Red tape costing businesses $1.2tn, stifling innovation

The cost of regulatory compliance across ten major economies in Europe, Asia and the US is set to pass the $1tn mark this year, and it is harming companies’ ability to innovate, according to a report from law firm Berwin Leighton Paisner (BLP).

On average, companies are spending 6.2 per cent of their annual turnover on complying with regulation.

CEOs from 250 global companies believe that innovation is being put at risk because of the cost of red tape, BLP’s The Speed of Business report reveals. This is despite 97 per cent of respondents saying innovation is critical to company growth.

For nearly a quarter of respondents, innovation has dropped in the last five years as a result of regulation. Almost a third of businesses believe it has become harder to innovate as a result of regulation over the same period.

“The majority of companies tell us innovation is critical to their business growth. 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,” says Neville Eisenberg, managing partner at BLP.

The perceptions of the positive or negative impact that red tape has on innovation and growth vary across the world: only 28 per cent of European respondents feel their local government was doing enough to keep on top of the regulatory burden compared to 64 per cent of Asian businesses. In the US, 59 per cent of businesses say that regulation was having a positive effect.

Nearly half (44 per cent) 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.

“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,” Eisenberg adds.

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