According to the Ethnologue Catalogue there are 7097 living languages across 195 countries. Business today is unquestionably global, both for businesses with international offices, but equally for domestic businesses selling overseas. Statutory requirements and cultural preference vary widely from nation to nation, presenting a complex landscape not only for the practice of conducting business, but also for global software systems.
On a weekly basis I meet with companies across Europe running multi-country, often multi-continental, operations. Time and time again I come across the same predicaments:
- Fragmented systems per country, held together by manual, Excel or Business Intelligence (BI) tool based consolidation processes. Consolidated reporting is thus infrequent and error prone.
- Cross subsidiary operational processes, e.g. hub and spoke distribution models or transfer pricing models, are difficult to manage/ get real-time visibility.
- High overhead costs are caused by the exclusive or partial use of external accounting companies in non-native subsidiaries.
- Cross subsidiary workflows are completed using off-system, unstructured methods, e.g. e-mail, Excel or un-integrated point solutions.
- Finance time is tied up in manual reconciliation processes, especially for inter-company accounting, leading to overtime or increased headcount.
If any of the above sound familiar, it is time to consider the true hidden costs associated with supporting an international business.
Targeting these costs now will allow the business to operate more efficiently, having notable impact on decision making strategies, improving top line revenue and reducing operating costs. Many of the above can be mitigated by selecting a global ERP system, but how can you ensure that a system marketing itself as “global”, really can support your business?
I offer explanation below, but in summary you should look to follow these headline points:
- Look for a system where all subsidiaries are in a single database.
- Make indirect taxation a priority.
- Look for strong evidence of localisation.
1) Look for a system where all subsidiaries are in a single database.
With all subsidiaries in a single database you are instantly presented with an aggregated view of your business. There is no need to wait for a monthly report, produced 5-10 days after period close to make a decision. There is no need to invest additional funds in tools to provide consolidated reporting. By selecting a system with a single database, the hidden costs of operating a multi-subsidiary, multi-company business can be drastically reduced. Manual processing time decreases in addition to lowering errors in inter-company transactions and processes. This improves the efficiency of centralised head office teams and makes establishing a shared service model an easier task.
2) Make indirect taxation your priority.
In most countries sales and purchase taxation is a fact of life for businesses and consumers. Within Europe things get even more complicated. Do the terms “Reverse Charge”, “Mini One Stop Shop” (MOSS), “Deductible” and “Non-Deductible” VAT or “EC Codes” cause confusion, headache or despair? Every sales invoice you raise, or purchase invoice you receive will have some indirect tax code against each line. Ensure you understand key facts in any system evaluation such as; how many tax codes are automatically available and in which countries? Who is responsible for keeping tax codes up to date? Does the system handle local VAT reporting requirements or do tax returns need to be completed off-system? Ensuring your system supports this easily, avoids a linear increase in manual effort as transaction volume or subsidiary count increases.
3) Look for evidence of localisation.
Localisation covers many topics from statutory reporting, to interface language, to local accounting standards, cultural preferences etc. I could write at length about what constitutes “localisation” but for this article I would suggest a focus on statutory reporting requirements. Management reporting is important for any business, but more important still are your statutory obligations in different countries. Submissions must often be in a particular file format, a specific document layout or reported on frequency defined by the state. In some cases, reports must be provided on request to be submitted within a short time-frame (e.g. on demand or within 48 hours).
Many businesses have increased costs because of the use of local accounting companies to produce statutory filings for them. Equally these companies are often used to translate the accounts of a particular subsidiary from an international standard e.g. IFRS, to a local accounting standard e.g. HGB (German GAAP). These costs can be mitigated by ensuring you understand the international reporting capability of any new ERP system. How many statutory reports are delivered ‘out of the box’? How many reports need to be configured during implementation? What emphasis is there on localisation from a product management perspective? Furthermore, consider whether the ERP system can maintain multiple chart of account structures, or report across multiple accounting standards.
Keeping in line with the individual statutory requirements of different countries is a tall order for ERP software suppliers. A single ERP system will never be completely localised for all global countries, but different providers provide different coverage. Ensure you understand how wide that coverage is and how other countries are supported in the regions not covered by the system.
You might be managing a growing international business, but how many hidden costs are affecting your bottom line? You might be a domestic business looking to establish international presence, but do your current systems stand ready to support you in this move? Make sure that your business is operating with systems capable to support the current and future international reach of your company. The results will be seen at the top line, bottom line and in your ability to make faster strategic decisions to grow your business further.