According to a recent report, 45% of middle market companies make more than half of their revenue overseas.
If you are considering taking your business globally it can sometimes be a complex and difficult process. Researching and gaining a thorough understanding of your targeted markets, the competition and current local market trends establishes an important foundation for your expansion.
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Step 1: Research Economic Growth for Opportunity
Below is a snapshot of the predicted growth for a number of countries over the coming years:
“Global growth, estimated at 2.9 percent in 2019, is projected to increase to 3.3 percent in 2020 and inch up further to 3.4 percent in 2021. (IMF)
“For the emerging market and developing economy group, growth is expected to increase to 4.4 percent in 2020 and 4.6 percent in 2021 from an estimated 3.7 percent in 2019.”
The bigger players such as the US and China are facing a slight slope, however it is unclear whether this is due to slowed manufacturing, financial conditions or even the global pandemic; however, this is not to say that they will not pick up come 2021.
It is important to keep in mind, that the state of the economy does not need to necessarily dictate your business expansion and growth.
Step 2: Business Plan
Firstly, for international expansion it is vital to lay a foundation, so begin by developing a localised strategy and business plan to understand your market. Think about your selling points, evaluate your needs, and set your goals whether that be for the first 100 days or first to second year. To help you understand what the opportunities are in that specific market join professional networking groups or conduct third party research.
Analyse and evaluate the cost involved when expanding your business abroad. The primary cost to take into consideration are staff, marketing, and insurance, as well as many other business expenses. In regard to cost, you will need to consider what kind of rate you are going to charge, be aware that there may be some restrictions when hiring temporary workers, which differ for each country. Also take into account any permits or licenses needed to lend out labour. Contractors overseas may be an option for your business if you are not quite ready to hire permanent employees. It also might be worth transferring your executive staff from your existing location to the new premises, this will help ensure your company values and vision are carried over and passed onto your new staff.
Overall, the factors which should be included in your business plan is summary of company, company description, product/service description, marketing analysis, marketing strategy, management, day to day operations, financial plan, and projections. Along with any additional information such as contracts or permits.
Step 3: Market Research
Once your strategy plan is in place, it is a good idea to conduct foreign market research and identify international differences whether that is cultural, social, legal, or economic. Do not always necessarily assume that business will be conducted in English, it is always wise to familiarise yourself with the local language and ensure that your marketing material is tailored to each country. Accept and take on board cultural differences that shape that specific marketplace and build a relationship with clients, stakeholders, or vendors before getting down to business.
“While different nations have their own compliance and employment laws to deal with, often it is the softer, cultural elements that are overlooked. For example, Western commercial dealings are very transactional, so it can be a challenge for American or European companies to adapt to the more relationship-based culture found in East Asia.” (Personnel Today)
Currency exchange rates can also be an important factor to investigate, with variances in fluctuations in exchange rate it can sometimes decrease your sales or prove difficult with trade.
Step 4: Laws and Legislation
Dependent on which country you are looking to expand in, each country will have their own rules and regulations. In regard to law, to ensure a smooth day to day running of your business it is essential you follow the in-country employment legislation such as Health & Safety or minimum wage. With procedures ever changing it can sometimes get quite complicated whether that is about taxes or payment it is crucial for each factor to be adhered to.
Step 5: Setting up an Entity
One of the key steps in setting up your expansion is to register your business within that country. This could be a secondary company or a new entity. Without a legal entity setup, issues may occur especially around tax compliance within the country. Each country has different entity structures, so be mindful when setting up either bank accounts or offices leases to ensure the process is in line with your timeline.
Within the US for example you would need to register for an Employer Identification Number (EIN) which is a unique identification number that is given to your business entity so that it can be identified by the Internal Revenue Service (IRS). It is commonly used by employers for the purpose of reporting taxes and filing tax returns and you will also need an EIN to pay employees. Additionally, financial organisation such as banks or credit unions will not open an account for a business without an EIN in place.
As an alternative, many companies that are not quite ready to set up a new entity, partner with a workforce management team or PEO. By doing this it means you wouldn’t need to go through the process of registering in country, allowing you to put more focus into the expansion and letting the workforce management partner deal with the compliance details.
