International business models for a post COVID-19 world
The number of confirmed coronavirus cases is likely to surpass the 1.5 million mark this week and the impact on society and the economy is massive. The stock markets had their worst quarter in 30 years and business activity has steeply declined. It is devastating to hear our clients tell us their revenue streams have drop by 80% in a weeks’ time. And this is affecting a wide range of industries. But if there is one good thing coming out of the COVID-19 crisis, it is that businesses are forced to innovate and re-evaluate the way they operate. For example, the tech community has risen to the occasion of helping communities adopt technology to overcome some of the challenges associated with the coronavirus pandemic, as technologic enablement allows parts of – or in some cases entire – organisation to continue operations amidst the current situation. For sure, the world will look different post-virus and so will international business models.
C-suite officers and business owners shift their focus
Earlier this year, HLB’s global survey of business leaders identified characteristics of future business models for success to be more mobile, cloud-enabled and having a more flexible workforce. Yet, our analysis found an execution gap between what business leaders focused on improving in the next 12 months versus what they needed to focus on in order to build business models for the new decade. But then the COVID-19 pandemic hit, and C-suite offers are forced to shift their focus, consequently steering them towards more flexible, mobile and cloud-enabled models.
And it is not just technology adoption their focus has shifted towards. Multinational companies need to successfully navigate the pandemic in order to survive on a country-by-country basis. Post COVID-19, we foresee a “new norm” for business owners and C-suite officers with respect to international structuring and operational strategies, including the following:
- Strategic workforce planning, including remote workforce planning, flexible contracts, employee efficiency best practices and HR policies;
- Crisis response and business continuity planning, risk containment policies and procedures.
- Financial resources to weather future unexpected events;
- Cloud-enabled IT infrastructure, including an enhanced cyber security protocol;
- Redundant sourcing of essentials such as inventory, supplies and people.
Impact on international tax planning
Technology has changed the way international businesses generate revenue, as well as the way companies source inventory, supplies, and labour. It has allowed businesses the ability to expand global operations by seeking out low tax jurisdictions and incentives offered by countries as a means to attract business and employees. Multinational companies have had to focus on tax compliance issues in the wake of US FATCA implementation and international tax reform, as well as the OECD’s increased enforcement of its global BEPS initiative. Organising business structures to yield tax efficiency and reduce international tax risks has kept many tax departments overwhelmed. But COVID-19 has shifted focus from international compliance and planning, to business issues that have tax consequences.
Across industries, global shortages of supplies are a real threat to their operations and are required to shift production. As supply chain got disrupted over the past few months –from imports of goods and supplies from various countries to timely and reliable delivery of goods to customers – many companies are tapping into product reserves and are looking to secure additional sources for inventory supplies. In some cases, businesses are looking to bring operation home and closer to their domestic market in order to minimise interruptions by sourcing/producing locally. This could be a longer-term effect of the pandemic. This will have tax consequences.
Businesses leaders are faced with slow payment cycles and might be forced to create necessity policies on ‘’who gets paid first’’. In addition to slow payment cycles, business development and sales teams are facing increased difficult in maintaining a robust pipeline, while customer care agents try to enhance sales and service to customers. As economic forecasts are pessimistic, multinational companies are faced with issues like these which will have a long-term impact on the focus and priorities of C-suite officers and owners, forcing them to rethink their international business model and consequently, their international tax strategy.
The coronavirus pandemic has started a revolution on how multinational entities will strategically approach their business model going forward as they deal with day-to-day operations. This crisis has forced businesses to adapt in how they operate, manage their work force, adhere to governmental mandates, and react to customer and employee needs. We expect the world to look different post COVID-19 and while the short-term outlook might be gloomy, history shows markets and society can not only recover after a crisis, it comes back stronger.