Why and How to Expand Overseas
Your business is doing great and you’re
looking for ways to widen your market as much as possible. You know there would
be demand for your product or service overseas, but you are hesitant to launch
your business in an unfamiliar culture. The laws in each country are so
different, staying in compliance feels like an overwhelming risk.
In today’s world, however, there are ways
to ensure full compliance with local laws that are much simpler than you may
realize. As work grows increasingly automated, it’s getting easier to find
technological solutions to challenges such as legal compliance and culture fit.
Expanding oversees has many advantages for
a business of any size. In addition to offering a new market that has not yet
been saturated with your offering, broadening horizons abroad also allows your
business to draw on a wider pool of talent than you could when you were focused
only on your local area. It also allows you to leave a footprint abroad and
start to build a global brand – an option that was only really available to
large corporations until recently.
Today, any business can become a global
force in a relatively short time. It does require some planning and knowing
your options on how to handle hiring a workforce abroad. It starts with knowing
what your goals are and how you hope to achieve those goals abroad.
Different
Options for Different Stages of Growth
The expansion strategy you choose is going
to be influenced by your company’s current state of growth. A small company is likely to prefer a smaller
commitment abroad, and as the size and stability of the company grows, the
oversees commitment is likely to grow along with it.
Early stage
– Welcome to the Gig Economy
Even if a company is still in the early start-up
phase and undergoing a great deal of change, it can still include global
expansion in its growth strategy. In fact, working on a parallel strategy
oversees could help determine the viability of your product better than testing
in a just a single market.
An early stage strategy would dig deep into
the global gig economy, where freelance
workers are hired for small tasks with no commitment from either
party to continue to relationship. That would mean hiring contract workers – self-employed
independents responsible for their own taxes and do not qualify for basic
benefits such as health care, vacation time, or even a minimum wage.
With contract workers, pay is fixed ahead
of time. The worker supplies an invoice for the work performed and you pay the
entire amount without having to withhold taxes from the paycheck as you would
from a proper employee.
Hiring freelancers is a good way to test a
foreign market in a limited way. The primary drawback is the risk of
misclassifying workers as independents. If you control how they do their jobs,
where they do the jobs, or what their employment options are when they work for
you, they may qualify as regular employees – and obligate you to employee taxes
and benefits to the workers or face fines for failing to do so.
Medium Stage – Global PEOs/Employer of Record Services for Full Compliance
As a company grows in size and stability,
and has a better understanding of how to market its product, it may consider a
more stable form of global expansion. While it may require more from its workers
than a group of freelance workers can provide, it is likely still too early to
take on the cost and commitment of opening a full legal entity in a target
country.
Opening an entity takes a great deal of
time and money, and then requires more money to maintain. If the project needs
to be cut, it costs even more money to close. That’s why a foreign subsidiary
is the most advanced – albeit most stable – option. There is an easier way to
achieve the similar results without the risk of opening an entity by working
with a Global Professional Employer Organization (PEO)/Employer of Record.
While the definition of a Global PEO varies between the US and the rest of the world, for those wishing to hire workers outside the US, it is a form of co-employment by which your company hires workers through the PEO, which either becomes the employer of record or works with local vendors who take on the role.
The Employer of Record assumes responsibility for payroll, workforce management, taxes, insurance,
benefits, worker’s compensation, and all other aspects of legal compliance.
Your company, meanwhile, directs the worker in day-to-day tasks. With a Global
PEO, you get the worker and full legal compliance.
A Global PEO/Employer of
Record is easy to set up, especially through automated payroll processes, and
is perfect for trying out a limited presence in several countries – something
that would be virtually prohibitive if you needed a full entity in each one.
Advanced Stage – Opening an Entity
When the business reaches a level of maturity where it is no longer experimenting with different markets but has a firm grasp on its global strategy – how large a workforce it needs, how long it is prepared to commit to a presence abroad – it could be time to take the leap to opening a legal subsidiary overseas.
A legal entity is the
sturdiest form of presence abroad. While it is the most expensive, it also
allows the greatest flexibility. For example, if your presence is expected to
scale upward (if for example, your small sales team is so successful it needs
to expand dramatically, and then requires support from a proportional customer
success team, etc,…), a legal entity is the easiest way to do it. The entity
also gives you the most options on signing contracts with other business and in
negotiations with your workers, because the workers work only for you, not a
co-employment arrangement.
An entity, however, puts all
of the legal liability on your company. You can still mitigate the risk by
working with a company that specializes in international payroll automation.
That way you know that all the legal elements are covered.
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