If you’re considering global expansion, you’re in good company. According to an American Express survey, nearly half of executives polled from businesses sized between $5 million and $1 billion said growing their business was their most important priority. And additionally, with 95 percent of the world’s consumers living outside the U.S. according to the U.S. Chamber of Commerce, global expansion seems a natural way to accomplish that growth.
Whether you’re expanding to diversify products and services, access improved distribution channels, grow revenues, seek strategic talent pools or all of the above, taking your domestic-based business global can result in unexpected challenges. Below are some top tips to help avoid making your global expansion more challenging than it needs to be.
Compliance: More Complicated Than You Think
New markets have the promise of significant revenue, but many factors also come into play that can bring significant corporate risk. International tax risk can come from multiple sources, such as transfer pricing in cross-border transactions or unknowingly creating a permanent establishment in country, giving the local authorities the power to assess income or value-added tax. And there are the routine business-as-usual risks once you are there. For example, a failure to remit taxes could result in an executive property lien in the U.S., but failure in Japan could land one of your executives in jail.
Making sure you have access to specialized knowledge, either internally or externally, to steer you away from dangerous missteps is critical.
Act Like a Local; Know the Laws
Rules and regulations vary from country to country. When you are conducting business in another country, you must obviously abide by local rules and regulations. Yet the unfamiliarity may make you miss the right questions to ask. Do you know the local versus non-local ratio if you intend to expatriate key staff? Can you differentiate between benefits that are statutory versus those that may be optional and/or commonplace? Are you familiar with how taxes are calculated in the region? Have you registered employees with the appropriate authorities to ensure their right to work? Are you aware of the local rules mandating the specific data types you are permitted to maintain for in-country employees?
Each region will have its own unique variations on employment practices, which must be understood and followed. For instance, there is no termination period in Portugal, and managers in Germany are not allowed to contact staff after hours unless it’s considered an emergency.
Failure to understand and comply with local laws can result in expensive and potentially disastrous mistakes when it comes to HR rules, regulations and cultural expectations. Take the time to learn the rules of the road or partner with someone who has the knowledge to keep you on the right path.
Growth Brings Changes
Rules and regulations that are applied when you initially entered a country can and will change over time. Remaining compliant in the territories you’re moving into can become a full-time job; the rules change very quickly as you grow. The U.K. is a great example; if a company has one employee, the benefits and pension that employer has to provide are far less than if the company has 50 or more employees.
As you grow, staying informed on the changes in compliance requirements is vital. Otherwise, you could be making your organization liable for a range of punitive damages – which can be crippling, especially for smaller companies – simply for not understanding what the specific requirements are for a company of your size.
Have a Strategy
Global expansion is an investment that should have a solid strategy behind it. Are you planning to set up a permanent entity in the location, or are you just floating a few trial balloons? If demand and opportunity seem solid, a permanent approach is justified. But the process can be lengthy, expensive and full of compliance risk. Putting together an investment strategy to include personal and property security, travel and liability insurance and crisis response policies, in conjunction with deploying successful, proven leaders to the territory, are some factors to establish your business in its new region.
To help determine the best approach, ask yourself these three questions:
- What is the easiest way to get into a country?
- What are our goals while we’re there?
- What is the easiest way to get out?
Rather than opening an office direct, many companies are choosing to co-employ their staff through a global employment outsourcing organization to avoid the many pitfalls and cost of setting up directly. When you consider, for example, that, on average, it takes 102.5 days to start a new business in Brazil, it’s clear why some organizations opt for the outsourcing alternative to test a market quickly, with minimal investment and risk up front.
Be Proactive and Have a Plan
Building a plan is where you transform all of the elements of your global expansion strategy into a powerful business reality. The backbone to a prosperous business is the plan which outlines and defines success, procedures and growth objectives. An all-encompassing plan of how the business will function should be accessible to all employees, laying the groundwork for how the company should be run. Such a plan needs to be both flexible and comprehensive to meet growing business needs, as well as detailed and localized to avoid costly noncompliance.
Find the Right Partner
It’s hard to be experts at everything, especially when navigating uncharted territories. This is why it’s vital to your company’s success to find the right partner who knows what you don’t and can take you to places you haven’t been before. Companies who specialize in global payroll and global employment outsourcing are great resources for medium-sized businesses, because they know country payroll policies and employ in-country experts to ensure ongoing compliance with all local regulations.