Doing Business Report

• The Bottom Line: Think of the Doing Business report as a country's annual “business health check-up,” which, despite being discontinued, provides a powerful framework for value investors to assess the quality of the economic “soil” in which a company grows.
• Key Takeaways:
  • What it is: An annual report published by the World Bank from 2003 to 2020 that ranked countries based on how easy their regulations made it to start and operate a local business.
  • Why it matters: It provides a crucial macro-level lens to evaluate geopolitical_risk, a key factor in a company's long-term stability and a critical component of a thorough qualitative_analysis. A difficult business environment can erode even the strongest economic_moat.
  • How to use it: While the original report is historical data, its methodology is a timeless checklist for assessing a country's operational risks, helping you define your circle_of_competence and demand a sufficient margin_of_safety when investing abroad.

Imagine you're a value investor looking to buy a fantastic, well-built house (a great company) at a fair price. You've inspected the foundation, the plumbing, and the wiring (the company's financials, management, and competitive position). But would you buy that perfect house without checking out the neighborhood? Of course not. You'd want to know: Are the streets safe? Are the schools good? Is the local government stable and predictable? Will a sinkhole suddenly swallow your property? The Doing Business report was essentially that neighborhood inspection, but for an entire country's economy. Published annually by the World Bank, this influential report measured and compared the business regulations of nearly every country in the world. It didn't focus on stock markets or GDP growth. Instead, it dug into the nitty-gritty, everyday hurdles that a small- or medium-sized domestic business would face. It answered questions like:

• How many days and procedures does it take to legally start a business?
• How difficult is it to get a construction permit or an electricity connection?
• How strong are property rights, and can contracts be easily enforced in court?
• What is the tax burden, and how complicated is the filing process?
• How efficient are the bankruptcy procedures if a business fails?

Based on these and other metrics, the report would assign each country a score and an overall “Ease of Doing Business” rank. A rank of #1 (like New Zealand, often) meant it was the easiest place on earth for an entrepreneur to operate, while a rank of #190 meant it was a regulatory nightmare. It's crucial to note that the World Bank discontinued the report in 2021 after an investigation revealed data irregularities and pressure on staff to alter rankings. However, the conceptual framework it provides remains an invaluable tool for any serious long-term investor. A new, more transparent report called “Business Ready (B-READY)” is being developed to replace it.

“Risk comes from not knowing what you're doing.” - Warren Buffett

Buffett's wisdom applies as much to understanding the country a company operates in as it does to understanding the company itself. The Doing Business report was a powerful tool for reducing that “not knowing” on a global scale.

A value investor's job is to buy wonderful businesses at fair prices. The “wonderful business” part isn't just about profit margins and brand names; it's also about durability and predictability. The environment in which a business operates is a massive, and often overlooked, factor in its long-term success. The Doing Business framework helps in four key ways: 1. Assessing Geopolitical and Operational Risk: The report is a powerful proxy for a country's stability and rule of law. A country that ranks poorly often suffers from corruption, an inefficient bureaucracy, and a weak legal system. For an investor, these are not just annoyances; they are fundamental risks. A government could expropriate assets, a court could refuse to enforce a contract, or endless red tape could strangle a company's growth. A low rank signals that a much higher margin_of_safety is required to compensate for these risks. 2. Understanding the “Playing Field”: A company’s economic_moat is its sustainable competitive advantage. But that moat exists within a larger landscape. A favorable business environment (a high “Doing Business” rank) is like solid bedrock for that moat, providing tailwinds like stable property rights and predictable regulations. A poor environment (a low rank) is like shifting sand, creating headwinds that can erode even the widest moat over time. Imagine a brilliant company like Coca-Cola trying to operate in a country where its bottling plants could be seized at any moment. The brand is still great, but the value of the business is severely impaired. 3. A Clue to Capital Allocation Efficiency: Value investors love companies run by management teams who are skilled capital allocators. A key decision for any growing company is where to invest its retained earnings—for example, where to build a new factory. If a company consistently allocates capital to countries with difficult business environments, it’s a red flag. It suggests that management may be chasing low-cost labor or lax regulations while underestimating the immense long-term risks, potentially leading to future write-downs and capital destruction. 4. Spotting Long-Term Trends: More important than a single year's rank was a country's trajectory over 5-10 years. Was a country consistently improving its score? This could signal a government committed to reform, creating a more fertile ground for long-term investment. Conversely, a steady decline in rank was a major warning sign that the “neighborhood” was deteriorating, increasing the risk for any business located there.

