(first of two parts)
The recent surge in risks associated with international commerce and technology nationalism has had a major impact on the technology sector. Increased tariffs, export restrictions, stricter privacy regulations including data onshoring, changing employment requirements, mergers and acquisitions (M&A) and a closer look at ownership regulations are just a few of these.
Digital disruption is rapidly dissolving the boundaries between technology and other sectors, and more than ever, technology companies have to contend with it. Common demands for data and technology, as well as cross-sectoral trends, are driving industry convergence. These include establishing alliances around data and technology, developing industry ecosystems, exploring new business models, increasing investment in new hybrid technologies, and going all digital.
An EY team conducted a global research study of 750 technology executives to better understand the growing risks and challenges global technology companies must face. Additional insights and suggestions from the EY Global Technology Sector team have been added to the findings to help people understand what technology companies must do to thrive in an ever-changing environment.
The first part of this article discusses how technology companies can navigate uncertainty, navigate critical regulatory issues, optimize supply chains, and choose the right operating model.
tolerate uncertainty
EY research shows technology leaders are grappling with changing political costs, political instability and new restrictions that pose both opportunities and challenges to supply chains and operating models . Many tech companies are adopting a “China plus 1” strategy in response to rising tariffs and labor costs. Asia-Pacific countries such as Vietnam, Malaysia, Thailand and India are benefiting from new investments that diversify supply chain risks. Threat awareness is also growing as businesses around the world may experience cyberattacks impacting their operations more frequently.
Technology companies are increasingly looking at government intervention through two different lenses, depending on their position in the value chain. On the one hand, governments concerned about protecting access to critical technologies are developing new multi-billion dollar incentive programs to encourage expansion of new research and development (R&D) and manufacturing capacity. increase. Semiconductors for Chips Act (CHIPS) of the American Act and the European Union’s Proposed Act.
Meanwhile, governments are adding to the complexity of the situation with new laws and regulations. Federal contractors are subject to U.S. government procurement restrictions that affect his chain of supply, motivated by national security concerns. The Digital Markets Act was passed by the European Union to impose restrictions on digital platforms. This includes guidelines on the growth capabilities of digital platforms and requirements for enabling users to access competing services.
Responding to critical regulatory issues
As a result of current geopolitical issues, the complexity of ensuring compliance has increased and new export control measures have also been introduced. These include new export bans on sensitive technology, telecommunications, cryptographic security, semiconductors, sensors, and software.
For example, the Export Administration Regulations, which are overseen by the U.S. Department of Commerce’s Bureau of Industry and Security, are “extraterritorial” and impose restrictions on products manufactured outside the U.S. using software or technology that complies with U.S. regulations. means origin. To ensure compliance with these and upcoming regulations, technology companies need a comprehensive understanding of their upstream value chain.
The study highlights the following key regulatory issues impacting the operating practices of technology companies:
• Business tax, consumption/use tax, value added tax, digital service tax
• The European Union’s approach to competition
• The OECD Base Erosion and Profit Sharing (BEPS) 2.0 project has Pillars 1 and 2.
• Administrative orders prohibiting anti-competitive behavior;
• Executive order overhauls critical supply networks for producing semiconductors and other cutting-edge technologies.
• Intellectual Property Tax (IP)
Technology companies around the world are increasingly affected by the wave of changes in the regulatory and tax environment. Countries aim to tax the digital economy and transactions broadly, which could be boosted by recent political changes. Legislators are concentrating on new tax and regulatory regimes as a result of the evolution of digital services and operating models such as over-the-top and software as a service (SaaS). Efforts to update antitrust and competition laws, data transfers, trade and tax regulations in the technology sector are key drivers of changes in operating models, EY research finds .
A closer look at the findings reveals some notable differences between different aspects of the tech industry. Internet, e-commerce, IT services, and cloud company executives consistently express concern about the impact of nearly all of the regulatory issues mentioned above. Legacy technology executives say they are affected by the European Union’s General Data Protection Regulation (GDPR), digital services tax, and global minimum taxation. Emerging tech executives, meanwhile, focused on raw material sourcing and the impact of competition/antitrust policies in the sector.
Supply chain optimization
Tech companies have had to rethink their supply chains after the impact of COVID-19 and a series of new “black swan” events. The pandemic has further strained global supply chains that were already dealing with the impact of trade disputes between the US and China. Importers struggled to purchase manufacturing materials on time and exporters struggled to get ship bookings due to global factory closures and shortages of shipping containers. Not surprisingly, his 95% of C-suite respondents said their organizations are changing their operating models and supply chains.
Research shows that technology executives and their organizations want to nearshoring and reshoring their supply networks, reflecting a growing focus on resilience and sustainability due to the impact of the pandemic on supply chains was noticeable in the results. 71% of his executives said they expect their company to localize manufacturing more over the next three years, while 19% say their company is already doing so. A related aspect that strengthens the near/reshoring argument is the fact that 68% of CEOs agreed that technology companies need to do better to reduce global emissions over the next three years. could be.
Choosing the right operating model
Executives recognize the need to continuously and proactively update their operating models. They said they are looking for benefits such as increased revenue and employee satisfaction. This is the biggest benefit realized by changing the operating model. However, many also addressed tactical and functional issues, giving the impression that there is still much work to be done. . In terms of both financial performance and customer or employee satisfaction, these benefits should show a direct correlation between having the right operating model and significantly improved business performance.
An EY survey found that 65% of respondents have changed their operating model at least once in the last 12 months. While emphasizing the importance cutting-edge technology companies play in their efforts to become adaptive digital companies, these technology executives say they continue to face challenges. As a result, the pace of planning and evaluation is accelerating. Technology leaders report that they regularly review all or part of their operating model in light of the rapid changes in the operating environment. Nearly half of respondents said they now conduct this assessment several times a year.
More than half (55%) of executives say their operating model needs to change, while 50% actively plan improvements, despite frequent revisions based on assessment and review of their operating model He said that he thinks
Firms have also become more confident that they have the right operating model as their size and revenues increase. The majority of SMEs or low-to-medium revenue companies believe they do not have the right operating models and are looking to strengthen them further, while high revenue technology companies believe they already do. increase. C-suite executives in other sectors are evenly split or plan for future improvements, in contrast to the majority of C-suite executives in the automotive technology and technical infrastructure sectors who believe their company has the right operating model. says it needs to.
This article is for general information only and is not a substitute for professional advice that facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent those of SGV & Co. not.
Rossana A. Fajardo is EY ASEAN Business Consulting Leader and Consulting Services Line Leader for SGV & Co.
