Renewed Corporate Appetite for Cross-Border Expansion Brings Legal and Compliance Challenges, According to New Global Study
- Written by: Telegraph Magazine
In-house legal teams face more complexity and risk to stay on top of global entity management
- Almost all (96%) of multinationals plan to maintain or grow their geographic footprint
- North America leads the way as the most popular overseas growth market
- South America attracts most first timers
- In-house legal teams cite building local infrastructure (61%) and understanding local legal systems (33%) as the biggest cross-border challenges
But in doing so, they're creating a formidable challenge for their in-house legal teams faced with navigating an increasingly complex web of evolving laws and regulations to manage a lengthening list of global entities. This is according to new research conducted among 300 general counsels and legal compliance officers commissioned by CSC, the world's leading provider of global business administration and compliance solutions.
CSC's study1—General Counsel Barometer 2024—found that nearly two thirds (62%) of multinational companies aim to grow their presence in a similar number of markets as they did in 2023, with a third (35%) planning to expand into additional territories over this year.
North America tops the list as the most popular destination, with over half (56%) of respondents looking to build out an existing presence or set up for the first time, tapping into a vast consumer market, strong reputation for innovation, ready access to capital and a skilled workforce, while benefiting from low barriers for entry. This was followed by Asia Pacific (46%) and Europe, excluding the U.K. (44%).
The study revealed South America as attracting the largest portion (46%) of multinationals seeking entry into a new market for the first time, driven by abundant natural resources, a growing number of English-speaking professionals, and its proximity to the U.S. market. Of these, six in 10 (61%) North American-headquartered multinationals said they had plans to enter South America for the first time, compared to 37% of those based in APAC and 40% in Europe and the U.K.
Among corporations based in Europe and the U.K., North America expansion topped the list (54%), while in Asia Pacific, the most popular region was the U.K., named by 55% of respondents, given its ongoing reputation for access to investment funds, skills, and resources.
"Multinationals are setting up and managing a growing number of entities in both existing and new markets, and this is increasing the pressure on their in-house legal teams to rapidly deliver local market know-how and operational readiness," says Thijs van Ingen, global market leader, CSC's Corporate and Legal Solutions. "Yet the process of opening and managing subsidiaries in multiple jurisdictions has become highly complex as firms contend with a patchwork quilt of global regulatory structures and different legal frameworks, and supervising those operations in an effective way can be really challenging."
Nearly two-thirds (61%) of respondents said they faced challenges when putting new infrastructure in place quickly, while a third found it difficult to understand the local legal system. Meanwhile, 31% admitted to experiencing issues with local privacy laws and jurisdictions, and a quarter (26%) said they were not confident in their ability to verify data across jurisdictions.
The impact on expansion elsewhere is most concerning for those surveyed when it comes to the potential consequences of inadvertent non-compliance, followed by fines, a postponed or suspended ability to trade in that jurisdiction, and reputation damage. To mitigate these risks and challenges, general counsels and legal compliance officers are investing in solutions for additional support, including technology optimization and engaging third-party organizations.
"Partnering with an experienced global services provider with boots on the ground across multiple jurisdictions enables companies to focus on their core competencies and strategic growth plans, while resting assured that their entity management needs are being taken care of by industry experts," van Ingen adds.
The vast majority (87%) of respondents are using generative AI for legal operations, and 58% stated they are making a concerted effort to accelerate their digital transformation strategies. Half (49%) are outsourcing to third parties to manage their legal operations.
A key benefit of appointing external providers is that multinationals can move towards a centralized, standard set of processes more quickly and efficiently, and remain on top of an ever-evolving global regulatory landscape. In terms of the specific services legal teams prioritize when selecting an external corporate services provider, corporate secretarial services, regulatory and compliance services, and accounting services top the list.
1CSC, in partnership with Pure Profile, surveyed 300 general counsels and legal compliance officers in North America, Central America, South America, Asia Pacific, Europe (excluding the U.K.), and the U.K., in January 2024. Survey respondents were drawn from a range of industry sectors including communications, banking and financial services, healthcare, insurance, law, and real estate.
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