COVID-19 has brought a new level of complexity to businesses around the globe. As companies plunged into uncharted territory almost immediately, it has put at risk our safety and livelihoods.
All aspects of business have been affected by the crisis, from where and how goods are sourced to where they are purchased and sold to where work is done and how it gets done.
In order to ease the burden on businesses, governments have also injected billions into their economies. TMF Group, a leader in international business administration services, found 1,114 COVID related individual government support programs available to companies around the world. Multinational firms have many options for assistance, but it is difficult to process and manage such large volumes.
Many companies will expand internationally as the global economy recovers from the COVID-19 crisis. A recent survey of U.S. business leaders revealed that more than 36% said the experience had helped them to plan for international expansion. Complexity is another challenge for firms when they move abroad. Multinationals must be able to navigate the complex web of laws, processes and conventions that exist in every jurisdiction.
TMF Group published a report on global business complexity to help businesses navigate the complex and changing business environment. The Global Business Complexity Index ranks 77 countries based on their ease of doing business. TMF experts from each jurisdiction were interviewed in detail to determine the ranking. TMF conducted surveys in three areas: accounting, tax, rules and regulations, penalties and human resources.
Although the implications of COVID-19 on international trade and business rules are not clear, the report highlights the issues companies need to consider when considering foreign investments or distributing resources among global operations. Companies had to work hard before the pandemic to be able operate in a complex regulatory and financial environment.
While businesses must compete with local and global forces, they also need to succeed. Among the rapidly changing trends is the rapid growth of technology and the emphasis on cross-border compliance. Multinational corporations may find it costly to follow the rules of individual jurisdictions.
Indonesia was the most complex jurisdiction. The country’s large population, 260 million people, and its abundant natural resources are attractive to businesses. However, there are many barriers to doing business in the country. TMF Group discovered that the greatest obstacles to foreign ownership are restrictive laws protecting workers and limiting foreign ownership. However, the government is making efforts to liberalize its economy. This includes deregulation and tax incentives to invest in special economic areas.
South America is home to five of the ten most complicated countries in the world: Brazil, Argentina and Bolivia. Brazil, for example, has many tax systems that span federal, state and municipal levels of government. There are also different rules for local and international companies. Furthermore, Brazil’s employment laws can favor employees over employers.
The United States is at the opposite end of the spectrum, and it’s the most complex business environment for multinationals. TMF Group has highlighted some key factors that make the U.S. business friendly.
- The rules and regulations are clearly stated and publicly accessible. They can be subject to change or strict inspections. The assumption that all companies comply with the rules is the basis of the U.S. economy.
- Financial statements audits are not required for publicly traded companies. This is in contrast to China and other large economies that still place heavy administrative burdens on multinationals to ensure compliance.
- It streamlines tax and accounting administration and makes it easy to hire and fire employees.
Also, offshore financial centers like Curacao, Cayman Islands and British Virgin Islands did well. They are becoming more complex for businesses as they respond to public pressure to enact stricter regulations and supervision in tax transparency, money laundering and beneficial ownership.
The Netherlands and Ireland are attractive destinations for foreign investments in Europe.
TMF Group concluded that global perspective, international alignment of laws and regulations and the increasing use of technology have led to greater synergy within international business. Multinational companies find it easier to navigate complex jurisdictions because of these factors.
It is important to note that countries that wish to attract foreign investment or create business-friendly environments must find the right balance among three broad trends.
Internationalism Vs. Localism
There are huge commercial opportunities for expanding operations in new areas around the globe. International business is being welcomed by governments. They are improving their processes and offering incentives to assist them in integrating into local economies. There are many jurisdictions that have had different success in creating an environment conducive to foreign direct investment.
Modernization Vs. Tradition
Modernization, in general, is about adhering to international standards and practices. Tradition is represented by localized obstacles to smooth operation. Many traditions are held by governments, regardless of whether they are laws or standard practices. These traditions can make it difficult for companies to operate.
They can add complexity to businesses because they are often out-of-date and don’t fit in the modern world.
They can be a source of idiosyncrasies that may increase the cost of complying with legislation.
Technology Vs. Simplification
A new jurisdiction must adopt new technology in order to be attractive to international businesses. This can cause a spike in complexity because jurisdictions have to adjust to digitalized systems and bridge the gap between online and paper solutions.
To be able to compete in the global economy, businesses increasingly rely on technology. Information and communication technology has been used by the least complex jurisdictions to improve their compliance mechanisms, making it easier to set up and operate a business. Technology, modernization, simplification, and unification are the key drivers to get the global economy rebounding from the pandemic. This will allow businesses to respond to market complexity more effectively.
