The CFO’s Secret to Global Business Expansion
Published on 19 Feb 2021
The growing need to expand internationally
For many companies, expanding internationally has become less an option and more an imperative. Moving overseas can open new revenue opportunities for companies bumping up against market share limitations in their home country. It can give new life to mature products that have reached the end of their lifecycle in their home market, but could still be competitive in another. By quickly beating competitors into a new territory, companies may also be able to capture and benefit from first-mover advantages. Beyond seeking to tap new markets, companies increasingly are looking offshore for talent. Technology now makes it possible to field a workforce every bit as distributed as their supply chain. Employers can now access the best employees they can get, wherever they may be found and in some cases, no matter where those employees want to work.
Pursuing and achieving these goals can be exhilarating. It also can be fraught with challenges, especially for companies unaccustomed to navigating the legal, regulatory and cultural terrain of an unfamiliar locale. Indeed, in a new survey of senior finance executives working at companies where expansion abroad is part of their long-term strategy, 51% report that legal, HR, or tax compliance challenges have been a substantial barrier to implementing their international strategy. The survey was conducted by CFO Research, in collaboration with Globalization Partners.
Challenges with international expansion
The list of challenges can be daunting, no matter how high you’re aiming. An organization hiring a lone sales representative in, say, Ireland, must negotiate the same sort of legal and cultural challenges facing an organization that’s staffing a ten-person distribution center in Brazil or a 200-employee production facility in Vietnam. Even past experience and success in one country cannot ensure success or speedy results in another, since laws and cultural norms can vary tremendously from one geography to the next. In the U.S. vacation time is offered at the discretion of the employer. But in many countries, there are statutory agreements that provide employees with paid time off, as well as salary increases, profit-sharing and bonuses. In Mexico, federal law entitles employees to a Christmas bonus equal to 15 days of normal pay, which employers must pay by December 20 or risk fines. Companies that fail to adhere to these norms can find themselves in trouble with both local governments and employee expectations.
The list of responsibilities companies assume when expanding international is long as well. Just on the legal and regulatory front, hiring even one overseas employee can require setting up a subsidiary or regional presence to act as the employer of record, registering with tax authorities, opening local bank accounts, acquiring local commercial certifications, and administering payroll and employee benefits in accordance with local laws and regulations. Typically, organizations will need to hire local accountants and attorneys to ensure compliance in all these areas. Depending on the country, it could take three to 12 months to establish a foothold.
Download this whitepaper by Globalization Partners and learn about third party organizations that can act as a Employer of Record, to help businesses that want to expand globally.