Six common challenges in managing a global organization
As a big baseball fan (Go Red Sox!), one of the most fascinating aspects of the sport is how international it has become. Across Major League Baseball, more than a quarter of the players on big-league rosters were born outside the United States and this percentage is increasing. Baseball, the most American of institutions, went global to find new talent, expand its brand and introduce its business to new customers. Its international success should serve as a lesson to any enterprise, old or young. If your business is looking for growth, going global is the natural next step.
There will be roadblocks. I should know. At one time, I was vice president of international finance for an American supplier of telecommunications networking equipment, where I was responsible for the accounting, tax and finance functions for 30 foreign subsidiaries. In addition, I spent considerable time helping support their HR and legal needs. I have the battle scars to prove that managing a global organization presents challenges.
Although individual companies respond differently to international opportunities, my experience finds that they face a common set of challenges when managing a global footprint.
1. HR: People are an asset and a challenge. Many companies find recruiting and developing talent abroad hard to accomplish. There are language and cultural differences to overcome, and you often don’t have HR personnel on the ground in satellite offices. Identifying an onboarding program for international employees that works for you is a critical success factor.
At-will employment, which allows businesses to terminate workers for any reason, is a U.S. construct. Outside the U.S., employment relations are handled by contracts, and host country labor laws may supersede certain elements of what we, in the U.S., think of as a typical employment agreement. Penalties for noncompliance can be significant. In France, for example, the maximum damages for unfair termination is set at 20 months of gross salary for employees with at least 30 years of service. Companies with global workforces often deal with multiple payroll and HR administration systems too. No wonder HR leaders struggle to find the time to be strategic.
2. Taxes: Complexity is increasing. The list of countries initiating a value-added tax, which is collected at each stage of production, in growing, most recently in the United Arab Emirates and other Gulf states. As more sales go online and are fulfilled by third parties, compliance has become tricky for these e-commerce businesses. You need to know the local tax rules and have a plan in place so that the risks of running into trouble are reduced.
It’s also a new day in tax information reporting. Globalization, emerging markets, greater transparency and increased regulation are transforming the global tax framework. Seeking to combat tax evasion, governments are sharing information on residents’ assets and income, which has increased the compliance burden on business.
3. Cash management: Businesses need to be prepared for the age of digital cash. In developing countries, digital cash has become physically safer than carrying or storing cash or buying gold or silver. It makes bank transfers faster and cheaper and allows smaller businesses to engage more efficiently in global e-commerce. Working with one or two global banking partners versus a myriad of banks from country to country will make things easier and more effective.
Treasurers still have to deal with volatile foreign currencies, as well as compliance with anti-money laundering know-your-client regulations, which have made it more difficult to do seemingly simple things, like open an overseas bank account.
4. Market entry: When entering a new market, there’s always the need for local knowledge. How do you make those contacts? How do you avoid common mistakes? What are the best practices? Over time you would like to think market entry becomes less complicated, but it doesn’t.
The common barriers to entry include government regulation, forecasting startup costs, product differentiation, access to suppliers and distributors, and competitive response. But the speed of innovation might require a new business model or new approach to pricing and marketing. Identify a primary, experienced in-country expert to serve as your guide to launching new operations successfully.
A good first step to gaining a baseline understanding of a potential international business expansion destination is accessing a number of reputable, free resources, like this country profile library, which is available for businesses to take the first step towards informed and successful expansion.
5. Transaction support: The volume of global mergers and acquisitions is increasing. Companies and investors have loads of cash and interest rates remain low. But cross-border transactions present a unique set of issues that are compounded by the scale and geographic scope of the deal. Parties to the transaction often come from divergent cultural backgrounds and have multiple language requirements, conflicting strategic objectives, and different business practices. Early recognition of these obstacles is vital. Your “deal team” should include the right internal leadership, lawyers, financial advisors and in-country experts who are able to work in harmony with one another.
A key to making these deals work is getting the transition right at the front end and successfully integrating operations. Once the transition services agreement expires, you need to have the right people and systems in place to keep operating.
6. On-call expertise: When a problem arises halfway around the world, who are you going to call? Who do you trust? The best companies have access to a robust lineup of experts, from lawyers to accountants to consultants, they can call anytime.