Global expansion provides fantastic opportunities for small businesses. The United States is a huge market, yet many potential consumers live outside its borders. An enormous 96% of the world’s consumers live outside the United States, and countries other than the United States hold two-thirds of the purchasing power around the globe.
A professional employer organization, or PEO, can help small businesses flourish as they expand internationally. PEOs are companies that partner with businesses to take on their human resources (HR) tasks, such as recruiting, payroll, insurance benefits, and tax administration. They serve as the employer of record and handle personnel management so companies can focus more of their energy and attention on business opportunities.
The National Association of Professional Employer Organizations (NAPEO) reports that small businesses that partner with PEOs expand 7% to 9% more quickly, diminish turnover by 10% to 14%, and have a 50% smaller chance of going under than other companies. And partnering with PEOs helps businesses generate between $136 and $156 billion worth of gross revenues every year.
Working with a global PEO can provide many benefits for small businesses. But how exactly do PEOs help expand small businesses globally, and what are the day-to-day advantages of doing so? Below, we’ll answer these questions so you can make an informed decision about choosing a global PEO for your small business.
Why Small Businesses Should Expand Globally
For small businesses, the benefits of expanding globally are numerous. Below are a few of the advantages of expanding a small business internationally:
1. Increase in Opportunities for Growth
Developing new operations in different countries creates an enormous potential for growth. Successes in new markets can bring in larger revenue streams — and with those increased revenues, a business can expand more, grow more, and reap even higher profits.
2. Exchange of Knowledge
When a business has operations in a range of countries, it can reap the benefits of working in each one. If one country is strong in technology, the business can incorporate the methods used there and apply them in its other operations around the world. And if another country has excellent marketing protocols, the business can incorporate that knowledge as well.
3. Continue to Market Existing Products
If a company conducts its business in only one country, it may soon feel the effects of market saturation. Once the company has sold its products or services to everyone its marketing can reach domestically, what’s next? Expanding globally helps solve this issue. Companies can continue selling their old products by introducing them to fresh markets internationally.
4. Reduce Dependence
Selling products in only one market entails a risk — a problem there could seriously disrupt the flow of a business’s revenues. By introducing products to different global markets, a business effectively gives itself insurance. If wildfires impede the supply chain and tank sales in one region, a strong market elsewhere can help make up for the losses.
5. Compensate for Seasonal Swings
Some businesses market their products for use in a particular season, such as pontoon boats in the summer or ski resort packages in the winter. Such companies are likely to see considerable fluctuations in their revenues throughout the year, with profits peaking in the targeted season and dwindling in other months. Expanding internationally helps counteract this effect. If pontoon boat sales go down in the United States from October through March, the Australian sales may be booming over that same period.
6. Achieve Greater Brand Recognition
A business located in a single country may thrive there but remain unknown in other parts of the world. But a company that expands can achieve international renown. Think of the golden arches of McDonald’s and what a well-recognized symbol they are all over the globe. By expanding internationally, a business can put itself on the road toward widespread brand recognition.
Challenges Small Businesses Face When Expanding
As they expand abroad, small businesses may face numerous challenges. Businesses should give these challenges careful consideration before starting out so they can improve their chances of success in the global market.
1. Cultural Mismatch
Sometimes, what a business is selling isn’t a good fit for the culture of local buyers. It would likely be unwise to market accessories for pets in cultures where pet ownership is uncommon, or market running or biking apparel in areas where jogging and biking are not the norms. Businesses should be sure to do their research beforehand to avoid unwelcome surprises.
2. Product Unfamiliarity
Other times, new markets may not be familiar with the product a business is offering, so they may initially be unreceptive because of uncertainty rather than distaste. An expansion of cricket leagues to the United States might initially fare poorly because many Americans are unfamiliar with the sport. This is not to say that a business can never introduce something new — with the right marketing, cricket could become novel and exciting in the United States, as soccer has. And the first group to pioneer the sport would have access to an untapped, noncompetitive market and the potential for huge revenues once the new sport caught on.
3. Lack of Infrastructure
Some areas may lack sufficient roads, rail lines, and airports. Insufficient infrastructure can cause delays, increase overhead costs, and in some cases, make manufacturing and distribution infeasible altogether. In some areas, office spaces may offer limited electricity and hot running water as well.
4. Unstable Currency
Fluctuations in local currency can also destabilize an expanding business. An unstable economy where the currency’s value may fluctuate rapidly with political or market changes can make establishing a stable budget and fiscal outlook more challenging.
5. Local and Foreign Competition
In the United States, businesses may have plans for dealing with their local competitors. They may already know their competitors’ typical sales and marketing strategies and how best to counter them. But all that changes in a new market. Both local and foreign competitors may already have strong footholds in the local market and have developed strategies to maximize their success. Breaking into the market as a new competitor can be tricky — but that’s also part of what makes expanding a business venture exciting.
6. Managing Contingencies
In a new and unfamiliar market, businesses may have to contend with the unexpected at a much higher rate than they would at home. An expanding business should develop a financial plan to account for unforeseen expenses without depleting its funds.
7. An Already-Saturated Market
Sometimes, the issue isn’t that the new market is unfamiliar with what an expanding business has to offer — it’s that the market is too familiar. Imagine trying to start a new microbrewery in Germany, or a bike shop in the Netherlands, or a sushi chain in Japan. It’s possible, but in a crowded market, it might take a brilliantly orchestrated marketing campaign.
