If you are on the leadership team of a growing business, one of the most exciting milestones is the point when you’re ready to expand into new international markets. You are looking at a greenfield of new revenue opportunities whether direct or through partnerships. This kind of expansion can also give new life to mature products that have reached the end of their lifecycle at home, but could still be competitive in another country. The trick is to quickly beat competitors that may also want to expand to this new territory, capturing all the benefits of the first-mover advantage.
Being first sounds simple – just move fast right? But it’s not that easy. Navigating global expansion can be daunting, especially depending on what countries you are moving into. There are a plethora of legal and regulatory requirements to consider. Hiring even one employee can require setting up a subsidiary or regional presence, registering with tax authorities, opening local bank accounts, acquiring local commercial certifications, and administering payroll and employee benefits in accordance with local laws and regulations. Typically, organizations will need to hire local accountants and attorneys to ensure compliance in all these areas. Depending on the country, it could take anywhere from three to 12 months just to establish a foothold. Twelve months is not exactly first-mover friendly.
Given the challenges associated with global expansion, it’s not surprising that many companies turn to a model in which they contract with a third party for international employment instead, typically referred to as global employer of record.
An employer of record can handle onboarding a company’s chosen candidates in other countries, take care of payroll and offer benefits packages in line with local requirements. The employer of record assumes all responsibility for compliance with legal requirements, which is highly attractive and significantly mitigates risk for the company. They can also handle assignments ranging from setting up a single employee to staffing an office or facility with hundreds of employees.
A recent survey by CFO Research found that some of the top benefits of an employer of record model include the assurance of legal and HR compliance, cited by 51% of survey respondents, followed by the assurance of being in regulatory compliance (42%) and the ability to leverage local knowledge (40%). On that last point, a global employer of record can offer things like onboarding videos in the local language, which can be important in building a better long-distance employer-employee relationship.
A global employer of record should have experts on the ground in many countries, and that local experience helps to ensure success on all fronts. It gives the new employee the security of knowing that their employer understands their specific needs and expectations of their country, which can vary substantially from one country to the next.
No matter how good new employees are, or how committed they may be to a successful partnership, their enthusiasm will inevitably wane if their employer isn’t able to manage the fundamental nuts and bolts of setting up shop in the new country. This is proven by a recent survey that found that employees who report their companies are not able to align with and be sensitive to local culture and regulations are more likely to have turnover intentions. This means it’s not enough for companies to simply study the local market and ship a few expatriate employees to another country. Local cultural and legal knowledge must also be prioritized.
Expanding internationally has become less optional and more imperative. The secret to successful international expansion doesn’t need to be a secret any longer. Many companies that have taken the more challenging path – that have opened subsidiaries in multiple countries and tried to navigate complex legal, tax and regulatory environments on their own – wish they had known about this alternative a long time ago. It would have saved them a lot of time and money. Global expansion can be exhilarating, but fraught with challenges. It doesn’t have to be any more.