1. Engage with policy-makers to make the right decisions.
Faced with a potential uptick in protectionism, many business leaders may conclude that the issue is out of their hands. Only 15% of companies say they are fully prepared for an increase in protectionism and have factored it into their strategic plans. This suggests that most simply hope that they will not be affected.
Companies can take action to deal with protectionism. Firstly, business leaders should engage with governments and trade departments to prevent counterproductive measures.
"Often, government officials do not understand that globalization is a creator of jobs and that it actually enhances living standards of people in many different countries," says Daniel Brutto, President of the logistics firm UPS International. "We have to get government officials outside of their own environments to understand that the more we can increase trade around the world, the more high-end jobs we can create in the domestic market."
The second action is to correct misinformation among consumers.
"If you ask most Americans what percentage of US personal consumption expenditure is accounted for by expenditures and products officially made in China, you typically end up with estimates more than 10 times as high as the reality," explains Ghemawat.
"In a climate where the information is so clearly erroneous, and often so biased against globalization, there is considerable value in disseminating information that corrects these assumptions."
A third action is to work in partnership with governments on infrastructure, education or other development projects, thereby building rapport and gaining the clout to initiate effective dialogues on policy issues.
Wim Elfrink, Chief Globalization Officer at Cisco, points out that businesses must "play holistically" if they want to participate successfully in a market: "It is not just about selling products. You also have to develop government relations, build relevance and ensure that the investments are socially responsible."
2. Combine local knowledge with global coordination.
Fast-changing local policy can have a dramatic impact on the profitability and prospects for a cross-border investment. The global tax environment, for example, has never been so dynamic.
According to our 2011-12 Tax risk and controversy survey, 78% of the world's largest companies (with revenues of US$5b or more) say they are already experiencing greater risk or uncertainty around legislation, and this figure increases for those in rapid-growth markets.
Managing risks and meeting obligations requires companies to have a blend of local, on-the-ground knowledge and the ability to coordinate at a global level.
"Relationships with local legislators and regulators are important, but if you don't also have the broader perspective of the global strategy, operations and tax position of the company, then you won't be able to make good local decisions," says Mark Weinberger, Global Vice Chair for Tax at Ernst & Young.
3. Build stronger relationships with tax administrations.
In some markets, companies are forming enhanced relationships and alternative dispute resolution mechanisms with tax administrations. Although approaches vary, a common thread is that there is a channel for taxpayers to interact with administrations and resolve issues or disputes without resorting to litigation.
Weinberger recommends having "adequate, easily accessible documentation that can be provided when challenged, as well as a transparent relationship with authorities so that issues can be addressed early rather than waiting for an audit or controversy further down the road."
