Investing Globally? Arm Yourself With the Best Data and Strategy
International investing is both an art and a science. Whether it is in on-the-ground operations or as a part of an investment portfolio, investing requires careful planning before, during, and after a transaction. Before taking the leap, or even if your company already has, the board can take the following three steps to help mitigate major risks.
1. Consult many data sources. Each company has a unique culture, history, strategy, and risk appetite. Learn from, but also be prepared to discount, the positive and negative experiences that another company has had in a particular region or country. There is no substitute for doing your own homework, and you will want to ensure you have compiled all the information required to make prudent investment decisions. Know the best data sources, as well as the shortcomings of each, and how to compensate for blind spots.
Assemble information from as many sources as possible. On the most general level, there are easily accessible and highly reliable global sources of business, economic, and investing information that include The Wall Street Journal, The Financial Times, and The Economist.
To compare the pros and cons of investing in specific countries, check the country ratings offered by financial services companies such as Moody’s and Standard & Poor’s. Also consider standard, easy-tocompare economic measures such as gross domestic product and consumer price indices. But be careful, when adding data to the mix for decision making, not to take any one source as the gospel. When evaluating a country’s risk scorecard, you can safely assume that no single measure evaluates every possible risk. Instead, look for trends across different sources of information.
2. Devise the right tax strategy. Your business strategy must inform your tax strategy. That is, your tax strategy should not be an afterthought, but should work handin- glove with your business strategy from the earliest planning stages. And your tax strategy needs to be flexible enough to accommodate the ongoing fluctuations you should expect when operating internationally, combined with the steady predictability and sustainability necessary to meet the daily demands of the business.
Building the right tax framework is not a once-and-done proposition; it must constantly change like your business strategy, and needs to be revisited and revised accordingly on a regular basis to fit future plans, not just current realities.
How often will your tax strategy require revising? That depends on shifts in your corporate strategy, but most companies revisit their tax strategy every three to five years, sooner if there are significant changes planned for the business. For example, those changes might include plans to enter new markets, major changes in tax regulations, or an international merger or acquisition. All have significant implications for taxes, and should trigger plans to assess and perhaps update your tax strategy for maximum benefit and protection.
3. Don’t go it alone. Major investments and major risks necessitate accessing the most capable expertise available. The best international tax strategy, for example, is only as good as your ability to execute it in every international geography in which you operate. A seemingly straightforward overall strategy becomes more complex when you overlay the banking, legal, and political requirements and implications for each individual international jurisdiction.
Things can look very different at 10,000 feet than they do on the ground. Knowing how to decipher written and unwritten rules from customs—the way business actually gets done—can mean the difference between success and failure in a particular country.
Whatever your company’s international investment plan, make sure to build a network of relationships with local advisors who are fluent in all legal, business, and cultural requirements. You can’t be successful by adopting another company’s investment strategy; your strategy must be tailored to fit different parts of the world while meeting the unique needs of your company and its stakeholders.
Originally appeared in NACD's Directorship magazine September/October 2016 issue.