Market Report to Future Entrepreneurs: In which Country Is Easier to Start a Business? China or the United States?

Introduction

A common saying in China says “School is hard, but the life after school is harder.” As a graduate-to-be, I understand it fully about how hard job searching is. However, one group of graduating students on campus is experiencing more obstacles on seeking jobs –  international students, more specifically focus on Chinese student here. It is just awkward for them to look for jobs in America because we have to compete with local students who has better English communication skills. It is also sad for them to look for jobs back in China because four years of American education seems like a waste in that way, and many of the times these graduates parents will use “resources” to “assist” students on job searching. Hence, many of international students in America are looking for opportunities after college to start their own business for more career opportunities.

As the technology is growing fast in recent years, more business opportunities have opened up in many aspects. More sufficient communication has increased the quality and quantity of international business and oversea business. Statistics shows that there were a 13% of increase in entrepreneurship from 1999 to 2012. With more mature smart phone technology, wireless commerce and social medias are supporting more people to start a business due to the easiness of on communication and marketing.

For people who picture themselves as future entrepreneurs, many things need to be considered before actions. Here are the questions that one, graduating international students for example, would ask in order to find out better plan before action. What kind of business is easier to do? Food or Service or Retailing? Where is easier to do a business?  Local business or international business? Which country has more opportunities? China or the United States? Thorough research is necessary before starting a business for people who consider doing business internationally especially China or/and United States, in order to provide accurate information. Those are also the questions I asked myself when I was preparing for this market report in order to dig deeper into this topic.

Data

Understanding both Chinese and American business climate is important for business starts to consider a location to settle. Different country has different business regulations, culture norms, that will influence the ease of both starting and continuing a business. One coherent dataset on each country’s regulation and culture is hard to find online. Most starting businesses do not share much business information to the public due to business secrecy and protection of a growing business. After a long time searching, World Bank site had the most useful and rich information.

Dataset 1 used in this report was an excel file downloaded from World Bank, called “Ease of doing business index-worldwide”. This dataset shows the ease of doing business index as an indicator with measures in the world from 1 (the most business-friendly regulations) to 189 (the least business-friendly regulations) in year 2014 and 2015 to most of countries. A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm. This dataset is appropriate for analyzing the rank of all countries in the measure of the ease to do business. It shows the country with most and least business friendly climates with other countries measured in a rank. Hence it is useful on figuring out business locations in comparison between countries.

Dataset 2 is also an excel file from World Bank. It is called “Data extract from doing business” (dataset 2), and it contains many other indicators like cost, time, and capita needed to do business in all countries for the year of 2014 and 2015. The original form downloaded from World Bank, contains useless and repeat information. Data cleaning was needed after downloading the dataset from World Bank. Some indexes miss data from the dataset, and some indexes do not match for both country’s government policy or culture, like Chinses “tax for receiving international package” does not play a role in American regulation. Hence, clearance was necessary and done.

According to World Bank, the friendly business climate is measured by 4 factors: procedures, cost, time, and paid-in minimal capital. Unfortunately, this dataset is missing China and the United States’ paid-in minimal capital data for both 2014 to 2015. Hence, only the other three factors will be analyzed in depth to show how different Chinese and American business climates are.

A procedure is defined as any interaction of the company founders with external parties (for example, government agencies, lawyers, auditors or notaries). Interactions between company founders or company officers and employees are not counted as procedures. The founders are assumed to complete all procedures themselves, without middlemen, facilitators, accountants or lawyers, unless the use of such a third party is mandated by law or solicited by the majority of entrepreneurs.

Time is recorded in calendar days. The measure captures the median duration that incorporation lawyers or notaries indicate is necessary in practice to complete a procedure with minimum follow-up with government agencies and no unofficial payments. It is assumed that the minimum time required for each procedure is one day, except for procedures that can be fully completed online, for which the time required is recorded as half a day.

Cost is recorded as a percentage of the economy’s income per capita. It includes all official fees and fees for legal or professional services if such services are required by law or commonly used in practice. Fees for purchasing and legalizing company books are included if these transactions are required by law.

