Corporations have a legal responsibility to be informed, compliant with government regulations, and adequately prepared for the likely possibility of verification audits or enforcement actions.
Accordingly, companies need to appropriately match their investment in risk mitigation to the scope of their commitment to international sourcing and export market development initiatives, with a view to minimizing any potential commercial repercussions of non-compliance.
Today, internationally active companies and their leadership teams at the board and executive levels must come to terms with four major trends of significant impact:
- The escalating degree of trade compliance risk in a globalized business environment that is characterized by rapid change;
- Proliferation of bilateral and multilateral free trade agreements;
- Growing supply chain complexity; and
- Intensifying regulatory vigilance by governments around the world.
An intelligent risk mitigation strategy, therefore, should proactively anticipate potential trade compliance implications applicable to each stage of product lifecycle management, from conception all the way through to delivery and contract fulfillment.
As noted by KPMG, the audit tax and advisory firm, in its 2009 paper Customs Compliance: Strategic Planning for Global Growth, “Companies of all sizes are feeling the effects of globalization and increased shareholder interest in managing global risks...” It went on to observe that “trade is being transformed from an operation function on the sidelines of corporate awareness to an evolving function that helps mitigate organizational risks and strategically drives value.”
The rising bar now facing boards with regards to managing global trade risk was also highlighted by Deloitte in its Director’s Alert: Issues for 2011 publication:
“Boards need to ensure they fully understand the global regulatory environment in which they operate as well as the interplay of regulations from one jurisdiction to another. This creates challenges for organizations that operate globally since operating in some countries may be subject to different rules than those in other countries, which the operations of one subsidiary can affect the solvency and reputation of the entire organization.”
While potential risks are significantly compounded by the global trade environment, so too are the opportunities for driving profitability and shareholder value.
Expanding into new markets, effectively leveraging international supply chains, and diversifying both supplier and customers relationships, are now crucial factors to future growth for many companies.
Other posts in this series:
- Corporate Leadership & Compliance: The Board of Directors’ Role (Part II)
- Corporate Leadership & Compliance: The Board of Directors’ Role (Part I)
- The Role of Corporate Leadership in Achieving Compliance Success
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