Hello! Today, I have a guest post from Andrew Walker over at Bradford Jacobs! Enjoy. 
Business in other countries is typically done in a variety of ways. Some are much easier than others, and while particular approaches could lead to higher rewards, they also come with a higher risk and cost.
A key component of your growth is your international human resources strategy – which means how you expand internationally will lead to certain consequences. Before deciding on how you will set up shop in a new country, it is important to consider your options first.
What You Need to Know When Expanding Overseas
The first thing that often comes to a business owner’s mind while planning an expansion is to create a business entity. Venturing out into another country means an office (not necessarily a physical one) needs to be opened. New employees are also required, or existing team members may be reassigned to the newly-opened international site.
While the possibility of opening up an office abroad does seem lucrative, the costs involved can hold you back. You might even consider putting your expansion plans on the back burner because of it. Depending on the business you have, it’s worth thinking about options that are lower in cost and require less commitment before you make a big investment.
The Role of Local Team Members/Partners in Your Success
Before you re-assign your employees to another country or go through the process of hiring local workers, you may need to try things out with a lower dedication of time, HR and finances. The good news is there’s a number of ways to test out the new market.
For one, you can collaborate with partners who are already familiar with your target country. They can help you do tests, conduct research, and deal with the product localization and market needs before you take that big leap abroad. It doesn’t matter if they are your partners or employees; the important thing is you have local people on the team who can assist you with paving the way.
If you are a foreigner, you and your current team alone may not be the ideal people to introduce your company into a new market. There’s also a chance of limiting your company from forging certain relationships you need in order to succeed. Local partners are essential because they allow you to build personal ties to the market that you’re planning to tap into.
Expanding Without an In-country Entity
Each country has a wide range of options for companies who want to engage in business with their citizens. Since the approach that is best suited for your company will vary by country, this article will put more focus on the generic options without delving deep into country-specific information.
Below is a list of the most common methods for doing business without setting up a physical office and business entity in a new country.
1) Sales Agency
One of the best methods to drum up an international presence is by working alongside an established business in your chosen industry. To open new doors for you as a newcomer, you need the help of a sales representative or sales agency.
Sales representatives are responsible for conducting research and putting your product or service to the test. They also gather feedback about your company before you dive into the market.
They have a web of networks that could give you access to many contacts and potential partners. If you’re trying to reach a specific group of consumers, they can help you market appropriately.
In terms of payment, sales agents usually get a percentage of what they sell. They may ask you for a marketing stipend to cover the other costs involved in building your business. You can get highly skilled sales reps by asking referrals from companies you’re planning to do business with. You can meet and interview sales agents at tradeshows as well.
2) Direct Selling Online
You have two options for this method:
a) e-commerce via your own app or website
Enhancing your global presence is possible through international SEO efforts and strategies for localization. Marketing is made easy with customer acquisition techniques done online. There is a myriad of ways to do that, including content marketing, using Google AdWords, social media, influencer marketing, and advertising online.
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b) Online selling via e-commerce platforms like Amazon, Google App Store, etc.
E-commerce platforms give opportunities for on-site marketing. They also provide digital marketing tactics that help you skyrocket your sales. These methods may include online advertising, social media, and content marketing.
Note: This is my favorite way of expanding my online business.
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Other posts that may help you:
- 7 Tips to get started with Social Media for your Small Business
- Digital Marketing simplified for SMB Owners
3) Professional Employment Organization (PEO)
Outsourcing an employee can be done through a PEO firm. It offers a service in which a foreign employer can hire workers to perform basic managerial tasks such as payroll and worker’s compensation, risk management, recruitment, training and development, and employee benefits.
Foreign hires, as well as expats, can benefit from this. Hiring workers through a PEO means you don’t need to create a business entity in that country. This saves you a bunch of money and taxes while also protecting you from tax-related problems.
4) Business Franchise
The concept behind franchising is simple: you just buy into an existing and successful business. The recipe for success has already been tried and tested – you only need to have enough money to buy into the company and take it into another region or country.
As with almost all franchises, the mother company maintains control over the other branches. If you franchise internationally, you might be required to purchase the rights to sell in an entire region or country.
You need to cover certain costs like location and marketing, as well as establish a financial relationship that will likely include a franchising fee. You are also expected to give the flagship brand a percentage of the revenue.
5) Licensing
Once you license your brand, product, IP, design, program or any other aspect of your technology, you can expect to have less control of how the other company decides to do with the business.
