Tensoft has been located in Silicon Valley for many years, and over time I have observed the development of this hub of technology companies. Despite growing costs, Silicon Valley has remained the central location for high tech for many reasons, including the mobility of information, funding, support systems, people, and culture. However, for a variety of reasons including higher costs, dispersed markets, and world-wide talent availability, many technology companies are multi-national operations for their early inception. Silicon Valley is now home to one of the most densely populated areas of multinational companies in the world – part of the standard recipe in the technology center of the world.
Multinational companies face additional challenges for business strategy execution and for business systems. Tensoft has deep experience in supporting the business system needs for multinational organizations from several perspectives. Financial systems architecture is often the first area to be addressed and the first significant pain point. Business process integration and integration of go-to-market models often follow, along with a review of required support systems to help scale your business. Finally, tax strategies implemented at the point that the multinational organization requires optimization due either to the consumption of cumulative net operating losses or based on the changing dynamics of your end markets.
Many multinationals have worldwide cost centers. If the cost center is small or the local market knowledge is not part of the financial team, the local accounting is often outsourced. This has its own challenges, especially if the local entity accounting is done outside of your core ERP solution. Growth and funding/cash management requirements with multiple legal entities put pressure on the transfers between these organizational units. The monthly close process requires review, revaluation, and elimination transactions in the proper order and efficiently. When you add in revenue complexity with more than one revenue center or cost of goods center in the mix the level of financial complexity can grow quickly. Analysis of your requirements is helped by organizing line items into three groups for local entity, inter-entity, and consolidation requirements. You are balancing the needs of the company as a whole with the needs of the individual localities – an area where it is very helpful to state explicitly the separation of functional and system responsibilities.
As a multinational company grows, business process integration across legal entities often moves to the forefront. The business processes can involve shared SKUs, Orders, Customers, or customer delivery / execution management requirements. Shared business processes need to exist in the appropriate system (front office, back office, or extended enterprise or portal) and often need to cross organizational boundaries for high level effectiveness. Multinationals also face issues around having teams in different locations and time zones. In order to operate and present as a unified company, shared resources and document management are essential and this becomes more difficult when your people are all around the world. Here at Tensoft, we’ve had to deal with this ourselves, and have found working solutions to coordinate our teams and partners across the globe. When there are multiple steps to achieve business goals that involve crossing boundaries, managing this process becomes very difficult without the right strategy.
With the addition of more complex business processes organization-wide, financial architecture often needs to be reviewed. Company-wide budgets in different countries and currencies need to be managed in a systematic and organizationally consistent process. Inter-company transactions become more complex and important, including their revaluation and elimination. Movement of resources and capital, pressure to shorten close cycles, more advanced currency reevaluation and eliminations all press the financial architecture to a new level.
Local entity requirements, inter-entity transactions, and consolidations create complex financial needs for affected companies. The majority of the core financial reporting needs revolve around those three things to turn individual numbers into one set of data. Companies must also take currency conversion into account, as well as corporate and regional accounts. Without a thorough understanding of these transactions and processes, multinational companies will struggle with their financials.
When a multinational executes their go-to-market model, they must understand their customers and where they are located. A Silicon Valley company that sells to U.S. customers may actually need to support those customers’ contract manufacturing sites in China, so it may make more sense for them to keep their inventory in China even though they are selling their product in the US. Some companies might need to plan for quick response delivery or account for vendor managed inventory, or they might need to set up distribution hubs or regional storage locations designed to get shipments quickly to customers (customs cleared inventory) so that they have inventory available for rapid delivery. At the same time, most multinationals require complex tax strategies to optimize their own profitability and to stay competitive with their peers. These strategies can be very intricate, further complicating multinational operations. Thinking through the system and organizational requirements to complement the business requirements brings substantial benefit.
Because companies have so much to consider when converting to a multinational business model, they often seek help from people who have extensive knowledge in the process and can help meet their needs. Here at Tensoft, most of our customers are multinational, so we have many years of experience helping them manage the complexities of doing business internationally. Having been around multinational tech companies for so long, we’ve also designed our products to support these environments and have helped many companies grow around multinational models and design their financial systems for future growth.
My advice to companies is to plan early for growth and extension or change in your multinational business model. This is the only way to avoid a difficult switch when the time comes to expand and go abroad. Whatever the size of your company, it is never too early to be proactive in becoming multinational.
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