Velocity Global COO Jose Montero explores options organizations have to stay nimble and responsive despite ever-changing business conditions brought about by COVID-19 – and what they need to know to continue cross-border growth.
Businesses watch for signs of recovery and signs of opportunity. As the pandemic-imposed isolation slowly lifts, companies get back to business, back to growth, back to global aspirations. That growth comes in a new world of business where contingency plans include the possibility of an immediate global shutdown, so they implement plans to remain flexible and compliant.
The economic and human impact from the pandemic are significant, and businesses need to embrace new challenges to manage risk while executing their global growth strategy. According to our annual 2020 State of Global Expansion™ report, regulatory compliance represents a major concern for both U.S. and U.K. tech firms. Although only a quarter (25 percent) of the 1,000 businesses in the report highlighted compliance as an issue, the proportion has increased dramatically in the past 12 months, up from just 14 percent last year. This change is driven by increased regulation complexity at both the country and regional level, and now further complicated by localized COVID-19 policies.
The International Monetary Fund (IMF) forecasts that the U.S., the EU, Japan and Canada will each see GDP contractions ranging from 5.2 to 9.1 percent this year. Worldwide, the IMF predicts that advanced economies will experience a 6.1 percent decline and that both emerging markets and developing economies will also deteriorate, although at a more modest 1 percent. Those numbers drive businesses to seek flexibility, but also opportunity.
According to the IMF, there are still pockets of growth, although at a slower pace than before. The Fund revised its growth projections for China, the world’s second-largest economy, to 1.2 percent for the year, and for India at 1.9 percent. In fact, India is one of the most promising markets for post-coronavirus global expansion. Before the pandemic, 40 percent of the tech companies in the State of Global Expansion report identified India as offering the top tech talent for global expansion, while 35 percent saw it as the top market for their overall global growth.
Beyond this year, solid GDP growth is expected across Europe. Germany, Italy and France project 2021 GDP growth at 5.2, 4.8 and 4.5 percent, respectively. They are also top of mind for U.S. and U.K. tech executives, with 41 percent recognizing Europe as the most promising region for global growth, while 30 percent cited the region as a rich tech talent pool.
With continued uncertainty in the midst of a global pandemic, businesses’ global strategies need to stay flexible to test the waters of foreign markets before making a long-term commitment and to remain compliant with foreign employment laws, taxes and regulations.
Businesses have two main options: create a traditional foreign legal entity or modernize their approach with an International Professional Employer Organization (PEO).
An international PEO is a modern alternative gaining favor among expanding businesses. This employment vehicle offers a flexible, cost-effective solution to reduce the financial and operational risks in essentially every market in the world. An international PEO helps a business tap into new markets in days, not months, so the business doesn’t have to set up a foreign legal entity in-country. International PEOs utilize their existing global infrastructure in the desired country to employ workers on a company’s behalf. It manages administrative aspects such as payroll, benefits and ensuring compliance with local labor laws. The business itself directs the global employees just as it does its domestic employees, the administrative compliance burden is shouldered by the international PEO.
This agile approach enables companies to test markets and exit quickly if business or societal conditions change. If successful, they scale quickly to seize the business opportunity and foster a positive, engaged workforce abroad.
A more traditional full-fledged legal entity is appropriate for a company ready to make a long-term commitment with dozens of employees in a foreign country. Entity setup can take months of manhours and approvals and cost tens of thousands of dollars, plus hundreds of thousands of dollars more to maintain.
Instead of committing to a country for the long-term out of the gate, many companies utilize an international PEO to accelerate their market entry and remain flexible while planning the long-term structure. This also helps businesses navigate COVID-19 delays; entity setup has halted in many countries as governments pause applications while focused on COVID-19 recovery. For technology companies operating in a business environment that changes almost daily, that sluggish pace is out of sync with business needs and opportunities.
The new normal puts a premium on speed and flexibility, executed confidently and compliantly. Companies blazing forward with global growth initiatives navigate uncertainty with a modern strategy to accelerate their economic recovery.