Mid-market companies operating across multiple international markets face ever more complex tax, legal and financial reporting obligations, and shortcomings in the resources needed to meet this challenge are putting them at a competitive disadvantage against their larger publicly quoted rivals. The findings come from a new RSM survey published today to coincide with the International Festival for Business in Liverpool.
The survey, carried out among 100 UK-based international businesses with turnovers of above £50m, revealed that although the majority of mid-market companies said they were on top of their current obligations, almost 40 per cent said they were either not ready or not particularly ready to meet their compliance obligations over the next two to three years.
In total, 90 per cent of respondents said they were significantly concerned about legal and other regulatory compliance obligations, while 86 per cent said they had significant concerns about tax and duty requirements. Europe was cited as the most complex regional market in which to operate from a compliance perspective, followed by Asia, North America, Central and South America and the Middle East.
Interviewees reported that regulatory compliance was often as complicated for mid-market organisations as for FTSE150 companies, although the resources available to larger publicly quoted companies meant they could overcome the challenges more easily and gain a competitive advantage.
Other barriers to international expansion mentioned by survey respondents included access to funding and local expertise, in addition to cultural, infrastructure and language barriers.
Ian Sadler, Head of RSM’s UK-based Global Compliance and Reporting Service said:
‘Regardless of the outcome of the upcoming EU referendum, it’s clear from our survey that middle market companies are becoming increasingly concerned about the growing complexity of international regulation and how they can deploy their limited resources to ensure compliance across multiple jurisdictions.’
‘Just last week, a survey from RSM International found that the implementation of new international tax rules resulting from the OECD’s Base Erosion and Profit Shifting initiative could similarly impact middle market firms almost as hard as large multinationals, with many expecting their tax bills to rise by more than 10 per cent. This is just one example of the imminent compliance challenges facing mid-market businesses operating globally which are presenting Group Controllers, Finance Directors and Heads of Tax with an almighty headache.’
In order to address their compliance challenges, the majority of mid-market organisations surveyed said they were looking for greater centralisation of their finance function and accounting platforms, with many now opting for some form of international partnering or outsourcing arrangement to help them meet their obligations. However, while it was recognised that outsourcing offered access to local domain knowledge and the opportunity for greater international standardisation, interviewees expressed heightened concern about sharing data with third parties and the threat of cyber-attacks.