Strike now while the eSourcing opportunity is hot – Trump tax law changes offer a unique saving opportunity.
I recently read this brilliant analysis about the impact of the Trump tax law changes. [inlinetweet prefix=”@Determine” tweeter=”” suffix=”#eSourcing”]I couldn’t help thinking that this offers a unique one off saving opportunity that I would like to share with my procurement colleagues.[/inlinetweet]
As we (in the US) know, the recent tax law changes reduced the corporate tax rate from 35% to 21% on January 1, 2018. Which on the surface presents US organizations with an initial windfall, and an opportunity for more competitive pricing strategies. However, according to S&P, the effective tax rate for many is already at 26% and so this offers only a 5% benefit.
As the article states, when you start to dig deeper there are advantages that benefit some more than others. For companies that pay overseas taxes on profits there will be less impact. Organizations in sectors like energy and biotechnology, or those which are simply at an early stage in their growth, will pay little tax anyway.
Trump tax law changes – what’s in it for you (or not).
However, companies that pay well above 21% on mostly domestic profits and little foreign taxes stand to benefit most. There are some that are cash positive and have a higher effective tax rate and you can find these here.
[inlinetweet prefix=”@Determine” tweeter=”” suffix=”#procurement”]So it seems there is a sweet spot for some companies that are going to get a cash boost from this cut.[/inlinetweet] These are typically going to be small and mid-cap organizations between $500m and $5bn who do not have access to overseas revenues, nor do they have the resources to create complex tax avoidance vehicles. This is where the eSourcing opportunity currently lies.
In light of these Trump tax law changes, I would start to look at your categories again. Look for those companies that are cash positive, have low debt, manufacturing in the US and have little overseas revenues. I would target vendors with eSourcing events now, and maybe even try a dutch auction when you have only one supplier. I think you have a nine-month window before someone else grabs the spoils, or even worse — one of your competitors beats you to it!
There is no shortage of coverage out there about what the precise impacts of the Trump tax law changes will be. How it actually plays out is unknown, but it is another example of the dynamic business, regulatory and economic environment that companies across industries operate in today. Being ready for anything is the best way organizations can prepare for uncertainty, and that takes flexibility and agility both in strategy and operations.
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