Sir Martin Sorrell – founder and executive chairman of S4 Capital – and Fred Watt – managing partner at CVC Capital Partners – recently sat down with TMF Group's CEO, Mark Weil, to discuss how they view the current global complexity issues they see when it comes to doing business around the world.
Back in early October, TMF Group broadcast a live event in London called the Global Business Complexity Index 2022 – Challenges & Trends: A UK perspective.
This live panel discussion featured: TMF Group's CEO, Mark Weil; founder of WPP and S4 Capital, Sir Martin Sorrell; and Fred Watt, managing partner of CVC Capital Partners.
Discussions at the event focused on global business complexity issues, including those resulting from world events such as the Covid-19 pandemic, and alignment in areas such as global corporate tax.
Compliance obligations and business complexity
Mark Weil kicked off the event by giving an overview of how TMF Group researches and collects data for its Global Business Complexity Index (GBCI) – an annual report that TMF Group have published for nine years.
"What we're looking at are the rules and requirements to invest and to operate. We look at 292 factors in 77 jurisdictions. For those geographers, you'll know there's 220 jurisdictions in the world in total. Those 77 represent something like 90% of GDP, 95% of FDI net inflow. It covers most of the places that you're likely to invest or operate in at any scale."
With all the data collected from the GBCI report, TMF Group produces a ranking which lists each jurisdiction in relation to how difficult or simple it is to do business there, from a regulatory and compliance perspective. Rules and regulations across three key areas of operation inform this ranking: accounting and tax, HR and payroll, and entity management.
Different perspectives on business complexity
While the analysis from TMF Group's GBCI report focuses heavily on the administrative and legal aspects of setting up a business, there are other factors that businesses and investors take into consideration. Like risk, for example.
Sir Martin Sorrell and Fred Watt are no strangers to running global businesses. It was interesting to learn what they consider to be the sticking points when entering a new jurisdiction.
At its peak, Martin's company WPP was present in more than a hundred countries. Entering into new territories to do business is something Martin has done repeatedly, not to mention very successfully over the years.
"The word complexity to me is what's the cultural business complexity. In my register, South Korea would be the toughest. Japan would be the next, and then France would follow. And then the legal structure."
The view from private equity
Adding to Martin's perspective of business complexity, and looking at the issue through a private equity lens, Fred Watt gave his thoughts on what he looks for when eyeing up where to do business:
"Complexity does influence the investment decision. And not just the administration burden, because we can probably deal with that. If it's just more paperwork, more filing, more time that it takes to get things done - we build that into the thinking of the investment."
"That bit we get and can understand, and can probably put a price on that in terms of doing business in that country."
He explained that there are two critical areas his company looks at when viewing a business investment from a complexity stance. And risk is very much a factor.
"We look for a certain minimum return for our investors, and that's our promise to them that we're aiming for that minimum."
He continued: "But, by country, we think of two particular risks. Firstly, the geopolitical risks of a country, in terms of how likely is it that the rules can change around that political environment. And, secondly, currency. If we're investing in what's historically a highly volatile country – currency wise - we need to build that into our expectations of return as well."
"To get the net return given that these two risks have to be paid for and taken into account. We've always looked for higher returns in countries perceived to have higher geopolitical risk and higher currency risks."
A changing global business landscape
Martin believes that the business landscape has changed considerably over the past 40 years – and will continue to do so in the future, meaning that international expansion will have to be more considered and better targeted.
"I think the world has changed significantly," Martin said. "When I think back to WPP, we were in 113 countries. S4 Capital is in 32. It used to be 33, but we pulled out of Russia. I don't think there's any chance that we would go back to 113. And that's half of the coverage."
"Any multinational company, now, is facing a very different era. Complexity is really interesting now. The game is totally different. The people that are going to win are the ones who are selective - not all embracing."
Complexity impact varies by business
Mark Weil brought the attention back to the fact that there's no getting away from the nuts and bolts of satisfying legal obligations when setting up in a new market. He also pointed out that while this administrative burden might be more manageable for organisations with the means to outsource these aspects, smaller outfits might feel the heat more acutely.
He said: "We tend to serve the larger organisations who can say "go sort it" and we'll sort it. But if you're a smaller business, that's where I say complexity does bite."
"But if you don't have the resources, it can feel pretty daunting. And, of course, there are government export agents. There are bodies that try and help. But when you layer on top both the administrative complexity and then market access, and the expropriation risk – there's a lot there to think about."
"All we're doing is looking at objective facts on if I need to file this or do that - how long does it take? How much work is required? What are the costs of doing things?"
Tackling business complexity
Navigating the complexity issues of doing business around the world is a complex task in itself. There are many variables to consider when setting up and operating a cross-border business.
If you would like to discover more about TMF Group's Global Business Complexity Index 2022, you can download a FREE copy of the report here.
And if you would like to watch a replay of the live broadcast, for a more in-depth discussion of global business complexity, you can do so by clicking here or streaming the video below.
Panel discussion: Global Business Complexity – challenges and trends
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