“Bumpy roads around the globe (2nd of 2 parts)” by J. Carlitos G. Cruz (March 12, 2012)

SUITS THE C-SUITE By J Carlitos G. Cruz
Business World (03/12/2012)

(Second of two parts)

In last week’s article, we talked about how globalization has led to great advances in business and social development, while also increasing the impact of shared risks across the world. The 2011 Ernst & Young Globalization Report highlights four significant global challenges to business and suggests some steps that companies may take to mitigate, or even overcome, these challenges. We talked about two of these four significant points in last week’s article: how succeeding in rapid-growth markets is now harder than before; and the fact that global companies will have to tailor-fit themselves to local conditions. This piece discusses the two other global challenges.

POLICY HAS BECOME MORE IMPORTANT YET LESS PREDICTABLE

More and more, policy is becoming a local affair, with many countries struggling to compensate for the damage caused by the recent global crises, and the ongoing issues in the euro zone, the Middle East and the USA.

Faced with the need to balance accountability with transparency and attracting investments while implementing painful policies to promote fiscal health, local governments may be tempted to enact measures such as trade barriers and raise tariffs to protect their domestic economies. Fortunately, this possible slide towards protectionism has been slow — but this may change if the global economy continues to weaken, particularly if a double-dip recession occurs. Already, some measures being implemented are having protectionist consequences, such as the recent Foreign Account Tax Compliance Act (FATCA) in the US, which requires US citizens and residents, and even foreign financial institutions, to report all substantial foreign assets and investments, or face severe penalties.

Given this somewhat bleak prospect, companies should take proactive steps to build stronger relationships with governments and communities. While not really a solution to the threat of protectionism, engaging with governments and trade departments can help all stakeholders find a middle road. Often, governments may need to be reminded that globalization actually creates jobs domestically, while enhancing the living standards of people in many countries.

Another way would be to “partner” with governments on infrastructure, education, health and other developmental projects, through programs such as the government’s Public-Private Partnership program. By supporting local development, companies can generate increased goodwill by building rapport with local administrations which can, in turn, open the door to better talks on policy changes, while at the same time building market share through greater consumer awareness and acceptance.

Differing tax policies in different markets also pose a challenge to a global company’s overall tax strategy. Compounded with fast-moving changes that are taking place in the global tax environment, keeping pace with compliance requirements can be even more daunting. This makes it crucial for companies to combine local knowledge, often gained through outsourcing arrangements, with global coordination capabilities to ensure that local regulations can be aligned to global strategy, operations and tax positions. It becomes imperative that companies maintain transparent channels of communication with local tax administrations, and ensure that documentation is easily accessible in the event of a tax dispute.

GOOD PEOPLE ARE HARD TO FIND

And it will get harder as time goes by. This, perhaps, is potentially the most critical long-term challenge the global economy is facing. Simply put, matching skilled professional with available positions is becoming scarcer.

How then can companies take bold steps to manage talent? The report suggests that one way is for companies to put the best talents into the most promising markets, rather than retaining them at home. Given the importance of rapid-growth markets, it makes sense for companies to send their “best-in-class” people to manage their offices there, particularly because things change so quickly and competition is more intense.

Good leaders can also “future-proof” talent in these markets, using their skills and authority to build a talent pool that can grow with the market. Companies should also promote managers according to the rapid pace of emerging markets, choosing and supporting people with the intelligence and the potential to grow into their positions, rather than waiting for them to “mature” before moving them up. Similarly, in rapid-growth markets, employee turnover can be significant — up to 20% in some. Companies need to position themselves more as an attractive employer, with strong career opportunities for the talented and motivated. By investing heavily in training and promoting internally as much as possible, companies can create loyalty and retain people who understand their business.

Companies should also consider changing their expatriate model to strengthen global talent management. People sent to rapid-growth markets may fear that their careers may be stalled careers, or that they lose visibility with company leaders; it is important to ensure that these people retain access to top management wherever they are sent. The concept of being an expatriate should also reflect the change in times — it’s not always a movement of West to East, but should also encompass managers from rapid-growth markets being seconded to developed markets for exposure and experience. By doing so, companies can develop a strong pipeline of talent that runs in both directions.

In my own view, managing existing talent is important, but investing in developing the right talent is equally vital. Earlier, we talked about building rapport with communities, and one of these should be in the field of education. Global companies have a better idea of the kind of talent and skills they will need to be competitive in the world market; it would therefore make sense for them to communicate these needs to educational institutions and governmental bodies which can guide tomorrow’s professionals in the right direction.

By providing scholarships, advice on industry developments, dialoguing with students on future options and even investing in the right programs and disciplines, companies may be able to reduce the talent gap in the future.

Companies that see education as one of the pillars of their Corporate Social Responsibility efforts (much like how we support scholarships and institutional educational development through our SGV Foundation) will not only have an edge in the future race for talent, but they will also gain the satisfaction of knowing that they were instrumental in narrowing the talent gap for their respective industries and countries.

Because the true lesson of globalization is not just that we’re all connected geographically, electronically and economically, but that we’re also connected chronologically. If events in distant parts of the world can affect our local economy, so too can the decisions we make today shake, change — and perhaps transform — the world in the future. His is the very essence of stewardship that our firm has espoused for more than 65 years now.

J. Carlitos G. Cruz is the deputy managing partner and assurance head of SGV & Co.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.