Imagine an MNE with manufacturing factories in affected countries, distribution affiliates in Europe and Asia operating its R&D and shared services centre in India with regional management teams based in South East Asia and the Middle East. If one were to practically apply the above prescription, the group would have to consider the following steps:
i) Examine which of these critical functions are worst hit and prioritize actions accordingly. Manufacturing in affected countries is an obvious concern and will have to be addressed first.
ii) Identify alternative manufacturing locations to ensure business continuity. Logistics would also have to revisited.
iii) Undertake a financial analysis to quantify potential cost increases, losses and evaluate the cash and tax impact.
iv) Consider what other market players are doing and how they have been impacted.
v) Set up cross functional teams comprising legal, tax, finance and operations personnel to initiate contingency plans and spur alternate action.
vi) Analyse the profits within the supply chain and recalibrate its allocation between manufacturing, distribution, services entities and the principal by repricing inter-company transactions.
vii) Alter decision making matrices and organizational hierarchies to gain better control over processes and governance.
viii) Establish internal processes to gather information and documents explaining various changes.
ix) Revise already signed APAs and discussing ongoing APAs with the tax authorities to reflect new business realities.
x) Run a ‘war room’ or ‘project management office’ to maintain and build supply chain resilience.
While businesses are still trying to navigate this disruption, companies must act swiftly, understand and prepare. Involving professional advisors early in this lifecycle will help bring to bear deeper sector experience and insights and generate robust solutions.
The old adage, “an ounce of prevention is worth a pound of cure” has never been more relevant or real.