Addressing the challenges of overseas expansion in a Covid-19 world

Expanding overseas is an important part of a startup’s plans for growth. Going abroad provides businesses with the opportunity to tap into new markets, enabling access to a bigger pool of customers and new avenues for expansion.

Although Covid-19 put the brakes on the plans of many companies, things have not come to a complete halt.

Chinese businesses are continuing to explore opportunities abroad, despite difficulties caused by the pandemic. Additionally, many firms that already had expansion plans in the works are going ahead with them, albeit at a slower pace.

A major commitment

While exploring opportunities overseas is beneficial to a company’s growth, actually doing so can be difficult. One of the important things businesses need to keep in mind when going abroad is the value of localization. Each new market is different, and adapting a company’s brand and product to the local culture is key to successfully capturing new customers.

Localization is no easy task to pull off if you’re not familiar with the country in question, which is why some businesses choose to engage in partnerships with local players when expanding abroad.

Others may find that testing the waters with a local team would be a better option, but doing this is a major commitment that requires large amounts of time, effort, and money. It is challenging for small businesses to set up operations in a foreign country – even more so now, with travel restrictions and cash flow concerns caused by the pandemic.

“In many countries, [companies] would need to register their business with the local tax authority, they’d need to open up bank accounts and have paid-up capital of about US$100,000, they’d have to apply for an employment license with the labor bureau in order to employ local staff,” explains Charles Ferguson, general manager of Asia Pacific at Employer of Record firm Globalization Partners. “The list of requirements, deposits, capital, and all these other pieces can be as long as my arm.”

Charles Ferguson, general manager of Asia Pacific at Globalization Partners / Photo credit: Globalization Partners

Additionally, if such overseas expansion efforts do not bear fruit, closing up shop is often another long and painful process that can take months.

Reducing the risks of going abroad

One way companies can overcome the challenges of overseas expansion is by utilizing the services of Employers of Record (EOR) organizations such as Globalization Partners.

EORs are firms that serve as an employer for legal, tax, and compliance purposes while the employee performs work at a different company. Essentially, they are listed as a worker’s employer in local government records and they manage all key HR functions for the client company, such as onboarding, payroll, benefits administration, and ensuring compliance with local labor laws.

For example, if a business in Indonesia works with an EOR to hire a team in Singapore, its staff in the city-state will be listed in the Ministry of Manpower’s records as employees of the EOR. While the employee works and carries out their duties for the Indonesian company, the EOR will administer their payroll and ensure that the company adheres to Singaporean regulations around social security contributions, taxes, and employee benefits.

Working with EORs allows companies to have operations and employees in a different market without needing to go through the laborious, time-consuming, and expensive process of setting up a foreign entity to hire staff and carry out business in the country.

While it is possible to hire local staff as contract workers or freelancers, such arrangements could run afoul of regulators, depending on the nature of the work and its duration. Businesses could face permanent establishment risk or have issues with employee misclassification, leading to hefty fines that can cripple smaller enterprises.

“The global structure of how you compliantly hire locally is still very much based on a company having a presence in that country. The EOR model mitigates this,” says Ferguson.

Globalization Partners, for one, has teams in almost every country in the world who are experts on local business and hiring laws. This enables businesses to be certain that they’re adhering to local laws, lowering the risk of getting fined or even being forced to cease operations.

Photo credit: takkuu / 123RF

EOR services are especially useful amid the ongoing Covid-19 pandemic, as they allow businesses to explore new markets with less risk.

“We’re like a pioneer platform and holding pattern for businesses,” explains Ferguson. Startups can work with EORs to establish a presence overseas and begin testing the waters in a new market. If things don’t work out, the EOR also handles the termination process, making exiting the market significantly easier.

On the flip side, should businesses be ready to take the plunge and set up permanently in a new market, the EOR can help them connect with the right partners as they transition into becoming proper legal entities in that country.

“[EORs] set employees up so that everything’s in place when you pull the trigger,” he explains.

Beyond borders

While companies may want to err on the side of caution, the truth is that waiting for the pandemic to blow over first is futile. In Ferguson’s view, companies have to adopt a “glass half-full” perspective and make preparations for what lies ahead.

The pandemic, as challenging as it has been, has presented companies with new opportunities. And with sentiments around Asia’s economic conditions on the positive side, startups in the region need to look beyond the pandemic – and beyond their borders – to seek new avenues for growth.

“Invest when the market is down. When people are scared, go to new markets, [so that once] people are no longer scared, you’re already there,” Ferguson advises.

Globalization Partners enables companies to quickly and easily expand internationally across six continents and 187 countries. Its Global Employer of Record model allows companies to hire employees quickly, enabling businesses to manage compliance and mitigate risk without having to navigate complex international legal, tax, and HR issues.

Succeed faster with Globalization Partners. Find out more here.

This content was produced by Tech in Asia Studios, which connects brands with Asia’s tech community. Learn more about partnering with Tech in Asia Studios.