By Globalization PartnersNovember 2017
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To stay competitive, many companies are going global through international expansion, a key part of any growth strategy. “Eighty-seven percent of U.S. companies agree that international expansion is needed for long-term growth, with emerging markets providing the greatest opportunities (69 percent),” according to the Wells Fargo International Business Indicator. Yet, while the globalization trend is gaining in popularity, it is still new territory for many businesses.
There’s good reason to expand a business into a new market (or several new markets). Primarily, a business will look to take on the burden of setting up shop in a foreign market because it sees an opportunity to open a sales channel in the country. If your organization is weighing the benefits of overseas expansion, there are a few key things to consider before diving in.
Key Considerations When Creating a Market Expansion Strategy
1. Test the Market
Setting up your own subsidiary in a new country is complicated and time-consuming, especially if it is your first venture into the territory. One useful workaround is to “try before you buy.” In other words, it’s better to test the market before investing time, money, and internal bandwidth to set up your own entity.
This is where a global professional employer organization (PEO) can help. A Global PEO takes on the risk and administrative burden of taking your organization global from a back office and human resources standpoint. It works like this: The candidate you want to hire would technically become the Global PEO’s employee for payroll and tax purposes. One-hundred percent of that employee’s work would be assigned by the client.
A Global PEO should have legally recognized subsidiaries set up around the world. If you work with a Global PEO, you don’t need to set up your own foreign entity and you don’t have to worry about the nitty-gritty when it comes to laws, regulations, taxes, benefits and so on. Your Global PEO partner takes care of it all for you.
2. Decide on Your Operational Structure
There are two primary ways in which you can choose to operate in a foreign country:
As discussed above, the first and easiest way to do this is to partner with a Global PEO, who can handle all the logistics for you. The second option is to open your own branch office or wholly owned subsidiary in your chosen country. Doing this would take the most effort, but may help you develop a local presence and receive certain tax advantages depending on the country you are operating in. If you choose to set up a branch office or wholly-owned subsidiary, it can take six months to a year and sometimes longer before you are legally able to operate in the region, not to mention several thousands of dollars.
For most companies, those new to foreign markets, long-standing international corporations that want to expand farther or even companies looking to spin off a division of a business that already has team members in foreign markets, the PEO is the new operational structure of choice, due to its low risk and ease of implementation.
3. Consider How and Who You Want to Hire
You’ll need to decide how you are going to staff your operation. Are you going to hire local talent, or potentially expats? One benefit of hiring local talent is that they can help connect you with consumers in the local market who can champion your brand and open doors to other opportunities. In either circumstance, once you find the right candidate, a Global PEO can have that candidate legally ready to work — via previously established and legally recognized business entities in-country — in days, not months.
To learn more about global hiring, watch the free webinar Know Before You Go
4. Understand Payroll Options and Implications
Will you use a single vendor for payroll? Or a local-to-local model? Whatever model you choose, it is important to ensure that your payroll partner provides compliance support and can communicate in the local languages. You’ll also want to ensure that you have a single system of record if you have offices in multiple countries. Keep in mind that while employees are typically paid weekly or bi-weekly in the U.S., in many other countries employees are paid monthly. If you’re using a PEO, they will help you set-up and manage international payroll, advising you on all the legal implications that you need to be aware of.
5. Stay Compliant!
The model agreements that you use across your U.S. workforce will not fit for your global workforce. In fact, depending on the country, the benefit expectations of your global employees alone will be very different from your U.S. team.
Can you provide health care benefits? Are health care benefits even an expectation? What is the mandatory parental leave in the country of hire? And what will you do if an international hire doesn’t work out?
Global employment comes with infinite questions and if done incorrectly, with expensive penalties. Fortunately, there are ways to mitigate the risk. You can read about them here.
6. Immerse Yourself in the Culture
It probably goes without saying that you should understand your chosen country or countries’ culture. What may be OK in the U.S. could be totally unacceptable in Asia, Europe, or the Middle East. You don’t want your business to suffer because you failed to understand the local customs, culture, and etiquette. Along those same lines, tapping into a culture and truly understanding what motivates people in different regions can dramatically and positively impact your brand. If you are sending expats to work abroad, make sure you engage them in cultural awareness training.
Hiring a PEO
Evaluating a Global PEO is much more complicated than evaluating many other go-to-market partners because setting up and managing an international workforce involves so much more than simply “putting someone on the payroll.” Drafting a compliant employment agreement — including how to structure benefits, avoiding unforeseen pitfalls with local working conditions, and working through the market norm best practices — requires deep expertise in any one of dozens — sometimes hundreds — of countries. Having a partner who can help you understand the nuances, see around corners and prevent the inevitable bumps in the road is critical.
Expanding internationally is an exciting prospect — and it’s even more exciting when you’re prepared with an experienced PEO partner by your side to help you mitigate risk and advise you on the specific nuances associated with each country.