To invest or not to invest? When determining whether to enter a new market, businesses must fully understand the potential risks and opportunities. To do so, they need access to information on relevant market players, such as potential suppliers, customers or competitors. While governments require businesses to supply data when registering as well as throughout their operation, these repositories of data held by business registries, tax authorities, statistical offices and other registries are often not updated properly nor are they made available to the general public in a comprehensive way. Lack of transparency and easy access to simple data points on the industrial ecosystem can pose a major barrier to investment. An opportunity to overcome this challenge is to leverage the data collected on firms, by firms.
Private companies’ incentives now lead them to develop complex maps of the ecosystems in which they work. Many global businesses are incentivized to have a thorough understanding of their supply networks due to consumers demand for products that are ethically and sustainably sourced and produced. This requires companies like Gap Inc. to map and monitor their footprint to ensure quality working conditions and to preempt reputational risks.
In response to a series of reputational crises and changing consumer demands, Gap Inc. publishes a
robust set of data on its supplier network. To manage consumers’ demands for ethical production, among other motivations, the retailer works with its suppliers across the globe to ensure all links of the supply chain fulfill international legal standards for labor practices and working conditions. Taking ownership of its supply-chain requires Gap Inc. to collect an array of data, including information such as the physical location and name of firms, in addition to more detailed information such as the presence of hazardous substances and compliance with labor regulations. Gap Inc
. also sees increased transparency as a way to improve standards, not only within its suppliers but across the apparel and textiles sector as a whole.
While companies like Gap Inc. publish data on their supplier networks to prove the legitimacy of their business across the globe, the data also provides countries with an interesting opportunity to improve their understanding of relevant clusters operating within their borders. The data collected and shared by private companies therefore has a potential residual impact of encouraging private investment within the country. New investors need basic information, like that collected by Gap Inc., to determine which companies might supply needed inputs, or to which enterprises they might sell their own goods and services. Moreover, businesses considering investment may require partners or financing that can only be secured once the company can explain how it can compete in the local environment using reliable data.
The opportunity to leverage the simple information collected on markets by companies like Gap Inc. is particularly exciting because many firms expend significant resources to research even the basics of markets in which they are interested. By leveraging already collected data, governments could help stimulate the growth of entire ecosystems.
Businesses—and their actions undertook in response to specific market incentives—could therefore improve the general business environment by removing barriers to investment. Governments should work with companies like Gap Inc. to take advantage of this opportunity to leverage the private sector for development.
This post is part of the blog series "Businesses for the Business Environment:"
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