Political, Competitive Pressures Could Spark Reshoring Boom

Six tips for U.S. businesses considering a move back home.

Mnet 192023 Globalization 0
Scot FerraroScot Ferraro

Offshoring, or moving operations overseas, became a central strategy for millions of American businesses over the last two decades. But today, some are assessing whether to hit the brakes or even reverse course.

In 2015 (the latest year for which data is available), the United States added about as many manufacturing jobs as it lost, according to the Reshoring Initiative, a nonprofit advocacy group. That’s a big shift from a decade ago, when the country was losing about 220,000 jobs a year.

Increasing wages for foreign labor and higher transportation costs are two reasons companies are moving business back to the United States. For customer-facing operations such as call centers, especially, competition and concerns about brand reputation also are pushing more companies to reshore their businesses.

Because of those business reasons, coupled with President Donald Trump’s proposed tariffs on U.S. companies that send jobs overseas, 2017 is shaping up to be a potentially big year for reshoring.

Shuttering overseas operations and reshoring, however, isn’t as simple as a stroke of a pen by a chief executive. Called “winding up” in Hong Kong, “deregistering” in Australia and “striking off” in Britain, the level of difficulty, effort and expense varies by country. It’s often a complex process that can take years.

We’re seeing an uptick in the number of companies who are looking to shift operations back to the United States. Unfortunately, in these transitions, issues that could have been avoided often surface, costing business owners time and money.

Here are six tips to help businesses considering the move streamline the process and reduce costs:

No. 1 - Pay Your Taxes

This can often be the most difficult — and painful — step for a business moving operations out of a country. Companies, of course, must file a final tax return before dissolving operations. They also must settle any outstanding taxes.

And, as they launch the winding-down process, some business owners and executives are surprised to learn that they owe back taxes from previous fiscal years, or have not met other tax-related obligations, which vary depending on the country.

Before beginning a wind down, research all tax liabilities to ensure you know exactly how much is owed and whether any other documents need to be filed.

No. 2 - Notify Your Creditors, Employees and Other Interested Parties

The definition of “interested parties” changes country to country. It might not just be your widget supplier or the vendor who delivers paper and pens. Depending on the country, it could be anyone a business has an agreement with.

When a company plans to cease doing business in a country, it’s critical for executives to review all agreements, focusing especially on termination clauses, to ensure that notification requirements have been met.

In many cases, however, sending notices to individual parties isn’t enough. In some countries, companies also must publish their intent to liquidate in a newspaper — often multiple times during a specific period.

No. 3 - Stock Up on Paper and Patience

Some foreign government agencies allow business owners to file documents online. But many countries require that board resolutions, the company books and other paperwork are filed at an agency’s physical location. In fact, some foreign governments have essentially no services online.

What’s more, in some countries, such as Mexico, there isn’t a centralized government authority. Paperwork must be filed at regional and local public offices. That can require extensive travel and coordination, so it is important to consider these details when building the team that will wind down your operations. A global compliance partner can help with the logistics and file paperwork, as can on-the-ground trusted advisors (lawyers and accountants, etc.).

No. 4 - Get Your Board in Order

While in the United States board member names aren’t always on file, in some countries they must be part of the public record. And, before you wind down in a foreign country, you’ll need a vote from the current board to approve the liquidation.

Updating a decade-old document that lists former board members can be daunting, especially if members have moved on or retired. Tracking down busy people to simply get a signature isn’t always easy. But if you haven’t kept your board member records up to date in the other country and you want to close shop, you’ll need to revise the public filing so that it is current.

No. 5 - Pay Attention to the Details

As businesses shut down, any given government requires some amount of paperwork. Depending on the country, it could be a one-page sheet or 20 10-page forms. Whatever is required, the paperwork often can take time and expertise to properly complete. It’s often best not to go it alone. Seek a trusted advisor who has done this work before, such as an international registered agent or an attorney.

No. 6 - Be Prepared to Have Dealings With the Foreign Government — Even After You’ve Liquidated

Closing the factory doors — and filing all paperwork to shut down — doesn’t mean your company can completely disengage from the foreign location. Appropriate records often must be kept in-country for a required period of time. And, in some cases, that’s a long time. In the United Kingdom, companies that had employees must keep records on file with the government for 40 years.                                         

Just like any business move, reshoring takes effort. Preparation and guidance can save you money and valuable time.

Scot Ferraro is a Director at Wolters Kluwer’s CT Corporation.

More in Operations