Step 6: Business License
The government will provide you with a business licence permit which covers either an individual or limited company to run a business within that geographical jurisdiction. The licences you will need to obtain for your business activities will depend upon what country you have set up in and what you want your company to do. It is always wise to contact the local authority to find out if there are any area-specific or industry-specific permits or zoning conditions that could potentially limit your business activities.
No matter what company, if you have any income you will be required to obtain either business license, permit or registration to ensure that you are operating legally and in compliance with the government regulations. Certain licenses are essential for businesses operating within a jurisdiction. These include: Basic Business Licenses, Payroll Tax Registration, Sales Tax Registration. Whereas, many licenses can be industry specific for example, engineering, healthcare, construction, restaurant/bars, or security etc.
Be certain to make sure that your business is insured to keep you protected.
Step 7: Salary
Some countries offer an “enhanced” base salary or “guaranteed cash compensation” that incorporate allowances for additional costs like housing, education or a 13th month of pay. In order to balance a global pay strategy which remains compliant with local laws and also be locally competitive can be more complicated and costly than originally anticipated.
For a business to hire international employees directly, you must first have a legal entity completed in the country where the employees are located. For global mobility and often international employment, a compensation package could incorporate more than just a salary. An employer may choose to give additional benefits that are in coherence with their company values or to equalise conditions across multiple countries.
On the other hand, local compensation approach is where a business will equal their salary offer to the localised market. Utilising a more local method will let you take care of your employees whilst also remaining profitable. A more localised salary is one that can cover all living costs for your employee such as housing, utilities, food, health needs and transport.
Step 8: Identify Talent Pool
One of the key benefits of expanding globally is being accessible to the wide range of talent.
By using the latest resources, the search for candidates can be optimised by accessing real time data across the talent marketplace and by building a deeper understanding of the talent pools. The two main sources of data are qualitative and quantitative. If your criteria are more descriptive or in more relation to quantities so for gender, education, industry or competitors whether that is for locals or expats employees the search can be altered to your specific criterion.
“A McKinsey Global Institute study suggests that employers in Europe and North America will require 16 million to 18 million more college-educated workers in 2020 than are going to be available.” www.talentlyft.com
Step 9: Approaching Candidates
Within the recruitment process it is vital each conversation or message is tailored towards the candidate to ensure its specific to them and to your opportunity. It is important to conduct a thorough qualification process as each location will have a variation of factors. For example, holiday allowances differ dependent on country. For the Netherlands, its typically 20 days’ vacation (plus 7 public vacation days) whereas the United States is typically a lot less not to exclude any regulations regarding religious holidays.
Another differential factor is notice periods which also vary from country to country whether that is you providing your employees with notice or them handing in there notice to their employer. It is important to realise that higher level candidates such as vice presidents, directors whether they're a permanent member or contractor, they will have a longer notice period than those of a more junior level. This in turn can make the hiring process of more senior positions more delayed.
As important as it is for a candidate to sell themselves when applying for a role, it is equally important for a business to do exactly that as well. Who are you? What do you do? And why should they work for you? In terms of package and opportunities what can you offer.
Step 10: Interview Process
Now more than ever video technology is a vital part of the recruitment process, particularly for international recruitment. To help stand out from competitors and save time throughout the interview process, you can ask candidates to create a solo video interview. There is no need for you or the recruitment agency you are working with to be present, as it can be recorded at any time on any device. This is also a great solution if there is a time differences between each country.
Traditionally candidates are shortlisted based on their CV, which can often be a very basic insight into what a person is like. Whilst a CV can provide useful information about a person’s skills and experience, a video interview will give the candidate a chance to showcase their character, their passions and values. This will allow you to see their personality and how they will potentially fit into your organisation – as Simon Sinek always says, “You don't hire for skills, you hire for attitude. You can always teach skills”.
Step 11: Payroll
Taking care of any payroll and financing no matter what country can be a difficult and complicated process. Especially if you are expanding globally, so it is not unusual for foreign businesses to choose a payroll service company to partner with so that the payroll process can be managed on your behalf. It is important that the correct tax and infrastructure are in place early on to ensure that yourself and your team are receiving timely reports and you are compliant with all the local policies and procedures.
