Tax & Accounting Blog

Opportunities and Challenges of Chinese MNCs’ Going Global

Blog, Checkpoint, Global Trade, ONESOURCE June 8, 2017

Understanding the different compliance requirements across multiple regions can be very challenging. Global regulations are not only complex but can change daily. Because of the increased expectation that companies pivot and adjust to these changes, Chinese Multi-National Corporations (MNC) have implemented behaviors to help them deal with these diverse complexities, specifically ensuring their subsidiaries can manage compliance, reduce risk and increase efficiencies.

According to the latest trade report released by the Chinese Ministry of Commerce, the total value of tangible goods imported and exported for 2016 was at USD 3.74 trillion. Chinese companies reached 38.1% of the total trade value with USD 1.34 trillion and maintained the top spot of export shares in 2016. Chinese companies have seen huge opportunities in the past decade, accounting for the upward import and export values reported at USD 1400 billion of recent.

In fact, according to the Chinese Government, Chinese companies will be the main force for steady growth for China’s future in trade. It is also worth mentioning that one of the contributing factors to this growth are the benefits seen from the “One Belt One Road[1]” development. The number of Chinese companies leveraging the “One Belt One Road” has increased significantly.

As the process of globalization and regulations increase, global trade business between MNC’s is becoming more difficult than ever.

Manual processes lack visibility

Manual import and export processes increase risk of non-compliance with local regulations.  Added into this mix is the potential risk for additional costs incurred because of delayed or missed payments of duties/taxes. Manual processes generally lead to poor visibility of overseas operations, making it difficult to measure operational events, increase performance and react to any severe issues in a timely and cost effective manner. Adding to these complexities, Chinese MNCs usually rely on local 3rd party service providers, if not properly managed, increasing the level of risk in their customs activities.

Complexity in customs clearance procedures increases in global environment

According to the 2016 Global Trade Management Survey conducted by Thomson Reuters and KPMG LLC, disparities in requirements between countries, interpreting and communicating regulatory changes across sites and countries, and complex changing requirements with local government agencies are three top challenges which impact trade activities.

Adding to these complexities, China has different declaration requirements based upon the commodity. These complex customs procedures translate into increased time spent on the customs clearance stages, affecting the bottom line on product margins, and a company’s time to market projections. The complexity of interpreting and navigating global declaration procedures require unique expertise and data elements, localized workflows and generally differ from one region to another.  These are vocalized challenges Chinese MNC’s face when operating in the Global Market.

Custom audits and penalties

The risk of not following local country requirements when operating globally is noted as a high risk area for Chinese MNC’s. The added restrictions associated with the rights to import and/or export, associated penalties tied to incorrect declarations, tax/duties remits, and penalties on not meeting originating rules when declaring the privileges under Free Trade Agreements are just a few examples that Chinese MNCs face; concurrently all MNC’s.

Missing incentives and opportunities

Incentives and opportunities are available for Chinese MNC’s tied directly to their industries and/or operations. Examples of these benefits and incentives include direct import tax reductions and faster clearance processes. Understanding these benefits and opportunities can be a huge competitive advantage for Chinese MNC’s that are operating globally, and an important initiative they should incorporate when they are planning their strategies.

Global Trade will continue to grow.  What is key for Chinese MNC’s to succeed is to leverage all opportunities available to their company, commodities and supply chain.  They can do this by implementing processes to increase visibility in the movement of their goods, Customs transactions, and to implement a program that provides a process to review and interpret the responsible global trade regulations affecting their supply chain.

With challenges comes opportunities, and we expect to see Chinese MNC’s continue to successfully grow globally.

Learn More About ONESOURCE Global Trade

Sources

 Ministry of Commerce of the people’s Republic of China Comprehensive Department http://www.mofcom.gov.cn/

 China customs magazine http://www.ccmag.cn/cusmMaganized!query.jspa?year=2017&month=2

 2016 Global Trade Management Survey https://tax.thomsonreuters.com/onesource/2016-global-trade-survey/

[1] One Belt One Road is the Chinese government’s proposed $1Trillion initiative to increase connectivity between the Asian, European and African continents. The intention is for increased connectivity and enhanced trade flows and spurring long-term regional economic growth and development.