to reduce the time taken by businesses to start operations there. The focus is also on reducing paperwork and making rules simpler for carrying out business. To expedite the process of starting a business, the corporate affairs ministry also announced the introduction of a single form and single payment for three services such as name availability and incorporation etc.

(Kaizen) Continuous Development = Short + Long Term Dividends

As we just saw, both these countries, representing different geographies and different sourcing approaches, one an established offshore IT/BPO market, while the other one a strong nearshore competitor, have made sincere efforts in simplifying the business environment. Mexico has emerged as one of the top countries to have made massive improvements in business regulation over the past decade. Similar developments have been witnessed in India in recent quarters, with a push for entrepreneurship and continuous developments to cut red tape and increase transparency.

However, the administrations in these countries cannot afford to sit on their laurels, as there are several aspects of administration and trade that need significant improvements and in some cases new processes altogether. For example, with the increasing digitization globally, there is need for replacing cumbersome paperwork with online systems that help reduce time involved in processes and cut costs as well, costs often borne by the applicant/investor. Although such developments have begun and have already resulted in increased investments and renewed investor confidence, these need to be done on a larger scale and must be taken up by the administration on war footing. Continuous emphasis on improving efficiency of processes across all departments, not just those dealing with investors would be the ideal way of bringing holistic development. The government also needs to enter into discussions and take inputs from all stakeholders when it comes to reforming and streamlining certain processes related to trade and commerce. Adopting best practices from other leading nations can also help these markets leapfrog into the future as true business hubs.

As economies become increasingly digitized and sourcing moves away from just being price driven, factors like ease of doing business will offer the true competitive edge to IT/BPO markets such as India and Mexico.

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