Dataset 3 is called “Top Industries and Reasons.” It is a personally made excel file with online information about how ease of doing business is different in various industries and what are some reasons and strength for people to start business in China and the United States.

Analysis and Findings

Visualization 1

Dataset 1 provides information on ease of doing business for 189 countries in the world in the year of 2014 and 2015. Each country’s ease number is ranked from 1 (most business-friendly environment) to 189. Although this report only focuses on China and the United State’s business environment, visually showing other countries’ rank will allow readers to gain a better understanding on developing or developed countries business environment.

This visualization shows two maps. One is China and United State’s ease of doing business rank in 2014 with top ten other countries’ rank of the year, and another map is China, United States and top ten other counties’ rank in 2015. From the label, the United States (orange) is ranked top 7 in year of 2014, where China (Blue) is ranked number 83. In 2015’s map, the United States still rank number 7, but China’s rank has dropped into 84, one rank below. This visualization clearly shows that the United States has way more friendly business climate than China for both 2014 and 2015. United States is the 7^th easy country to do business in the world for both years, while China dropped one rank from 2014 to 2015.

Considering China is a huge developing country, there are news everyday reporting how Chinese economy is growing fast, faster, and maybe fastest in the world comparing with other countries. However, with such successful economy growth, it became less ease to do business from year 2014 to 2015. Why? Who should we blame? Chinese government policy?  Worldwide relationship? Inflation?

Visualization 2

In order to find out the reasons that China’s rank dropped 1 place in one year, deeper analysis is needed. Dataset 2 has different index measures, and three of them are cost, time, and procedures, which are assigned by World Bank as the main factors considered necessary to start a business. After imported the dataset into Tableau, comparison of China and the United States’ cost, time and procedure needed to start a business in both year 2014 and 2015 was made into Visualization 2. Visualization 2 is presented in a bar shape graph, where reader can see the heights of all measurements before reading the numbers, so they will be able to gain a more direct insight on numbers’ comparison between two countries.

The first row is both China (blue) and the United States’ (orange) performance in 2014 on cost to start a business in percentage of income per capita, procedures required to state a business in number, and time required to start a business in days. The first column is cost performance to start a business in percentage of income per capita. In 2014, China’s average percentage of income per capita is 0.9%, where for the United States is 1.2%. Second column shows the procedure performance that’s required to start a business in the unit of number. In average, 11 procedures are required in China in 2014 to start a business, where in the United States, only 6 procedures are required. The third column is show time performance in both countries to start a business in the unit of days. In average, 31.4 days are required to start a business in China in 2014, but only 5.6 days are required to to start a business in the United States.

The second row show same data construction only in the year 2015.  The first column shows cost performance to start a business in the unit of percentage of income per capita. China’s average percentage of income per capita is 0.7%, where for the United States is 1.1%. Second column is the procedure performance that’s required to start a business in the unit of number. In average, 11 procedures are required in China to start a business, where in the United States, only 6 procedures are required, same as in 2014. The first column is show time performance in both countries to start a business. In average, 31.4 days are required to start a business in China, but only 5.6 days are required to to start a business in the United States, same in the year 2014.

In 2014, cost to start a business in China, 0.9%, is slightly less than the cost needed in the United States, 1.2%, by 0.3%.  The number of procedures in China required in 2014 to start a business is 11, almost twice more than the number of procedures required in the United States (6). In 2014, 31.4 days are required in China to start a business, which is about 5 times more of the United States’ 6 days’ requirement. In 2015, cost to start a business in China is decreased to 0.7% per capita, where the United States’ average percentage decreased as well to 1.1%. Starting a business in China still requires 0.4% less than the United States. The number of procedures in China required in 2015 to start a business is still 11, almost twice more than the number of procedures required in the United States (6). In 2015, 31.4 days are required in China to start a business, which is about 5 times more of the United States’ 6 days requirement, same to year 2014’s data.

To sum up both years data, starting a business in China requires less cost, but much more numbers of procedures and days in time are requirement. Starting a business in the United States will cost slightly more, but less numbers of procedures and days in time required. Hence, depending on individual’s situation, if the business can be waited for longer time, start a business in China can help to cut down costs, which will benefit you from more freedom on getting resources. In another hand, if the business is on time sensitive topic, like technology, starting the business in the United States will help you start up fast with a bit more cost, but save the top place in the industry.

