top four reasons businesses expand globally
TRANSCRIPT
International expansion for young and fast-growing companies is a tricky proposition
for a variety of reasons.
Uncertainty surrounding revenue, profitability and market position can lead to conflicting priorities between management
and board members.
Those new to international expansion should keep in mind that the associated costs and
risks may seem to significantly outweigh the potential short-term benefits ...
… but the rewards of growing an international footprint are
realized over time.
Regardless of company size or profile, an organization generally decides to expand its international footprint for one or more
of the four following reasons.
EXPANDING INTO A NEW MARKET1
High-growth companies frequently operate with a “lean startup” mentality,
which includes the desire to minimize the organization’s tax and legal presences in the host country until definitive proof exists that
the expansion decision was correct.
This can be a good strategy, though it can come with significant risks.
The bottom line is that if you want to expand into a new market, you have to
perform due diligence to understand your legal obligations in the new jurisdiction.
PROVIDING SUPPORT FOR A LARGER CLIENT2
Signing a big deal with a highly valued client abroad is an exhilarating
experience for a new company.
But while flying home, it often dawns on the CFO that the client may demand “boots on
the ground” in a brand new country.
The new client may want your existing, experienced employees on site, or require
permanent, local employees to support them in the host country.
While you’ll want to meet your new client’s demands, you need to
understand related host-country legal requirements before committing.
HIRING OR RETAINING A STAR EMPLOYEE3
Today’s connected workforce allows for remote employees based virtually
anywhere in the world.
This pushes companies to consider hiring in locations not previously considered. We
commonly see two examples:
A company identifies someone in another country that has knowledge or experience
that is considered critical to the company’s success. But the new hire must
remain in his or her home country.
1
A company employs a highly valued foreign national and home-country immigration
rules force that employee to relocate back to his or her native country.
2
Companies in either of these situations may first consider paying the employee
as a contractor in the new country — avoiding the costs of establishing a legal entity and of withholding and remitting
income taxes to local authorities.
However, if local authorities deem that your hire is a de facto employee rather
than a contractor, you’ll be on the hook for back taxes and penalties.
OPENING A SHARED SERVICE, OPERATIONS OR DEVELOPMENT CENTER4
Most operational executives are intimately familiar with the business
case for building offshore development teams or shared resource centers.
But while the desire for a lower per-employee cost is compelling, establishing
any office abroad comes with its own costs.
With expert guidance, determining the optimal legal entity to establish will likely be
easy, though it may be more time-consuming and costly than you’d anticipated.
Regardless of the reasons for expanding internationally, all businesses new to the process should firmly grasp that
managing international employees will come with unfamiliar challenges.
Keeping up with new obligations and options can take a toll, particularly on small
teams in high-growth organizations.
No matter what your scenario when expanding internationally, due diligence
well in advance will be rewarded.
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If your business is expanding internationallydon’t miss this!
INTERNATIONAL EXPANSION 101KNOW BEFORE YOU GO