Since the original report is no longer published, you cannot use it for up-to-the-minute analysis. However, you can and should use its historical data and, more importantly, its underlying principles as a mental model for evaluating country-level risk. The forthcoming “Business Ready” report will serve a similar function.

Here is a practical, value-oriented approach to incorporating this type of analysis into your investment process:

1. Step 1: Use it as a Filter, Not a Stock-Picker. Never buy a stock just because it's in a top-ranked country. And don't immediately dismiss every company in a low-ranked country. Instead, use the rankings (historical Doing Business or future B-READY reports) as a broad, initial filter. For example, you might decide to completely avoid investing in companies whose primary operations are in the bottom quartile of countries. This is a simple way to define your circle_of_competence and eliminate a whole category of unquantifiable risks.
2. Step 2: Check the Trajectory. For a company you are analyzing in an emerging market, look at the historical Doing Business data. Did the country's score improve or decline in the five years leading up to 2020? This gives you a sense of its political and economic momentum. A country on an upward path is far more attractive than one that is stagnating or backsliding.
3. Step 3: Dig into the Sub-Indicators. Don't just look at the overall rank. The real gold is in the details. If you're analyzing a real estate company, the “Registering Property” and “Enforcing Contracts” sub-indicators are critically important. For a manufacturing firm, “Getting Electricity” and “Trading Across Borders” are key. These details help you ask more intelligent questions when reading a company's annual report.
4. Step 4: Demand a Larger Margin of Safety. If you do decide to invest in a country with a middling or poor business environment, you must demand a significantly larger margin_of_safety. The higher operational and political risks mean the potential for permanent capital loss is greater. Therefore, the price you are willing to pay for the business must be much, much lower than for a similar business in a stable, top-ranked country.

Let's imagine a (fictional) world-class American manufacturer, “Precision Parts Inc.,” is looking to build a new factory to expand into the European market. Management has narrowed it down to two locations:

• Stabilitania: A Western European nation with a historical “Doing Business” rank of #8.
• Volatilia: An Eastern European nation with a historical “Doing Business” rank of #95.

The initial financial projections show that building in Volatilia would be 20% cheaper due to lower labor and land costs, leading to a higher projected ROI. A short-term, speculative investor might jump at this. But a value investor, using the Doing Business framework, sees a different story.

Conclusion: The value investor recognizes that the 20% upfront “savings” in Volatilia are a mirage. They are dwarfed by the unquantifiable but very real risks of corruption, legal uncertainty, and operational dysfunction. The investment in Stabilitania offers a more predictable, lower-risk path to generating sustainable long-term cash flow. Protecting the principal investment (`margin_of_safety`) is paramount, and Stabilitania offers a far safer environment to compound capital over the long run.

• Standardization: It provided a single, standardized methodology to compare almost every country, creating a valuable starting point for cross-border analysis.
• Highlights Governance: The report shone a bright light on the importance of good governance, rule of law, and efficient bureaucracy—factors that are fundamentally linked to long-term economic prosperity.
• Focus on Reality: It focused on the practical, on-the-ground reality for businesses, not just high-level economic data like GDP, which can often be misleading.

• Discontinued & Tainted: This is its biggest weakness. The data scandal leading to its discontinuation means the final years' rankings must be viewed with skepticism. Investors must now rely on its historical data and conceptual framework.
• Oversimplification: A single rank can't possibly capture the full complexity of a nation's economy. It could lead investors to falsely equate a good rank with a “good investment” and vice versa.
• Narrow Focus: The report only measured the regulatory burden on a domestic small-to-medium enterprise in the country's largest business city. It didn't capture macroeconomic stability, infrastructure quality outside the capital, or the skills of the labor force.
• Potential for Misinterpretation: The report measured the ease of regulation, not necessarily the quality. A country could score well by eliminating worker or environmental protections, which could create other long-term risks for a business operating there.

• qualitative_analysis
• geopolitical_risk
• margin_of_safety
• circle_of_competence
• economic_moat
• risk_management
• emerging_markets