Despite that minor drawback, licensing is a great way to set up a business in other countries or markets where you don’t have plans to physically expand into. If you are looking into methods that will benefit you in the long run, licensing is the way to go.
6) Distributorship
The relationship you create with distributors is much deeper than the one you make with sales agents. Distributors actually buy your products, warehouse and ship them before selling them in another country. They take on a higher risk so they are expected to ask for a bigger chunk of your revenue. To cover returns and marketing expenses, they will need some sort of risk mitigation from you.
The good thing about this is that unlike franchising, you can ask to have more control over your brand and other things that are important to your company. You need to make sure that your distributors are trustworthy and well-capitalized.
They also need to have a wide marketing network in order to be an effective partner. Although this kind of relationship takes time to build, the wait will certainly be worth it because distributors can do wonders for your business.
Just remember, make your own trademark in each country you do business in so you could have more options as you expand.
Compliance: Why You Need to Play by the Rules
Expanding overseas is a must for small to midsize companies who are searching for sustainable growth. Unfortunately, many businesses immediately shy away from the possibility of taking their brand abroad out of fear of the unknown.
But what they fail to realize is that there’s an even bigger obstacle when expanding overseas. No, it’s not risks or money matters – its compliance.
One of the most difficult parts of expanding a business abroad is staying compliant. Dealing with rules and regulations is not as easy as it seems. Many companies even think of it as a full-time job.
Contractors Equate to Complications
Most businesses fall into the complicated trap of dealing with international independent contractors. Companies think that a way to work around the system is through hiring contractors for operations abroad.
They think that it’s a fast way to get in-country without the need to build a legal entity and hiring full-time employees. That is the part where they are wrong. If you are one of those people who think it’s a good idea, you have already failed before you could even begin.
It’s true – plenty of businesses in foreign markets succeed. However, being compliant is a different story. The process of becoming a legal entity is hard to manage, which is why many companies come across compliance problems during international market expansions.
If you want to avoid this trap, read on to find out how you can manage international contractor relationships.
International Contractors and Their Importance
Companies that are still not prepared to hire full-time employees can resort to overseas contractors. When hiring contractors during an international market expansion, the best thing to do is to partner up with an in-country expert. They can assist you in handling compliance and preventing labor disputes – things that commonly happen with contractor relationships.
Seek help from a local attorney or international consultant. This person will be in charge of drafting a proper agreement between the company and the contractor. The contract will meet the needs of your new country, clearly state autonomy and cover IP protection.
Misclassification of Contractors
Businesses that hire contractors in place of full-time employees often don’t realize the risks involved behind their operation. Sure – you save big bucks associated with taxation, salaries, and entitlements. However, you need to manage this relationship carefully in order to avoid major penalties that could tarnish your company’s name.
In the U.S. and other international markets, misclassification continues to be a costly issue. For instance, FedEx was able to cut down labor costs by over 40% just by misclassifying drivers as independent contractors.
The company managed to dramatically reduce costs because they did not pay their employees’ social security and benefits. The drivers were exploited because they had no control over their work schedule and performance. After a settlement, FedEx was ordered to pay $228 million.
Another thing to take note of is that contractor relationships are much more regulated overseas. If any issue arises in court, officials almost always take the side of the contractor. This leads to employers being ordered to pay huge penalties.
Whether you’re on the lookout for full-time employees or independent contractors, you need to make sure that your business is always compliant. Dealing with this battle on your own can be tough since there are different sets of rules and regulations for each country.
For instance, expanding into Spain requires you to deal with different problems than a company that moves into Singapore. These responsibilities can be arduous for HR managers of small to midsize businesses.
Certain requirements also change over time, making it much harder for businesses to comply. If you don’t have extensive knowledge over a country’s local laws, it’s very easy to miss out something important.
One example is at-will employment, which does not exist in another country. This means you need to provide employees with enough time to prepare before you terminate them. Take note that the notice varies from country to country. If you fail to comply and terminate an employee without ample notice, your company will be asked to pay fines or severance.
To help growing companies with overseas compliance management, there are firms that offer payroll and HR services. For instance, Bradford Jacobs specializes in providing a human resources solution and full-service payroll in Germany. They cater to foreign employers, as well as companies planning to send employees to Germany.
Final Thoughts
Establishing a company and setting up an office in a different country is a huge undertaking. However, it is a risk worth taking – considering how it can take your business to new heights. The options featured in this article can help you create an initial set-up easily, especially during the phase where you’re still testing the waters. Good luck facing the next chapter of your business!