The estimated cost of regulatory compliance for companies in the U.S., Europe, and Asia is set to pass the $1 trillion mark this year, according to a report from international law firm Berwin Leighton Paisner. That cost could stifle innovation and prompt companies to relocate some or all of their operations, it says.

BLP's “The Speed of Business” report says that, globally, regulation represents an average 6 percent of all company expenses. The online survey, conducted in August and September with CEOs and executives at 250 companies in 10 countries, found that U.S. companies will spend the most in the world on compliance by the end of 2013, more than $557 billion. Companies in Europe will spend approximately $309 billion and Asian firms will take a $311 billion hit.

Regulatory costs were seen as stifling corporate creativity, with nearly a quarter of respondents saying they had dropped an innovation in the last five years as a result of regulation. Nearly a third of businesses agreed that it has become harder to foster innovation as a result of regulation, potentially stifling growth and expansion.

Many executives in the real estate sector, however, found the opposite to be true. When asked whether it is has been easier or harder to innovate over the last five years as a result of regulation, 65 percent chose the former. This was also the sector estimated to be spending the most on regulatory compliance this year ($320 billion). By comparison, only one-third of companies in the financial services marketplace thought regulation was having a positive impact on their operations.

Fewer U.S. companies felt that regulation was choking innovation compared to their counterparts around the world. Slightly more than 40 percent felt regulation was a deterrent on that front, compared to 43 percent in Asia, and nearly 59 percent in the EU. 

The executives said that regulation is affecting decisions about where to move operations; 44 percent said their companies were considering moving all or part of their operations to benefit from a lighter touch regulatory environment. Nearly 60 percent of Asian companies said they were prepared to make this move, although most China respondents seemed happier to stay put.

Contrary to that contentment, relocating operations to China might not be much of a draw. Overseas businesses considering a move into China face the challenge of understanding "a highly complex environment with laws often interpreted differently across and within provinces," the study says. This means that companies with multiple offices in the country must incur additional compliance costs at each location. “On the one hand foreign companies complain that China's regulatory framework isn't sophisticated or comprehensive enough, and then there are others who complain that there are too many new regulations and China is changing too quickly,” says Stephen Phillips, CEO of the China-Britain Business Council.

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