5 Pillars of an Efficient Corporate Structure for doing International Business
The
Structure of a group of companies having international business, plays a very
important role in sustainability of the group. In other words an efficient
corporate structure is the key to success in the International business
environment.
In
this document, we will be discussing about how an efficient corporate structure
can be made and what are the key ingredients required for sustainable growth.
We
consider that there are 5 pillars for an enterprise to sustain in the world
market. These are the main factors for Large Multinational Companies to be able
to ingress into global market and survive the competition.
Most of these large
companies have created a sustainable corporate structure surrounding their
business in order to plan and develop their business.
1.
Market accessibility
2.
Capital accessibility
3.
Logistics
4.
Skilled Man power
5.
Tax efficiency
Market Accessibility
While
structuring an enterprise, market accessibility plays a very important role.
Without proper study about the market of interest and its accessibility, the
enterprise may falter at the very outset. Market accessibility is a dynamic
terminology. With the world becoming more and more accessible, there are
considerable growth opportunities for an enterprise. Asian and South American markets becoming
more open to the European and North American entrepreneurs.
Evaluation
in terms of openness to Foreign Investors, Ease of capital inflows & outflows, operational efficiency and stability of economic policies are vital
in determining market accessibility. Consequently, some international markets
may be perceived as more accessible than others. Therefore, proper
understanding of local market regulations and an efficient penetration strategy
can help guide through the local bureaucratic challenges.
Most
governments have taken certain steps to support SMEs. Studies have demonstrated
that, the competitiveness of a company has a direct relationship with
internationalisation of the economy too. The European Union has made a separate
division to support the SMEs to gain accessibility to the markets in other
nations.
As
a corporate, it is prudent to evaluate the product acceptance in the other
markets and adapt the local market requirements. The market accessibility has a
direct dependence upon the localisation of a product. Once the product are made
according to the local tastes and flavours, a blending into the market becomes
convenient and a route can be established to penetrate.
Capital accessibility
One
of the primary pillars of an efficient corporate structure is to have access to
the capital market. The capital market can be an organized capital market. The capital
accessibility plays an important role in sustaining though the lean period and
also during growth period.
Large
companies generally do not need capital sourcing except for capturing a large
chunk of other markets by adopting inorganic growth and/ or accessing cheaper
cost of capital.
The
cost of accessing capital again plays a very important role. The locations
where the high cost of capital is available, the costs of serving capital
impacts growth of the company. The reason is most of the income is diverted
towards serving the cost of raising capital and serving capital and less money
is available for reinvestment. On contrary a low cost of capital helps the
company/group to reinvest the business earnings into the growth of the company/
group
It
is seen that in a large consumer markets, the cost of capital is generally
higher compared with the niche consumer markets.
Further,
there is biasness in the availability of the capital.
While
sourcing capital from outside own territory, the risks like foreign exchange
risk, repatriation risks do play an important role apart from accessing cheap
capital.
Logistics
Again,
Logistics plays an important role in defining an efficient corporate structure.
Most of the manufacturing companies and or service sector companies are heavily
dependent upon the Logistics. An inefficient logistics model becomes a true
challenge in order to serve the customers while an efficient logistics system drives
business on its growth trajectory.
Under
current globalisation, a world class logistics network and high speed transport
systems helps the manufacturers to set up manufacturing facilities anywhere in the world to cater to the
market needs.
Taking
examples from Apple or IKEA where the manufacturing happens halfway across the
world to support worldwide markets shows the ease at which large corporates, access the world markets.
It is difficult for SMEs to adapt to such situations
though the market explorations will enable the SMEs to grow into large business houses. For this reason, SMEs are dependent upon
Government regulations and support.
Tax efficiency
Tax
planning plays a very important role in the Corporate Structure. Even though
many big multinationals do plan their taxes, there is a considerable amount of
scope for efficient planning.
The planning of taxation is not the only factor
involved, it also requires regulatory blessings by way of transfer pricing, advance ruling mechanisms and continuous monitoring of taxation policy
within the organization. An efficient tax planning keeps the organization’s
profitability higher and an improve wealth to the stakeholders.
A
growth oriented organization should also give equal importance to the tax
planning and management as there is a direct impact on the liquidity of the
organization. Every Euro saved in tax has a direct impact on the
earnings of the organization.
Tax
efficiency also plays a very important role in capital sourcing and planning.
These two points i.e. capital sourcing and tax efficiency go hand in hand
because an inefficient way of raising capital can lead to high cost of capital
and in turn leads to a heavy baggage for the organization.
Man power accessibility
Last
but not the least Man power accessibility and its optimization play a very
crucial role for an efficient and sustainable corporation. For growth of the organization, skill
development is an important program which corporates should carry out and seek
for.
A skill development program can be created wherein the accessibility to the
labour market is feasible. There is a huge gap between availability of man
power and availability of Right man power. Identifying the right man power is
the key to success.
An
enterprise having no access to the right man power is equivalent to a drunken
sloth resulting in a heavy drag, especially for growth of the organization.
Conclusion
The 5 pillars discussed above are only
indicative of some of important points for an organization to structure
efficiently. Accessing all the 5 is difficult even though optimising all the 5
may be an efficient way for structuring an organization and its growth.
Author:
Srinath Parankusam
Partner
Siri Advisory
About Siri Advisory:
Siri Advisory is
a boutique consulting firm located in Amsterdam, one of the financial capitals
of Europe. Siri Advisory advises on Strategic consulting especially in
Structuring and restructuring organizations, Corporate finance and Tax and
compliance management. Siri Advisory is also present in India as Siri advisory
and management consultants’ private limited in Hyderabad city.
