By Ben Wright, CEO at Velocity Global, Velocity Global
Evidence shows that businesses are expanding into new markets, both in Europe and beyond, despite the uncertainty associated with the UK’s departure from the EU.
Figures released at the end of 2018 from the Department of International Trade showed the number of small- and medium-sized enterprises (SMEs) exporting goods and services to overseas markets had risen to 232,000, up nearly 7 per cent year-on-year.
From China, India, and Brazil to Nigeria and Qatar, there are established and emerging economies that present significant potential for UK firms.
But expanding globally comes with myriad compliance, legislative, and administrative complexities – especially for SMEs that might not have the resources in-house to manage the transition from national to international.
Understanding these pain points and the options available to mitigate them is a vital first step to putting a business on the right global footing.
Factor in upfront costs
Setting up an entity in a foreign country is often expensive and time-consuming. While creating a limited company in the UK costs in the region of £3,000, it can be pricier elsewhere. In Brazil, for example, registering a ‘Limitada’ costs approximately £15,000.
On average, businesses will be looking at between £10,000 and £15,000 in initial entity setup costs.
In addition to this, there’s the time it takes to complete the process. While it takes only two weeks to set up an entity in the UK, the global average is between three and four months. Even in countries where it may be quick to incorporate a business, establishing a bank account can take months, which is the final piece needed for a truly operational entity.
Establishing a presence abroad will very quickly necessitate having boots on the ground, and there are hidden and unexpected costs associated with employment to consider. Some countries have mandatory – or close to mandatory – bonuses. In Israel, for example, workers expect a ‘13th month’ bonus, which equates to an extra month’s salary.
Paid holiday, insurance and healthcare obligations also differ greatly from country to country. Depending on the location, businesses could easily be paying upwards of 30 per cent on top of an employee’s salary to cover these obligations. In Brazil and Argentina, it’s around 60 per cent.
Understanding a new environment
Every territory is different, both culturally and the way in which they require companies to operate. This applies to the regulatory barriers to setting up a business as well as the legal requirements of employment, such as contracts, worker status and benefits commitments.
These nuances are problematic and almost always require potentially expensive local legal and compliance expertise to manage properly.
In addition to this are the cultural differences that exist between various parts of the world. 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.
Different cultural quirks – even nuances in sense of humour – must be taken into account. What resonates with an audience in the UK won’t necessarily achieve cut-through elsewhere, making it far more difficult to roll out international marketing and communication campaigns.
It also makes recruitment more of a challenge. Values and what workers expect from their roles differ vastly from country to country. There will be competition for the best talent in any attractive market, so it’s vital that recruitment efforts, for example, match up to local expectations.
Breaking through the barriers
There is no escaping the fact that setting up a legal entity in a new market is complex, time-consuming, and usually expensive. But it’s not the only way of establishing a presence.
Some companies use international contractors to access local talent quickly. But setting up and managing temporary contracts that meet local compliance standards creates more work for HR and legal teams, poses a security threat to intellectual property, and also exposes a business to the risk of having misclassified employees, especially if a firm has no real understanding of regional employment law. This risk increases with higher compensation and as the number of contractors grow. Two other factors are seniority and the role performed, with salespeople more likely to draw attention from local authorities.
An Employer of Record – also known as an International Professional Employment Organisation (PEO) – offers another less complicated and time-consuming solution that provides locally compliant employer contracts. Using an Employer of Record provides the agility and flexibility to move into a new country quickly without the arduous and potentially risky task of setting up an entity in an untested market.
Workers are hired through the Employer of Record, which handles all the administrative burdens of payroll and local employment compliance requirements. This can save businesses significant amounts of time, and can get employees up and running in new markets in as little as 48 hours.
Whether it’s Europe or further afield, exploring international markets is a vital part of the growth plan for many businesses. Understanding the complexities associated with expanding into new territories and the solutions that can help manage them is essential to successfully developing a global footprint.