How to Expand Your Small Business Globally
The benefits of business expansion can be enormous, but figuring out how best to expand a small business can be tricky. When you’re looking to expand your small business globally, consider taking some of the following steps to improve your chances of success:
1. Determine Whether Your Company Is Ready
Sometimes the allure of expansion entices companies to jump into new ventures before they are quite ready to do so. Be sure your company has — or can readily obtain — the solid financial footing, contacts, and cultural and legal knowhow for success before you begin.
2. Assess the New Culture
Make sure your product is a good fit for the market you have in mind before committing. Boating accessories are likely to be a tremendous hit in New Zealand, with its strong boating culture — but might be less so in doubly landlocked Uzbekistan.
3. Conduct Market Research
Does the new market already have pizza widely available, and yours will merely be the latest and greatest, with fresh, innovative toppings? Or is pizza still less common in this part of the world, so you’ll need to invest heavily in marketing and promotions to help your new business catch on? Figuring out the answers to these questions can help you decide what support your new operation will need and what risks are worth taking.
4. Assess the Available Infrastructure
Figure out whether the new market has enough roads and rail lines for shipping products to be easy and practical. You should also figure out whether you can share existing factories and warehouses or whether it will be necessary to build your own, or whether you will export all your goods from the United States.
5. Consider Language and Cultural Barriers
If most people in the target market speak a language other than English, how will you combat the language barrier? You may already have bilingual speakers in your company, or you may hire local translators, or you may be eager to learn the new language yourself. Or there may be a secondary official language that some members of your staff already speak.
6. Make Contact With Buyers and Distributors
It’s smart to engage in conversations with local buyers and distributors before proceeding with large-scale development plans. Seek out the opinions of local partners to figure out how you can best fit into the local market and how to collaborate fruitfully with established organizations.
7. Plan for Transporting and Distributing Goods
Figuring out how your products will get into the new market is key. Strategize about how you will organize your distribution. You may choose to establish a foreign subsidiary under your company’s umbrella, though you will likely find it more efficient to work with a PEO.
8. Know Applicable Regulations
Before expanding into neighboring markets, be sure to read up on the rules that govern trade with those markets. The last thing you want is to incur fines or other penalties because you have violated a trade rule you didn’t even know existed.
9. Resolve Trade Issues You Discover
If your research shows any complications that need to be resolved, do so right away before proceeding with expansion plans. If you discover distribution laws or border control issues that could derail your plans, see how you can alter your strategy for better compliance.
10. Get Training and Develop Action Plans
Get counseling about how best to approach the new market, and develop plans for dealing with taxes, pricing, banking, hiring, and navigating the legal structure of the foreign market. In these scenarios, a PEO can be invaluable.
How PEOs Can Help Small Businesses Expand
PEOs are invaluable for helping you figure out how to expand your small business internationally. Working with a PEO as you grow your business operations can provide a multitude of benefits:
1. Increased Return on Investment
Working with a PEO helps provide increased return on investment. It outsources the human resource logistics of running a business and allows the company to concentrate on its expansion endeavors. Under this strategy, a company can focus its efforts in a way that maximizes rewards.
2. More Streamlined Recruiting
When you’re first starting out in a new market, you may not know where to look or what to offer to attract the best local talent. But a PEO recruiting platform can do the work of making sure you have a deep talent pool to help your company grow.
3. Smoother Internal Operations
When companies have to focus both outward on business expansion and inward on employees’ day-to-day needs, something is likely to get lost in the shuffle. Companies in which corporate attention is divided may make mistakes in employee onboarding, time tracking, workers’ compensation, and other crucial areas. Having a dedicated PEO platform to run these internal operations and dedicated PEO staff to navigate the ins and outs of and employee benefits helps make the work flow more smoothly and accurately.
4. Increased Employee Satisfaction
When PEOs oversee the HR aspect of a company and employees receive their compensation and benefits quickly and accurately, employee satisfaction tends to increase. And increased employee satisfaction leads to more productive employees and a higher rate of employee retention — both great pieces of news for any business looking to profit and grow.
5. Professional Help With Local Rules, Regulations, and Tax Laws
Local laws and regulations can sometimes feel like an impenetrable tangle, but PEOs have the knowledge and experience to cut right through. Globalization Partners’ GlobalPedia tool, for example, can help you learn the rules and regulations for doing business in just about any country around the globe. And our team of professionals can take some of this workload off your shoulders to help you remain in compliance, avoid penalties, and focus better on the business aspects of running your company.
6. An Improved Bottom Line
Greater focus on business developments, increased regulatory compliance, improved employee productivity, and increased employee retention all combine for an improved bottom line. By using a PEO, companies help all aspects of their business run more smoothly and effectively. And they put themselves in a better position to bring in more and more profits as they grow.
Expand Your Small Business Internationally With Globalization Partners
When you aspire to expand your small business internationally, Globalization Partners can help. Our comprehensive solution helps small businesses hire employees quickly and easily in up to 170 countries. With our platforms, there’s no need to set up expensive international subsidiaries — you’ll work directly with us, and we’ll take care of global corporate taxes, along with payroll, benefits, and other HR matters so you can focus on your company’s growth.
Contact us today to learn more.