Easier Expansion Starts With These 4 Questions

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Dec 07, 2018 UK Sam Barnes

Before senior HR, legal and finance leaders map out expansion moves, they are wise to first start by answering four basic questions. While these will eventually be addressed in-depth with the right expansion service partner, early discussion of these issues will improve expansion efficiency and help companies capture new market opportunities more rapidly.

When the day comes where international growth is part of the corporate agenda, leadership should bring relevant internal staff together and consider the following:

How do we envision employing people abroad?

Everything from corporate structures to company values and the relative importance of a market can inform how a company decides to employ staff in a new location. As such, companies must give thought to their ideal employment approach. Recognising that the right service partner can offer comparative views on the financial, legal, cultural and regulatory impacts of employment types, companies can begin by weighing the two fundamental approaches. The first is sending employees from the home office country with short to mid term assignments (6 to 24 months, for example) or with the expectation of permanent relocation. The second is staffing the new market by hiring foreign nationals. These approaches bring a variety of hard and soft personnel implications worth considering. If sending trusted HQ staff, issues may range from visa and right-to-work issues, to family and dependent support best practices and tax and social security payment complexities. If the priority is on in-market experience and foreign nationals are sought, companies must navigate new dynamics of statutory and supplementary benefits, remuneration and country specific regulations such as collective bargaining agreements with local unions.

What employment vehicles should we consider?

Few companies have the internal expertise to decide with certainty which employment vehicle is preferred at the outset. But early research will help leaders understand the basic constructs of each vehicle type and guide conversation on how the company wants to be viewed in market. In some cases, timing or internal capacity may make a vehicle type ideal. As well, perhaps a new location is being ‘tested’ or seen as exploratory for the purpose of market research. These companies may well prefer a lighter touch presence. Perhaps companies want to intentionally keep distance or distinctions between new market help and existing staff. There are employment options conducive to this. Approach types can include a formal subsidiary or branch, a rep office, contract employment, local payroll registration or engagement with a third-party intermediary like a professional employment organisation (PEO). Options will impact relative speed of employment and differ significantly from cost of set up and maintenance, use limitation and ease of exit perspectives.

How will we navigate permanent establishment risk?

Permanent establishment is a concept represented by a country’s tax laws that tests and determines whether a foreign entity has sufficient business activity to warrant paying income tax.  PE risks varies by country, but as the complexity and reach of global business grows, tax authorities are increasingly scrutinising foreign business operations. Given the popularity of mobile workforces and multinational partner or business models, PE control needs to become part of company’s tax control planning. Tax leaders should partner with business leaders early on to build expectations around PE risk thresholds and to guide planning around usual PE indicators like employee stay lengths, job titles, role and responsibilities and home or corporate office locations.

How will we establish and apply cultural understanding?

Business leaders may be quick to plan the operational pieces of expansion, but can fail to build local sensitivities and understand the cultural practices critical to success. In many markets, companies cannot land top-tier staff or secure personnel engagement without careful consideration of the softer market-to-market differences. But these can be as significant to success as careful regulatory compliance and entity management. Practical differences and expectations – like that certain weeks or months are primarily Holiday periods in some countries – can even affect workflows. Other practices, like a thirteenth month of salary as a standard bonus in some APAC markets, cannot be overlooked without straining morale.

Every choice in the expansion journey is filled with pros, cons and tradeoffs so bringing in the right subject matter expertise will help companies expand far more effectively, compliantly and cost-effectively. But leaders don’t need to wait to engage a service provider or be ready to green-light hiring before they give thought to key expansion factors. Instead, they should prioritise early perspective building that takes into account company core values, growth aspirations and available internal capacity and resources. Focusing this thinking around these four questions can expedite time to market.  And in markets where every little bit of advantage matters, that speed to expansion may make all the difference.

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