Expanding globally has evolved from a discretionary choice to a vital strategic necessity for forward-thinking businesses. While there are countless advantages for those who venture into the global arena, it’s the decisions made in the early stages of global expansion that can often shape the trajectory of the entire venture.
Kathryn Barnes, Senior Employment Counsel Manager at G-P, recently sat down with Thomas Merchant, host of G-P’s “Pangeo Perspectives: Your Guide to Global Growth” podcast, to discuss one of the first and most pivotal decisions in every expansion journey: Should companies set up a legal entity or partner with an Employer of Record (EOR)? Let’s explore some key takeaways from their discussion.
#1: With entity setup comes logistical challenges.
Suppose a company is certain of their long-term commitment to a particular market and decides to set up their own entity. Barnes explained that “it will take a lot of people within the company to set up in a new country because there are so many stakeholders that would need to really understand what is needed in that new country. You’re talking tax, you’re talking payroll, you’re talking legal, you’re talking operations … so there’s a number of stakeholders that would need to be involved.”
It’s possible that companies will also need to have an in-country director on the ground and, to throw an additional spanner in the mix, some nations, such as Greece, require that your in-country director be a national citizen. Barnes noted that fulfilling this requisite can be extremely hard logistically for most companies: “Certainly when you are starting out in a country when you want to hire ones and twos, just to see if you’ve got the market, it’s impossible for those types of businesses. So that’s where an EOR would come into the mix.”
#2: With an EOR, you can begin hiring in minutes, not months.
It can take over 12 months to set up an entity in some countries. This can be detrimental to many companies as market speed is crucial to building brand awareness and sets the foundation for long-term growth. A 12-month slog through bureaucratic red tape can drain time and vital resources.
This is where partnering with an Employer of Record comes in. An EOR provider has already done the legwork and is familiarized with the local landscape, acquiring exceptional expertise through experience. An EOR partner with the longevity and quality of G-P, for instance, can enable a company to begin hiring in a new market within minutes — regardless of entity status.
#3: Managing compliance must be a crucial consideration from the start.
When navigating incorporation costs, companies must have a concrete idea of its business purpose as well as other license requirements. Otherwise, any discrepancies in the application documents may trigger additional scrutiny from the local government.
“Governments have a very wide repertoire in terms of power. They can fine you, they can stop you from doing business, they can pause you from hiring, they can do all sorts of things in order for them to be satisfied that what you are doing in their country is legally compliant,” noted Barnes.
Compliance can make or break your international endeavors, which is why an EOR is an appealing option. When partnering with an EOR provider, they take on all of the risk regarding local compliance, freeing the parent company from complex regulatory tasks and, subsequently, the financial consequences that accompany them.
#4: Know that all countries’ compliance laws are complex — some more so than others.
Some countries have challenging compliance landscapes. For example, from a regulatory point of view, China is highly complex and unique. Therefore, it is not uncommon for a company to have seven or eight subsidiary companies, due to the regulatory requirements of China’s different provinces.
Protection of intellectual property is also tough due to government oversight. India has extensive labor laws and tax regulations. And while the U.S. is generally considered business-friendly, companies must remember that the nation has 50 states, and each one has unique levels of protection and legal requirements.
However, when partnering with an EOR, companies are free from worrying about complex regulatory tasks.
#5: When planning for expansion, factor in the corporate cost.
“I would never say to a company to underestimate the corporate fee [of entity setup],” Barnes began. “Whilst you’re not actually paying certain things out ─ a dollar amount or a pound amount or a euro amount ─ the amount of time that it’s taking for your internal staff members to try and figure this out is a corporate cost because they’re not at their desks doing what they need to be doing, what they [were] hired to be doing each and every day. They’re trying to figure this out [entity setup] as well as doing that [everyday] work.”
The time drain of entity setup can significantly burden teams, which should be acknowledged as a potential cost. When workers become bogged down in the bureaucratic complexities of entity setup instead of focusing on their day-to-day responsibilities, it can result in decreased morale, retention issues, and missed growth opportunities.
In contrast, partnering with an EOR provider saves you time and resources by sparing your team from having to research different in-country laws and stay on top of other compliance intricacies.
#6: Prepare to be flexible when it comes to entity setup timelines.
When setting up an entity in a new country, companies should always plan for significant delays in their timeline. No matter how much research is done or advice is received ahead of time, there are several regulatory variables that can extend the process. By factoring in this buffer, companies can comfortably deal with any potential delays, such as banking issues or tax filings. In some countries, it can take up to 15 months to set up a bank account.
In contrast, leveraging an EOR means operations can start immediately and companies can begin hiring within days. Barnes highlighted that an EOR provider can counteract this.
“We’ve already done the hard work, the EOR has already set up in the country. They (EORs) are already familiar with that landscape in the country. So this negates the need for companies going into new markets to actually figure out entity setup [and], figure out regulatory processes, right?”
Speaking from her own experience, Barnes continued, “I can certainly speak from G-P’s point of view. We are fantastic at what we do in the countries that we are in ─ that’s over 180+ countries. And we focus on the employment side of things, we focus on the HR management, we focus on the policies — customers don’t have to do that when they use an EOR. We’ve done all that for them.”
#7: Consider that entity setup can require a lot of capital.
Setting up an entity comes with incorporation costs. For instance, several countries require specific capital be paid into a bank account before the incorporation registration can proceed.
This capital can be over USD 100,000. Moreover, that capital, in many cases, needs to sit in the bank account for the longevity of that entity. Suppose a company were to dip below that USD 100,000 marker. In that case, the bank can shut the account down, nullifying the company’s ability to do business in that country.
#8: Remember that an EOR partner handles more than just taxes and laws.
When testing a new market, an EOR provider also has the knowledge to advise and steer companies toward untapped opportunities that may have been otherwise overlooked. For example, a recent G-P customer was initially looking to hire a tech professional in, let’s say, Country X. However, after consulting with G-P, the customer instead decided to explore Israel, which could offer a wider pool of tech professionals to choose from.
“And that’s GP. That’s what we do,” Barnes said. “We do not only the hard stuff, the heavy lifting stuff with regards to the people management, but we can also really help build a customer’s business. And I love that, I think that’s so exciting. And some of the things that we do with customers is just out of this world and it’s not something that I would have thought of back when I first started at G-P a couple of years ago, that’s for sure.”
For example, G-P Meridian IQ™ includes real-time salary and benefits benchmarking data by country, information on the best markets for specific talent, hiring and employer burden cost data, details on local compliance laws and tax requirements, and more. This makes it an invaluable tool for companies looking to leverage data and insights for global planning and strategic expansion.
How G-P can help.
Over 11 years ago, G-P created the Employer of Record model to help companies everywhere hire global teams anywhere.
And now, with new technology for new times, we recently launched G-P Meridian Suite™, the #1 suite of global employment products, to enable companies like yours to customize and accelerate global growth.
Our market-leading platform is backed by the largest team of in-region HR and legal experts to help design and execute your company’s global expansion plans.
Book a demo today to learn more about why G-P is the market leader in global hiring.