Recent corporate trends designed to reduce costs and streamline operations are fundamentally at odds with the global movement of governments toward intervention in corporate operations. As global enterprises move toward single instances of their ERPs, shared service centers and cloud-based solutions, local governments worldwide are introducing legislation requiring corporations to comply with detailed processes for invoicing, accounting and tax reporting – thwarting these efforts to globalize operations.
These challenges are most prevalent for companies operating in Latin America, where 10 countries currently mandate e-invoicing and/or tax reporting. In this region, global strategies simply do not work. Companies doing business in Latin America need to understand the limitation of ERP systems and look for solutions that provide local expertise, support, and flexibility so you can focus your teams on what you do best. All too often, what was to be an internal shared services team becomes the firefighting squad in local entities. And the once thought of economies of scale and cost savings are replaced by constant 3rd party patchwork solutions that just make the problem worse in the long run.
Working with more than 150 multinationals doing business in Brazil, Mexico and other Latin American countries, we’ve identified several factors that make centralized ERP strategies insufficient in Latin America.
- Compliance management through external systems is inefficient and risky, yet ERP’s are ill-equipped to handle customized compliance requirements.
Third-party tools that house transactions and data outside of your ERP are error prone, increasing the risk of errors and fraud. And whether such discrepancies occur by accident or intentional manipulation, they all have the same impact in the eyes of the government – resulting in audits, fines and penalties. However, this is often the solution used by multinationals leveraging a single global instance of their ERPs as they try to minimize the customizations and internal workload required; because by themselves, ERP systems ultimately aren’t built to manage compliance.
- Customized ERP structures make individual country requirements a challenge.
ERPs are always configured and customized to each company’s business processes, yet ERPs typically address Latin American compliance requirements through standardized code releases. That means companies are left to adapt this code to their individual customizations – which can present an implementation nightmare.
- Legislative updates aren’t released on your corporate upgrade timeline.
Constantly changing requirements have come to be expected in Latin America’s corporate regulatory environment. Global strategies set to roll out ERP updates on a set schedule mean companies that are hyper-focused on this calendar will fall behind in compliance. The major updates and testing required by Latin American compliance interrupt the COE calendar and can affect entire global operations. Companies who run an (n-1) upgrade strategy are especially at risk, as their compliance measures won’t be up-to-date with new requirements.
- Local-level customizations are required.
The specific requirements vary by country; each mandating certain reporting periods, fields, naming architectures, codes and character limits. Some requirements even vary by city, with different documents for service-level invoices, transit approvals, etc. Globally standardized templates won’t work for these individualized compliance requirements, as ERPs must be locally customized to account for each of these needs.
- The function of shared services is vastly different.
In other regions of the world, the goal of shared services is resource consolidation and accessibility – often through the creation of digital resource libraries. In Latin America, this work is already done, as governments require the standardization and archiving that shared service functions elsewhere are looking to achieve. Instead, shared services in Latin America should be focused on automating processes and reports in order to reduce manual data entry and avoid errors.
- Tax liabilities are calculated in real-time.
In Latin America, tax liability isn’t a matter of roll up reports made after the fact. Instead, taxes are accrued and reported on a transaction-by-transaction basis, and corporate structures must support this compliance mandate. All transactions must be directly linked to tax reports, which is a big change for most global reporting templates.
Ultimately, compliance must be proactively managed within your ERP to avoid the risks, fines and penalties that occur from data discrepancies and errors. But internal management of this process is no small feat – requiring major changes to the way global COE and shared service teams operate. Sovos reduces these challenges with the only regional compliance platform that works directly within your ERP. Contact us to learn more.