Strategies for Minimizing Tariff Impact on Our Websites:
"Let's Cut Through the B.S., here's a no-holds-barred look at the current tariff situation for businesses, by Vivek Saxena, finance and accounting service line leader at Genpact. Opinions are his own.
Everyone knows the recent tariff discussions are a chaotic mess. Toss aside any hope of predicting the future – right now, none of us can even predict tomorrow. With changing tariffs on imports, particularly from China, Canada, and Mexico still up in the air, business leaders are fighting to protect their operations from the financial strain of those tariffs.
However, making major decisions in this unstable climate carries significant risks, particularly because these rulings change daily, making it difficult to plan ahead. Finance chiefs are left navigating a rapidly shifting landscape, juggling tasks like cost of goods sold, inventory management, reporting, and compliance, tax planning, integrated business planning, forecasting, cost optimization, risk management, and more.
Recent studies show that uncertainty surrounding economics and politics has reached an all-time high since the pandemic. This is troubling news, as it's likely to impact consumer spending patterns significantly. To weather this storm, here are a few actionable steps for your business:
Explore risk management scenarios
Your role in tariff risk management extends beyond financial oversight. To be truly effective, it requires collaboration with various departments such as supply chain, compliance, operations, and government relations. By implementing comprehensive strategies that identify and mitigate financial risks (and operational resilience) while continuously monitoring these risks, you can safeguard your organization against both direct and indirect tariff-related risks.
Financial strategies might include:
- Diversified sourcing: Shift away from high-tariff suppliers to suppliers in low-tariff or non-tariff regions.
- Tariff engineering: Optimize duty rates legally.
- Currency and commodity hedging: Offset price volatility caused by currency fluctuations and inflationary pressures.
Operational strategies could involve:
- Geographical expansion: Open operations in locations outside tariff-heavy regions to offset losses.
- Stock level balancing: Prevent disruptions in supply chains by optimizing stock levels.
- Regulatory compliance tracking: Stay updated on evolving policies.
- Third-party risk evaluation: Conduct thorough diligence on new vendors, given increased risks associated with shifting supplier networks.
Simplify Your Business Planning
Integrated business planning is critical for providing a strong foundation for decision-making and keeping all teams focused on achieving common corporate objectives while maintaining individual key performance indicators. In the context of tariffs, finance teams should closely collaborate with supply chain teams. Here are a few ways these teams can work together to reduce the impact of tariffs:
- Examine alternative suppliers in non-tariff or lower-tariff regions.
- Negotiate better terms with existing vendors.
- Explore additional cost reduction and efficiency opportunities to offset costs caused by tariffs.
- Develop agile pricing strategies to absorb the costs of tariffs or pass them onto customers.
- Respond to customers who want to bring forward orders to avoid tariffs; or conversely, source and warehouse in advance for near-term needs.
- Consider tariff recovery strategies, such as importing a good from Mexico and then shipping it to another country like the U.K. to recoup tariff costs.
By collaborating across departments, you can avoid operating in silos and make more informed, strategic decisions to protect your business against the challenges posed by tariffs.
Get a Grip on Spending
One of the best ways you can protect your business is by monitoring and managing spending closely. By leveraging technology tools that provide granular tracking across cost centers and regions, finance chiefs are getting more deeply involved in the day-to-day finance of the company.
Consider incorporating agentic AI – an advanced technology that enables autonomous decision-making and goal pursuit, asking for human guidance when necessary. This technology can help finance chiefs identify and trigger suggested responses to crises beyond traditional AI – which typically operates based on specific algorithms and set rules. In the ever-changing landscape of tariffs, agentic AI can provide invaluable assistance.
Embrace Continuous Accounting Practices
Finance chiefs should look into continuous accounting practices, eliminating the gap between business transactions and accounting dates. These practices allow businesses to instantly record and understand the impact of each transaction, creating overall resilience and instilling agility in decision-making. Continuous accounting provides more accurate, efficient accounting practices and offers real-time visibility to ensure compliance with changing regulations and financial performance.
As tariffs impact areas like transfer pricing driven by margins on intercompany sales of goods and profit elimination, finance chiefs must address these issues while maintaining thorough documentation of all tax positions and related uncertainties caused by tariff changes. This documentation helps mitigate tax disclosures and transfer pricing risks.
By implementing these strategies, you can navigate the complexities of tariffs more effectively and maintain financial stability in a constantly evolving global trade environment."
- Vivek Saxena, a finance and accounting service line leader, discusses the current tariff situation, revealing the uncertainties and financial strain they pose for business leaders.
- The rapid change in tariffs on imports from China, Canada, and Mexico, leaves finance chiefs juggling various tasks like cost management, reporting, and compliance.
- Economic and political uncertainties have reached an all-time high, likely to impact consumer spending patterns significantly.
- To weather this storm, businesses are advised to explore risk management scenarios, implementing comprehensive strategies to identify and mitigate financial risks.
- Financial strategies could include diversified sourcing, tariff engineering, and currency and commodity hedging to offset price volatility.
- Operational strategies might involve geographical expansion, stock level balancing, regulatory compliance tracking, and third-party risk evaluation.
- Integrated business planning is crucial for decision-making, with finance and supply chain teams collaborating to reduce the impact of tariffs.
- Teams should examine alternative suppliers, negotiate better terms, explore cost reduction opportunities, develop agile pricing strategies, and respond to customer needs.
- To protect businesses against tariffs, close spending monitoring and management is advised, with technology tools providing granular tracking across cost centers and regions.
- Finance chiefs should consider incorporating agentic AI to assist in decision-making, as it can help identify and respond to crises in the ever-changing landscape of tariffs.
- Continuous accounting practices should be embraced by finance chiefs to instantaneously record and understand the impact of each transaction, ensuring compliance with changing regulations and financial performance.
