The United States of America is known to be a magnet for FDI due to its favorable business environment. The ease of doing business in the U.S. is one of the major factors attracting foreign investors from all over the world. As part of our series on why foreign companies should invest in the United States, this article explores the ease of doing business in the U.S.
It is very important to take into account how easy it is to conduct business in a particular market when planning or executing a business expansion. A lack of transparency and bureaucratic red tape in the host nation can completely hinder the success of any foreign corporation, despite the presence of excellent market opportunities.
The U.S. business climate: Ease of Doing Business Ranked
Over the last several years, the United States has done a concerted effort to make it more welcoming to foreign investment. From decreasing corporate taxes in 2018, to enacting legislation in 2021 – the U.S. Innovation and Competition Act that supports innovation, the United States remains committed to fostering a business-friendly environment where companies on its shores can compete with the best of them around the world. In 2011 it went so far as to also create SelectUSA – a concierge-type of a one stop shop within the U.S. Department of Commerce to make it easier for foreign investors to locate in the United States, and sent marching orders to Embassies around the world to assist companies seeking to invest in the U.S.
According to several studies, the United States ranks consistently in the top for ease of doing business. The World Bank’s most recent study done in 2020 ranked the United States as 6th in the world for ease of business. When we delve deeper into each category, the U.S. continued to score high marks across the board.
The Economist Intelligence Unit ranked the United States as 4th place in the world for ease of business.
Ease of Doing Business in the U.S.: Factors Explained
Below we will examine some of the most salient factors that makes the United States such a competitive location for new investors, followed by a more qualitative analysis.
Starting a Business
In terms of starting a business, the U.S.’ rank of 91.6% is one of the highest scores it received. On average it takes 6 procedures and 4 days to open a business in the U.S.
H3: Dealing with Construction Permits
When it comes to getting construction permits, the U.S. received a score of 80 out of 100. It took 16 procedures and 81 days, representing 0.7% of the warehouse value – still a relatively low number.
The U.S. ranked the highest of all in this category – with 95%; worldwide it came in 4th place. For the strength of legal rights factor, the U.S. received 11 out of a possible maximum score of 12; for depth of credit information, it received a perfect score – 8 out of a possible maximum score of 8; and lastly for credit bureau coverage of adults it also received the maximum score of 100%.
The United States’ financial services sector is one of the largest in the world. In addition to traditional capital sources such as banks, access to other capital sources such as venture capital, private equity and angel investors is readily available, particularly in high-tech innovation ecosystems like Silicon Valley. In addition, the U.S. has also invested in business incubators nation-wide that are playing an active role in helping entrepreneurs commercialize their innovative products.
When it comes to paying taxes, the United States ranked 25 worldwide, and received an overall score of 86.6. Recently, in January 2018, the United States significantly reduced its business tax rate with the passage of the Tax Cuts and Jobs Act from approximately 35% to 21%. Thus, it went from having one of the highest corporate federal tax rates in the OECD to now being much more competitive and closer to the median of 26%. Many U.S. states have followed suit, preferring lower corporate tax rates to older, more traditional mechanism of attracting foreign investments by giving out cash and grants incentives.
When it comes to enforcing contracts, a critical aspect of any business, the U.S. ranked significantly high at 17th worldwide. Nevertheless, it still took an average of 444 days and 30.5% if claim value to do so. The quality of the judicial system, a linchpin of a healthy open market economy, ranked at 14.6 out of a possible total of 18.
In terms of resolving insolvency, the U.S. ranked second in the world, and received an overall score of 90.5%. The strength of the insolvency framework scored 15 out of a possible 16 as a maximum score.
In addition to the study above, below we will provide an additional, more qualitative, high-level analysis of why the U.S. ranks so high in terms of ease of doing business.
Public Policy Supports a Stable, Open and Free Market
Public policy in the United States remains one of the most business friendly in the world. Lawmakers consistently try to balance good government with business interests by enacting laws that regulate industry and protect the average consumer, while continuing to support and provide an environment in which free enterprise can flourish. Moreover, the United States retains a tradition of protecting the competitiveness of the marketplace, ensuring that no one gets too big so that everyone can have a free and fair chance to access the market and compete.
Entrepreneurial, Innovation Economy with Strong Intellectual Property Protections
America is known for its entrepreneurial climate and its large, dynamic, free market economy. In a world where the knowledge economy has taken over, it is all the more important that businesses can continue to innovate in an environment that not only can provide them with an open marketplace, but also protects their intellectual property and gives them the tools necessary to do so. As seen above, the quality of the judicial process index was elevated at 14.6 out of a possible rank of 18.
According to the World Intellectual Property Organization, the number of patents in force worldwide grew by 5.9% to reach approximately 15.9 million in 2020. The highest number of patents in force was in the U.S. (3.3 million), followed by China (3.1 million), Japan (2 million), and the Republic of Korea (1.1 million). China saw the fastest growth in patents in force in 2020 (+14.5%); the U.S. (+6.9%).
The United States is one of the countries with the largest number of free trade agreements (FTA) in the world. In addition to the USMCA agreement between the U.S., Canada and Mexico, it has over 20 other FTAs that give companies on its shore ease of access to domestic and foreign supply chains, as well as foreign markets. Thus, any company coming to the United States will enjoy an ease of doing business not only in the U.S. but globally, from American shores.
Ease of Doing Business in the U.S.: A Major Draw for Foreign Investors
In conclusion, the ease of doing business in the United States is a major draw for foreign investors. The country’s favorable business environment, strong legal framework, access to capital, and low regulatory burden make it an attractive destination for businesses looking to expand their operations. As a result, the U.S. has become one of the most attractive destinations for FDI in the world.
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