Visualization 3

Visualization 2 shows that only the cost factor changed from 2014 to 2015. Assuming no government regulation or policy has changed, how will cost factor change in the year of 2016? By utilizing linear equation, Tableau assumes that 2016’s cost factor will change under the same rate from 2014 to 2015. Visualization 3 shows the trend of changing in two ways.

The left side of the visualization 3 is a line graph with 2 columns. The first column is China’s cost changing line from 2014 to 2015 with prediction on 2016. The second column is the United States’ cost changing line from 2014 to 2015 with prediction on 2016. For China, 2016’s cost will decrease from 0.7% to 0.5% under that same changing rate as for the year 2015. For the United States, 2016’s cost will decrease from 1.1% to 1% under that same changing rate as for the year 2015.

The right side of the visualization 3 is three bar charts. The first bar chart shows both China and the United State’s cost in the unit of percentage of income per capita in 2014, where China is 0.9% and the the United States is 1.2%. The second bar chart shows both China and the United State’s cost in the unit of percentage of income per capita in 2015, where China is 0.7% and the the United States is 1.1%. The third bar chart shows both China and the United State’s cost in the unit of percentage of income per capita in 2016 with prediction, where China is 0.54% and the the United States is 1%.

The liner graph on the left shows the trend of decreasing. China’s cost on starting a business is decreasing more rapidly with a steeper slope, where the United States’ cost is changing slower than China. The bar chart on the right shows China and the United States’ cost factor comparison from year 2014 to 2016. In 2014, starting a business in China costs 0.3% less than in the United States. In 2015, starting a business in China costs 0.4% less than in the United States. In 2015, the prediction shows that starting a business in China costs 0.5% less than in the United States, almost as half of the cost as needed in the United States.

Hence, if the cost factor stays changing within the linear equation predication, China will have much cheaper cost to start a business than the United States.

Visualization 4

Based on the earlier analysis, ease of doing business can be evaluated by cost, procedure, and time. Do these data above represent all kinds of business in different industries? What are the top industries in both countries that are easy for people to start? Many business professional institutes have published articles on this topic. Based on the Forbes’ article in 2014 and Mybusinessidea.com in 2015, dataset was collected manually into excel file by me.

Visualization 4 shows the top (most profitable) 10 industries in each country. Many are overlapping for both countries with slightly different labels due to different sources.  Hence people should consider that each industry requires different cost, procedure, and time than others, and the same industries requires different cost, procedure, and time for China and the United States as well. Overall, computer wise internet business and marketing business are popular and worth to start in both countries.

Visualization 5

After the above analysis, cost, procedure, and time are the key factors to determine the ease of doing business of a country. However, many other reasons can affect one’s decision on starting a business in a country. According to selectusa.gov and greenway2china.com, visualization was made to present top 4 reasons that people consider strength of China and the United States. Interestingly, both counties are considered with free trade (free tariff) benefit as a strength.  Hence, when profit and benefit is a key consideration to people when consideration a place to start a business. Other strength can be applied differently into different industries.

Limitation

Finding the right and appropriate data for this topic was a very hard step. Many business data are not shared online with free data websites, due to data’s business value and the business privacy and security. There is limitation on data collection, and also data integrity. Both of the datasets contain clear and simple information with one indicator or just few years of information. It was hard to clean the data one more time because they were straightforward already. Some of other dataset constrains are the incompletion of datasets. In dataset 2, 1 out of the 4 important factor, amount of capital needed to start a business, is missing from the dataset. The report would be more accurate with it in to show one more aspect of the information.  Dataset 2 also limits analysis of cost changing trend. Two years of data is few to find trend. The current 2016 predication is made based on linear equation with assumption of same changing rate of cost. In reality, same changing rate for the year after is hard to achieve. With more years of information, prediction of 2016 would be more accurate.

In addition to the limitations from dataset. This report also provides limited information on different industries of business. Dataset only provides information on business in general, but one must consider the differences on cost, profit, and ease from different industries.