What Status Quo? Tech’s Global Risks Reach an All-Time High

August 2017

The new administration’s policies are also having a significant impact on the risk outlook in global industries. As the international political system hangs in the balance—and waves of protectionism threaten to upend the status quo—tech companies’ 10-Ks reveal an industry increasingly concerned with international operational risks. This year, almost all (98 percent) cite threats to international operations and sales, including those stemming from business, political, tax, currency and protectionist variables. 

Brexit and China Provide New Worries for Tech

Among specific threats to international operations and sales, this BDO Technology RiskFactor Report tracked the following for the first time: trade restrictions, currency risk and specific concerns around Brexit.

The report also tracked specific mentions of competition from China for the first time, with 10 percent of companies mentioning the country’s rapid economic ascension as a risk for business. After a record year for the U.S. solar industry amid already steep competition from China, the industry could face heightened competition stemming from the Trump administration’s withdrawal from the historic Paris Agreement.

Protectionist Waves Crash into the Industry

After the United Kingdom’s vote to leave the European Union and President Trump’s 2016 presidential victory, tech has reason to be weary of a domino populist effect. In fact, 44 percent of tech companies mentioned Brexit specifically as a risk to business this year.

Mirroring this trend, more tech companies than ever before cited the ability to expand abroad as a risk. Nearly half (46 percent) mentioned it in their 10-K filings, compared to 34 percent in 2016, 17 percent in 2015 and 7 percent in 2008.


France eased worries that the protectionist effect would spread across continental Europe in May 2017 when it voted against its far-right leader, Marine Le Pen, in the presidential election. And Germany’s Angela Merkel, Europe’s leader and a staunch advocate for continued integration and globalization within the 28-member bloc, passed her initial test in May 2017 when her party held strong in a key state election. 

The surprise results of the June 2017 snap election in the U.K., meanwhile, left the future of Brexit negotiations even more uncertain. Voters failed to give the Conservative Party of Prime Minister Theresa May, who promised to negotiate a “hard Brexit” with Brussels, an official Parliament majority. Instead, they gave the Labor Party of Jeremy Corbyn, who is in favor of Brexit but on different terms, the most seats it has had since 2005. 

With the German national elections just months away, much is still undecided. But an increase in protectionist trade policies throughout Europe could hinder U.S. tech companies’ ability to conduct operations there.  

Economists have echoed these concerns, with a majority saying global growth remains under threat from trade protectionism, in Reuters’ most recent global economy poll.

“Because U.S. technology companies depend on foreign markets more than those in other industries, it’s no surprise that most companies are worried about risks to their international operations. But with the potential for increased trade barriers on the horizon—especially in the context of how Brexit is negotiated—a continued bullish U.S. dollar and growing competition from China could prove challenging to the U.S. tech industry.”     

2017-Oil-Gas-RFR-headshot_Karampelas.jpg  Aftab Jamil
  Assurance partner and leader of BDO’s Global Technology practice


“In 2016, FCPA enforcement resolutions reached nearly $2.5 billion—the highest of all time—with two cases involving technology companies and their activities in China. Now, as the industry faces new obstacles to expansion abroad, especially in its more traditional European markets, pressures to relocate to emerging markets could bring new FCPA‑related risks.”     

2017-Oil-Gas-RFR-headshot_Karampelas.jpg  Nina Gross
   Leader of BDO’s Washington, D.C. Global Forensics practice


FCPA and Data Privacy Regulations on the Mind 

As far as international regulatory concerns go, tech has two growing concerns: evolving cyber and data privacy regulations, and the continued enforcement of the Foreign Corrupt Practices Act (FCPA). 

GDPR: Coming May 2018
Less than a year before the European Union (EU)’s Global Data Protection Regulation (GDPR) takes effect, 78 percent of tech companies cite cyber and data privacy regulations as a risk to business. Nineteen percent mention the GDPR specifically, and 15 percent mention the EU-U.S. Privacy Shield by name. 

The terms of the Privacy Shield, which provides a legal framework for the transfer of personal data between the EU and the U.S., are based on the 1995 Data Protection Directive. Once enacted in May 2018, the GDPR will require stricter data privacy controls from U.S. organizations that handle or process the personal data of EU citizens. In this year’s Technology Outlook Survey, 44 percent of tech CFOs said data privacy laws were their most serious compliance concern this year. 

Making matters more complicated, U.S. organizations may have to comply with separate data protection regulations specific to the U.K. once Brexit becomes official, depending on the terms of the divorce. 

Anti-corruption Concerns Reach an All-Time High
Despite initial questions around whether enforcement of the FCPA would change under the Trump administration, it appears to be business as usual for now.

The U.S. Department of Justice extended its FCPA guidance, known as the Pilot Program, for another year from March 10, 2017. Under the Pilot Program, whose launch corresponded with bolstered resources to prosecute and investigate FCPA cases, enforcement actions have increased.

Technology companies’ financial filings reflect this as concerns around complying with FCPA and other anti-corruption laws reach an all-time high in 2017.


Cuts to H-1B Program Compound Labor Concerns

In this year’s Technology Outlook Survey, tech CFOs said political uncertainty would have the greatest impact on the U.S. tech IPO market. The concern reflected uneasiness around potential policy decisions—like scaling back the H-1B visa program—and President Trump’s public censure of companies that offshore jobs.

Tech companies’ 10-Ks mirror these findings, with concerns around labor, including employee retention, immigration and outsourcing, spiking back to an all-time high and underscoring the talent pressure facing the industry. In fact, 83 percent of companies cite labor concerns as a risk, underlining the difficulties the industry would face if some of Trump’s immigration proposals came to fruition.

Because the tech industry is highly dependent on skilled workers, any barrier to entry is significant. Tech giants such as Google, Apple, Microsoft and Amazon have been among the top recipients of H-1B visas in past years, and a Goldman Sachs report revealed that H-1B visa holders comprise about 12 to 13 percent of tech-related jobs.