Why organisations are optimising to compete

19 April 2023
Businesses and investors everywhere are facing significant economic and geopolitical headwinds. Russia’s invasion of Ukraine has helped fuel inflation and interest rate rises and led to soaring energy costs. Meanwhile, wide-sweeping digital transformation, trade wars, remote and hybrid working, and other emerging trends are accelerating change across the global economy. On top of these disruptions, the era of cheap borrowing is over and businesses and investors must find new ways to fund growth.

Corporate, capital markets, private wealth and fund market participants recognise that macroeconomic and geopolitical trends are outside their control. But they can take a proactive risk-mitigation approach to create operational and fiscal efficiencies to better position themselves to overcome new and emerging challenges and seize opportunities.
For many firms, this means reviewing and refining their operations, policies and practices. Businesses, family offices and other entities are rethinking and optimising a wide array of functional areas, from talent-retention practices to supply chain management to fund administration. This holistic approach to optimisation helps ensure that firms operate effectively in our challenging, fast-evolving global economy.

Overhauling outdated perceptions

Our latest Vistra 2030 report looks at businesses’ and investors’ evolving requirements for the fund and corporate services industry. The report draws conclusions from recent survey responses from over 600 professionals worldwide. It also puts recent data in the context of over 3,000 survey results from the life of the research series.

This year’s report reveals that perceptions about the industry are changing. Tax- and privacy-related services now play a more complementary role in the industry’s overall offering. Traditional tax planning is identified as a driver of growth by just 4 percent of professionals surveyed, compared with 12 percent in the 2020 survey. Back in 2010, when the research series began under the name of Vistra 2020, tax was considered the primary driver of growth by survey respondents.

Today, growth in the fund industry is identified as the top driver of expansion in the next 12 months. This is followed by increased M&A activity (rising from the seventh to the second spot) and asset protection, which topped the list in 2020 and now ranks third.

Given these perceived growth drivers and a rapidly changing global economy, businesses, investment firms, family offices and other organisations are looking beyond tax for a wide range of services. These include services related to M&A, cross-border compliance, corporate governance and more.

Optimisation considerations

As the global economy evolves, businesses and investors must adapt in sometimes unforeseen ways. The rise of cross-border remote work, for example, has for many organisations introduced or significantly increased compliance risks related to permanent establishment, immigration and labour laws.

There are other challenges beyond compliance. In our most recent survey, half of respondents believe geopolitical upheaval will be a drag on growth over the next 12 months, up from 31 percent in 2018, when we last asked the question.

Compliance and geopolitical trends are largely out of the control of businesses and investors. To gain efficiencies, multinational firms are more and more focused on what they can influence. Here are just a few examples of areas organisations are optimising with the help of fund and corporate services providers.

Human resources

For most organisations, labour expenses are the biggest business overhead, comprising salaries and other financial rewards, employee benefits, social security taxes and more. Managing a global workforce can be costly and challenging, but it’s often an area ripe for optimisation. Efficiencies can be found through reviews of employee handbooks and other key policies, as well as in recruitment, compensation and benefits management, termination practices and more.

Supply chains

For multinational organisations, supply chain management is both critical and complex. And this complexity has increased since the onset of Covid and recent geopolitical tensions and trade wars. Taking a detailed look at the many regulatory areas related to supply chains is more important than ever. Some areas of consideration include vendor contracts and controls, indirect tax and country-by-country reporting obligations, and immigration policies and practices related to supply chain maintenance.

Global mobility 

The rise of cross-border remote work, coupled with a general trend towards stricter immigration controls, means that managing employee global mobility has become riskier and more difficult. Areas to audit when looking to create efficiencies include global mobility and tax equalisation policies, visa sponsorships and work permits.

Corporate governance 

Corporate governance is becoming an increasingly important part of corporate strategies as firms look to minimise risk, promote regulatory compliance and avoid reputational damage. Corporate governance is an essential tool in the management and growth of companies and will continue to grow in importance as investor and regulator demands for transparency increase. Areas for review when optimising corporate governance include corporate governance frameworks and relevant adopted codes, annual compliance obligations for each office, and registered office and company secretary locations.

Optimising to win

Our recent survey results show that despite geopolitical headwinds and other challenges, slightly over half of our respondents are confident about their organisation’s growth prospects. That number is up from the 38 percent of survey respondents in 2020 (in the early days of the pandemic), but still below the 78 percent of 2018’s survey.

This cautious optimism indicates many businesses and investors see opportunity amid rising interest rates, shifting supply chains and falling valuations. As a partner at a law firm observed during one of our recent 2030 interviews: “Volatility creates activity. There's lots of M&A activity, lots of pivoting. And the world is just awash with money, there's no shortage of that. It's just a question of: Where is it leaving? And where is it going?”

The most competitive organisations will shore up their operational structures, tax positions, and policies and practices across all functional areas. This kind of holistic optimisation will leave them better equipped to respond to opportunities and shifting economic pressures and regulatory demands.

For more on organisational optimisation and how businesses and investors are adapting to a new era of globalisation, download the Vistra 2030 report.