tech outlook For the tech sector, protectionism could stress global operations

11 minute read

Technology exists largely in a world without borders. That means most technology companies are inherently global. Or, as Bank of America’s Jeff Minick says, “No company goes global faster than a tech company, or at an earlier stage.” Despite that ability to share and connect instantly with partners and customers around the world, even tech companies need to deal with the real-world issues of being a global organization — whether that’s making an overseas acquisition, recruiting talent, setting up shop, establishing a new market or managing money.

What do tech executives need to consider as they expand horizons — or as they try to calculate the impact of 2024’s headline events on their global operations?

“Today’s companies themselves are more global, more international than they have ever been,” says Paul Taylor, head of the International Commercial Bank for Bank of America. “They are more dependent on worldwide supply chains. U.S. companies in the internet age make a far greater proportion of their revenues from overseas sales. And that is true in no industry more than technology. For a lot of these companies, their business case is based on the premise that they will be able to serve an international client base. That means they are more exposed to international opportunities and challenges than ever before.”

That increased dependency is playing out against a backdrop where geopolitical disruption and volatility are at the highest level since World War II. The world is living with two wars, rogue attacks on shipping channels, economic sanctions between nations and price inflation in countries around the world.

At the macro level, Taylor points out that 50% of the world’s population — in 76 countries ranging from the U.S. and U.K. to Mexico and India — will vote in consequential national elections in 2024. “The world could be a very different place at the end of this year,” he says.

In many of those countries, globalization is on the ballot. Says Taylor: “We have seen over the past 10 to 15 years that elections are increasingly seen as voting on national versus global themes. That question of ‘Are we an outward-looking country or an inward-looking country?’ has massive ramifications for companies doing business globally.”

The worldwide unrest and unpredictability have left companies concerned about how to do business overseas. It’s not only the fragility of the supply chain or the political dynamics from country to country; it’s often something as basic as how to make and receive payments, which requires companies to have banking arrangements in place overseas in a world with fewer international banking providers.

And on top of this, businesses are living in a very volatile rate environment. “We have been living in a very low rate and very strong dollar environment for years,” Taylor says. “The outcome of those 76 elections around the world could change that. And in the meantime, companies are challenged to manage working capital in this multistate, highly volatile rate environment.”

Taylor’s forecast for the balance of 2024: “It’s hard to say that it will be getting better. However, there are certain levels of pragmatism that exist behind the headlines.” Despite what politicians and even voters say, a dependency has developed between companies and countries based on actual global trade and preferences.

For Taylor, these worldwide trends mean that for some companies, “The need to be international will be outweighed by the challenge of being international.” But for most technology companies, pulling back is not an option. Instead, the assignment is making smart decisions about where and how to work, and reducing the risks inherent in being a global company.

“The best thing that a technology company can do in this environment is to think about the long-term play,” says Minick, Bank of America’s Transformative Technology Group executive. “Yes, certain countries have or may be putting in protectionist policies. But at the end of the day that’s mostly just about cost. Instead, each company needs to know that the reason for doing business in a country can’t be one-dimensional, and that decisions should be made for the long term.” A company might choose to enter a country to access engineering talent, to increase distribution capacity or to open a new consumer market — and ideally, to accomplish more than one of those goals.

No matter what the reasons are for expanding into a new market, a U.S.-based company doing business in a foreign jurisdiction needs to have a good dialogue with regulators in that country, and also a good understanding of how that market works.

Sometimes that familiarity comes from the founder, a key executive or an acquired talent — someone who hails from that country or at least is acquainted with it. Those connections also provide an element of de-risking. “If you have someone who knows the talent, the culture, the government, there’s a lot less risk than if you have to rely on someone outside the company to help you navigate all of that,” Minick says. “Like it or not, even tech comes down to personal connections. If it’s an organic expansion like that, it’s better for your company.”

Sometimes the familiarity comes from partners who have built local operations with multilingual capabilities — who can keep track of regulations, policies and politics country by country.

Financially, to protect themselves from global volatility, companies need to make sure they are adequately capitalized in the right places, with the right currency and the ability to move that currency when needed. Working with global providers is one way to make it easier to operate efficiently in markets around the world.

“The number-one thing we see U.S.-based tech companies do is to consolidate banking with one or two providers so that it’s easier to get a hold of global cash and allow it to flow between countries and entities. That provides one global view of cash. The alternative is to enter a new country, partner with lawyers who have relationships with local banks, use that local bank to set up the organization and then grow. And then the business has a one-off bank. “Doing that 15 times in 15 countries leaves you with different ERP and accounting system integrations or manual data access, data spread out all over — making it complicated for cross-country flows and complicated to get a macro view of your business,” Minick says.

For better or worse, some of the hotbeds for technology talent exist in troubled or less stable areas of the world, including Ukraine, Israel, China, Taiwan and India. Israel has established a leadership position in cybersecurity; Ukraine and Poland and other central European countries, plus India, have deep engineering and programming talent.

But as they think global and consider tapping into those overseas talent pools, Minick says, “Tech companies need to look at the ability of governments outside the U.S. to help ensure a stable workforce. We already saw that in Ukraine, where in a month, employees had fled the country — often to Poland — and companies had to find new engineers to pick up the projects that were impacted,” Minick says. “That’s just one example of what tech execs need to be thinking about when going after engineering talent.”

Going overseas can provide a lower explicit labor cost, but Minick says companies need to diversify that overseas workforce. “Don’t have your eggs in one basket. If you are going to run a global business, you need to have engineering talent that is geographically diverse to protect you from geopolitical risk, especially today.” 

And then a company needs to consider how the talent will work together across borders — how to bridge language, time and cultural gaps effectively. “You have to be more astute than ever to navigate that.”

Still, he says, if a company can run it well, it is still worth it and more cost-effective to employ international talent and workforces for core programming functions. “The industry’s best talent and engineers are in the U.S., but there are opportunities to leverage global talent for specific functions.”

Minick says no one talks about it this way, but often companies hire talent or base a new facility in a specific area because of some personal connection. “Maybe they have an engineer in the U.S. who’s from Ukraine. Or the CTO is from India. If you look at founders, and members of the C suite, they go back to what they know, the locales they know, the people they know. Use resources like that to help find global talent,” he says.

In addition to outsourcing work, of course, many tech companies go global when they acquire companies. And many of those acquisitions are talent-based. “Companies are going after specific talent because they have seen the company do great work,” Minick says. “But before making a deal, you need to test for the right cultural fit within your company; does the acquisition make cultural sense in addition to financial sense?”

To keep that talent around for four or five years, companies need to properly structure deals. Perhaps the most popular structure is an earn-out agreement, where a portion of the purchase price is paid out if the merged company achieves certain financial goals after a designated amount of time. “It can then be more attractive and more lucrative for the talent to stay on and help drive those results,” Minick says. “But there also is a risk in structuring those earn-outs, in terms of the currency used and potential fluctuations. Be intentional in how you manage that so that it doesn’t end up costing you more than you planned.”

In 2024, managing people — domestically and overseas — also means taking ESG into consideration. And often ESG has global context. Says Taylor, “We used to live in a world where ESG was on the back page of the annual report. Now the expectation is different. Companies have to have a view of the situation everywhere they do business — where they choose to do business, where they have factories, and if the decisions they make are good for the planet.”

He points out that 55% of today’s global workforce are Gen Z and Y. That means companies do business in “a much more internationally aware world, where a company’s response to geopolitical volatility can affect how not only shareholders, customers and suppliers feel about a company, but employees as well.”