Innovation and growth put at risk by the $1.2 trillion cost of regulation
THE SPEED OF BUSINESS – HOW REGULATION IMPACTS INNOVATION
The estimated cost of regulatory compliance across ten major economies in Europe, Asia and the US is set to pass the $1 trillion mark this year, according to a report from international law firm Berwin Leighton Paisner (BLP).
Furthermore, nearly a quarter of those companies surveyed believe their boards are not up to speed on the regulations affecting their business.
In BLP’s ‘The Speed of Business’ report, CEOs and executives of 250 companies worldwide believe that innovations are being put at risk – despite 97% of them citing it as critical to company growth. Nearly a quarter of respondents said that they had dropped an innovation in the last five years as a result of regulation and almost a third of businesses (29%) believe it has become harder to innovate as a result of regulation over the same period.
Perceptions on the positive or negative impact of regulation on innovation and growth vary across the world: only 28% of European respondents felt their local government was doing enough to keep on top of the regulatory burden compared to 64% of Asian businesses. In the US, 59% of businesses said regulation was having a positive effect.
Nearly half (44%) of businesses are considering moving their operations to another location specifically to benefit from a lighter touch regulatory environment. In general, regulation is also a factor influencing where businesses relocate – with the US and China consistently ranking highly.
However, although many companies would like to break into the US and Chinese markets, they were also the countries where most companies felt deterred by heavy or complex regulation at 22% and 31% respectively. American respondents were also more likely (51%) to describe trade and tariffs as significant barriers than those in Asia (33%) or Europe (40%).
Neville Eisenberg, Managing Partner of BLP, said: “In our research, the majority of companies told us innovation was critical to their business growth, and this is also what our clients are telling us. However our findings show that in some cases the cost of complying with regulation is acting as a brake on the speed at which businesses want to grow and innovate.
“It is also surprising that a significant proportion of the businesses we surveyed are not sufficiently aware of the regulations affecting them. There is a definite competitive advantage to be had in understanding and how to manage the impact of regulation on your operations.”
‘The Speed of Business’ report key global findings:
- Boardroom agenda – innovation is a boardroom priority
- 97% of respondents agreed innovation is a key driver for growth
- Yet nearly a quarter of boards are insufficiently informed of regulations and legislation affecting their business
- 25% of respondents say they have dropped an innovation in the last five years as a result of regulation
- Estimated cost – equals an average of 6.2% of companies’ turnover
- $1.2 trillion across six sectors in the ten economies surveyed
- UK firms perceive the cost for them will be $81bn
Global divides – views on regulation vary significantly across the world
- US supportive about what their regulators have achieved – 59% said regulation had a positive effect
- Over half of European firms (53%) regarded regulation as hampering their efforts to innovate, compared to just 36% in the US and 27% in Asia.
- Some areas were able to benefit from their domestic regulatory environment, with around half of US and Asian companies surveyed saying they felt it had eased over the past five years. Only 35% of European firms agreed, however.
- 27% of Asian firms have relocated to ‘lighter touch’ regulatory areas this year.
Notes to editors:
- According to calculations by Oxford Economics based on the findings of the research that show on average, companies estimate they are spending 6.2% of their turnover on complying with regulation according to the research.
- The research was compiled by interviews with 250 global businesses, with turnovers of $30m, in ten countries across six sectors. Countries were US, Europe (UK, Germany, Spain, Italy, France) and Asia (China, Japan, Singapore, Hong Kong). Sectors included Oil & Gas, Real Estate, Financial Services, Mining, Technology and Healthcare.
- The report defines innovation as a multistep process, often starting with basic scientific research and processing through research, development and testing to investment and commercialisation by firms. Regulation refers to labour, product, health and safety, and environmental regulation as interpreted by each of the respondent companies.
About Berwin Leighton Paisner LLP (BLP): Berwin Leighton Paisner is an award-winning, international law firm. Our clients include over 50 Global Fortune 500 or FTSE 100 companies and we have an established global footprint of eleven offices who have delivered more than 650 cross-border projects involving up to 48 separate jurisdictions in a single case.
BLLP has has won five Law Firm of the Year titles (more than any other firm) and three FT Innovative Lawyers Awards. It is independently ranked by Chambers and the Legal 500 in over 65 legal disciplines and the FT currently ranks us in the top 10 of law firm innovators in Europe.
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