There are many compliant payroll solutions that can help tailor and facilitate your workforce for example, a timesheet management system can record and register all hours and expenses from contractors before issuing them a payslip. This is a quick solution in ensuring all administration and payments are fast and efficient no matter what currency. More importantly, clients and contractors do not need to be in the same location for when using the online system to receive payment authorisation. It is vital to understand the importance of paying your staff on time no matter which country.
Step 12: Ongoing Growth Strategy
Ongoing growth is essential in any business, whether that is increasing revenue or overall performance. If the answer is ‘Yes’ to ‘Have I met my original business objectives within the timeframe set?’ then now may be the time to invest in other ways to ensure your business growth.
There are two important factors in business growth strategies, and they are market and product. What is it your looking to sell? or what are you looking to offer? It all boils down to essentially four major key strategies which are, product development, market development, market penetration and diversification. Established and successful businesses regularly review their business plan, which is your short to mid-term plan, whether that is weekly or monthly to which your strategic plan would be set out. To ensure succession in your growth it is vital to monitor your progress to notice any changes in the targeted marketplace or any environmental changes.
Step 13: Dealing with HR Issues
Any business expansion does not come without challenges, especially for HR. With the growth of your company comes the need of new staff. Having a recruitment strategy plan in place will ensure a smoother hiring process for the HR team and will ensure you hire the right people with the criterion you are looking for and reduce employee turnover. Keep the HR within all relevant meetings so the correct level of training can be provided to new employees to guarantee succession within your business.
When setting out your business plan, to make the process a little easier for HR, it is a good idea to set out a contract to include the employment laws that must be taken into consideration such as, the salary, working time regulations, probation, notice period, pension, benefits etc. Understanding local regulations is one factor but understanding legal compliance globally with variances in systems and languages is another. It is essential for your HR team to understand the legal compliance within the country you are looking to expand into.
Step 14: Adapting to COVID-19
Expanding a business has its own challenges, never mind expanding a business during a global pandemic. Before Covid-19 knowing what to do during a global pandemic may have not been included within your strategy. However, with during these testing times it is important to understand the processes in place and what is available for your business to help eradicate any issues before they happen. During a pandemic communication is key, work with your HR team and create a checklist, can your workforce work from home? Are you financial stable enough to continue to pay your workforce? These are just some of the questions to take into consideration. It is also important to include an exit strategy plan, use the technology available and embrace what is now considered the ‘new normal’.
Office space or remote workplaces are now more than ever paramount within your business. Communication is key, having the tools available to replica face to face communication bring a coalition amongst the team. It is also about trust and mutual respect, as important as it is to speak about business it is equally important to keep your workforce engaged, so keep communication light. Remember when working from home you can often feel isolated, so it is important to ask your team how they are, or if they need any additional help. When speaking with clients the meetings can be more direct and business related; however, like with your workforce it is important to build that long lasting relationship, so taking the time to get to know your clients will have a lasting effect.
Step 15: Termination
Finally, have you considered if employees do not necessarily meet the requirements what obligations you should be aware of for terminations. Whichever country you decide to expand in, it is vital to understand the local obligations especially due to financial cost and time taken in legal disputes. There are many approaches across the world which are similar when terminating an employee. Unfair dismissal can often be a complication when terminating an employee. As an employer it is essential you follow the correct procedure when terminating, such as prior warning and that your reason is completely justifiable so that you are protected should the case be taken any further in court.
For most countries, fair dismissal can be classified under either conduct, capability or economic reasons.
However, the European employment laws are different from the US employment laws. For example, within the US they can employee people under the ‘At Will’ employment, whereby an employee can legally be terminated with no prior warning for any reason.
“One key difference between the European approach and the approach elsewhere, which includes the US, is that employees tend to be entitled to minimum notice of termination.” (personneltoday)
Find out More
As this guide is quite generalised to all businesses, if you are looking for a more tailored approach to your business or to find out how we can assist you with payroll or workforce management, please drop us an email or call on the number below and our team would be happy to help.
Simon Duff | email@example.com | +44 (0) 1625 537 555 ext 119