United States: The Challenge When Looking Beyond Domestic Borders

Last Updated: June 13 2016
Article by Henry Reynolds

The complexity and speed of change US companies face when doing business overseas is nothing short of exceptional. But there is a cost effective solution to managing the accounting and tax challenges of global expansion.

In an increasingly global marketplace, US companies exploring international markets can be handsomely rewarded.  The world at large offers a wealth of opportunities to sell or source products across a market comprising more than seven billion people.

Valuable potential to be rewarded

Importantly, looking beyond domestic borders can be the driver that sees US companies fast-track their way to growth, with benefits spanning several core goals:

  • Diversity – Overseas expansion can shelter US companies against downturns in the domestic economy. This has been especially valuable in a Presidential election year when consumers, investors and businesses tend to maintain a wait-and-see holding pattern for spending and investment decisions.
  • Security – Multinational companies (MNCs) don't just hail from North America. The US economy itself is a target market for many global businesses. Instead of competing against the world on home turf it can make sense to compete on a global playing field.
  • Cost savings – Some US firms are drawn to global expansion by the need to grow markets. For others it's all about the potential to cut costs. That said, in an interconnected world, maintaining cost competitiveness is no longer a domestic challenge – it is a global problem.

40% of MNC sales can come from overseas

No matter what the reasons behind international expansion, the reality is that the commercial marketplace is increasingly becoming globalised, and at an escalating pace. The bottom line is that few, if any, North American businesses with long term plans can afford to disregard the opportunities that lie beyond the domestic market.

In fact, according to the US Chamber of Commerce overseas affiliates can account for about 40% of U.S. MNC's total sales. Many of America's largest companies earn more than half their revenue in this way.

Tackling the unknown calls for more than courage

For all the potential benefits, exploring overseas markets means tackling new sets of circumstances, unknown cultures, and more particularly, unfamiliar accounting and tax legislation.

It's not just a question of confronting the unknown – some of the world's most appealing markets from a commercial viewpoint can be among the most challenging from an accounting and tax perspective – and no two jurisdictions work in exactly the same way.

TMF Group's Global Benchmark Complexity Index found some of North America's nearest neighbours are among the most complex environments from a compliance perspective.

To the south of the US, Argentina ranks as the world's most complex jurisdiction. Indonesia ranks second with Colombia and UAE following closely behind in third and fourth positon respectively. China has increased its ranking by seven places in this year's study from 12th in 2015 to 5th position in 2016.

America's southern neighbour, Mexico, remains unchanged since 2015 in sixth place. The Mexican government has implemented a series of reforms that impact the telecommunications, energy, tax, financial, education and labour sectors, yet the underlying causes of complexity (bureaucracy and red tape) still exist. Although complex, the opportunity to make a savvy investment in Mexico exists and the jurisdiction is ranked within the top 10 most attractive countries for investors worldwide.

Lack of familiarity can elevate compliance risks

Faced with limited knowledge of local requirements in countries they want to operate in, US companies can face serious compliance headaches. Moreover, the burden of meeting local requirements while fulfilling home country requirements (for example US GAAP reporting) can be especially challenging. All too often we see US companies with a desire to 'get it right' but a mandate that encourages a quick fix solution.

Nonetheless there is a strategy that allows US MNCs to have the best of both worlds. The answer lies in partnering with a trusted provider, who can take care of all in-country details quickly and efficiently, while facilitating reporting in your home country.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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