The report is the latest instalment of our Vistra 2030 research series. Originally published in 2010 under the name Vistra 2020, the series examines evolving client demands placed on the fund and corporate services industry.
This year’s 2030 survey of over 600 professionals reveals that, far from turning their backs on global opportunities, multinational organisations are redesigning their supply chains and looking to promote efficiencies, while investors and wealthy individuals are diversifying their assets and looking for growth in new areas.
We asked three Vistra experts to explore the challenges and opportunities of operating across borders in this new era of globalisation.
Saul Howerton leads Vistra’s global people advisory services, guiding businesses through their international growth plans and helping them navigate the complexities of cross-border operations. He’s based in Boston.
Miguel Latorre is the managing director, Indonesia and Malaysia, and head of commercial corporates, Southeast Asia at Vistra. He is responsible for leading and managing the overall business operations and commercial strategies for Vistra in the region.
Tom Lickess is Vistra’s global head of international tax advisory. Based in the UK, he advises businesses on all aspects of corporate international and indirect taxes across their global entities and supply chains.
What are the hallmarks of the new globalisation, and what are the implications of these shifts on cross-border operations?
Saul: We have seen a shift of supply chains to different countries as businesses seek to stabilise or limit exposure in certain geographies. Whether due to geopolitical uncertainty or access to raw materials, businesses are reshaping the way they deliver goods and services. New jurisdictions are also emerging as desirable locations for international operations. India is attracting more and more foreign direct investment, for example.
Tom: I agree that we're seeing businesses reducing risk around global supply chains. Organisations still need international supply chains, but they are not accepting that they have only one option. They’re diversifying, perhaps reshoring or future-proofing their operations, not relying on one country, region or party.
40 percent of our survey respondents said they’re confident about the ease of doing cross-border business. What challenges are businesses facing, and how can these be overcome?
Miguel: The way businesses operate across borders and within jurisdictions has changed significantly in recent years. One notable change has been the adoption of new practices and technologies, such as remote working and digital communication tools. And uncertainty and risk for cross-border businesses have led to some companies taking a more cautious approach to international expansion.
Saul: There’s no doubt that recent disruptions have reduced business confidence since our 2018 survey. But confidence has been steadily rising since the height of the pandemic, which is very promising. While some local economies and specific industries were impacted more than others during the pandemic, globally we’ve recovered well, and I think this is in no small part thanks to cross-border dependencies and opportunities.
Tom: One area that’s changing is intellectual property rights, where we’re seeing a lot of consolidation. The former popularity, for example, of bifurcating IP so you'd have legal ownership in the US but beneficial ownership elsewhere is, due to tax reforms, reducing. We’re seeing a reshoring of IP back to the US, which from a tax perspective has an impact. On a more operational level, there are continued enhanced global tax documentation requirements around transfer pricing, which has challenged organisations with intergroup cross-border supply chains.
Could regulation become so divergent that engaging in cross-border business becomes significantly more challenging than it is now?
Saul: There is always the possibility of a greater shift to country-specific regulations that promote domestic investment. But there are competing factors. The situation in Ukraine, for example, has united much of the world and reminded us of the value of a global approach to policy.
Tom: From a tax perspective, the concept of a simplifying regulation simply doesn’t exist in practice. There are going to be continued transparency and disclosure requirements and continuing regulations to comply with. For example, the OECD’s Pillar Two minimum global tax is being unilaterally rolled out, which is creating confusion and uncertainty. So, complexity is going to increase. Ease of doing business has improved operationally — for example, it’s easier to trade internationally from a purely operational perspective. But from a regulatory-requirements and reporting perspective, we are still pretty much where we were 30 years ago, which is to say in a complex environment.
Our survey shows that while cross-border challenges persist, businesses are not turning their backs on global opportunities. What’s your view on this?
Miguel: While cross-border challenges remain, that does not mean that businesses will turn their back on global opportunities. The pandemic has highlighted the need for businesses to be more resilient and agile in the face of disruption. And cross-border business can provide opportunities for businesses to diversify and reduce their dependence on any one market or region.
Saul: It would be a major misstep for companies to overlook cross-border opportunities. My view is that supply chain interconnectivity will continue to grow and that alignment on global regulation will increase. There may be bumps on the road, but the general direction towards greater international cooperation will continue, meaning that cross-border opportunities will retain their importance.
Tom: Globalisation is not going back. A big part of our business is US tech companies and US pharmaceutical companies. Those companies need to trade internationally, including to benefit from strong European markets and the continued growth of Asia. There are corporate tax and indirect tax implications, among other regulatory challenges, but l agree with Saul that cross-border expansion and operations will continue to be critical for many organisations.
Over half of our survey respondents expect ESG reporting requirements to become the global norm by 2027. What kinds of ESG support are clients asking for now, and what will they need to think about in the future?
Miguel: Clients are increasingly asking for support in areas such as sustainable investment strategies, responsible corporate governance, and improved environmental and social practices. In terms of ESG reporting requirements, clients are asking for help in meeting evolving regulatory requirements and generally adopting best practices in reporting and disclosure.
Saul: It’s worth adding that ESG regulations are largely still in development, and most organisations are only just beginning to consider and develop their ESG strategies. First, a business should determine its ESG goals and obligations (noting many guidelines are still voluntary), while also factoring in client and employee considerations. Companies should develop a timeline for meeting goals and agree on metrics for reporting ESG efforts, which will take additional policy development, training and budget.
Tom: In terms of tax, plastic packaging taxes are emerging in Europe, including the UK, with discussions still ongoing in the US. These taxes are adding to the push for better governance. Whereas 25 years ago, when I started in tax, tax was still the “black box” in the corner of the finance team. Given the continued growth in tax regulation and requirements, the push for corporates to pay their “fair share,” and for certainty as regards one of the largest costs of doing business internationally, tax strategy and tax reporting now form a core part of board reporting for many well governed corporate groups.
What are the most significant challenges to growing globally that businesses will face in the next 12 months?
Miguel: Talent acquisition and management will remain a significant challenge. Post-pandemic, many employees expressed a preference for remote or hybrid work, and this new work arrangement is in turn changing how people view the role of work in their lives and their work-life balance. This creates both challenges and opportunities for businesses looking to expand globally. For example, engaging workers across borders widens your talent pool but may introduce or heighten regulatory risks related to permanent establishment, labour laws and more.
Saul: Access to funding has become a growth-limiting factor for many venture-backed companies. And while the global economy generally remains strong, we are seeing certain sectors shrinking due to over-optimistic hiring through the pandemic. Identifying the right financial and people-related strategies can help open up future opportunities that will be key for businesses to grow over the next 12 months.
What opportunities do you see for greater cross-border trade and collaboration?
Tom: As I mentioned, globalisation is here to stay, including for both commercial and operational reasons, as well as pure economics. For example, US companies are increasingly looking towards the Philippines for outsourced service centres and other offshore operations. They offer tax holidays and incentives to locate within their special economic zones, and we're doing a lot of work in that regard. The US and European markets remain very wealthy, and there's still a lot of economic opportunity there.
Miguel: Digital services is one growth area that was hugely accelerated by the pandemic. There will be growing opportunities for cross-border collaboration and trade in areas like software development, digital marketing and cloud computing. We’re also seeing significant new opportunities in the push towards renewable energy sources like wind and solar.
For more information on the changing face of globalisation, and how businesses and investors are adapting, read our report Vistra 2030: Preparing for a new era of globalisation.
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