Find out why you should expand your business globally and the right steps to take.
In numerous industries, volatility, uncertainty, complexity, and ambiguity are now standard, highlighting the importance for companies to focus on business resilience, especially in areas such as budgeting, cost reduction, and reducing operating leverage. Expanding globally is a method for cutting costs in wealthier nations. By moving support functions to cheaper locations abroad, company leaders can put their businesses in a stronger position to handle any future uncertainties.
The Focus On Expanding Globally
Two new patterns are on the rise concerning focusing on expanding globally: transferring support operations to other countries and establishing international branch offices. Each solution has a variety of benefits. Outsourcing supportive operations to freelance workers or other firms can offer a flexible, cost-efficient solution that enables your company to rapidly adjust its size.
Establishing a branch in another country enables access to worldwide skills with lower expenses than at the main office, providing the needed flexibility to adapt to uncertainties. The World Bank's annual Doing Business report has traditionally assessed several of these characteristics, evaluating the business and investment environments in 180 countries globally. This report is being revised and revamped as the B-READY Project.
Establishing a branch in another country enables access to worldwide skills with lower expenses than at the main office, providing the needed flexibility to adapt to uncertainties. The World Bank's annual Doing Business report has traditionally assessed several of these characteristics, evaluating the business and investment environments in 180 countries globally. This report is being revised and revamped as the B-READY Project.
Factors To Consider When Opening A Branch Overseas
In numerous instances, a company looking to grow globally may choose the United States, depending on its specific priorities. Nevertheless, there are numerous factors not covered in this report, and the ones that are most important based on experience when opening a branch located overseas are as follows:
Beginning A Business
Discover the duration and cost of initiating a business in your desired area. Finding a physical location, and possibly constructing it yourself, along with equipping it, also requires logistical planning. This includes leasing or purchasing space, obtaining building permits, hiring and compensating contractors, establishing utilities, and other tasks. The costs in different regions should be taken into account as well.
Assembling a Team
Individuals are essential for the success of a company. If you're starting a new office in another country or assessing contractors, make sure to inquire about employment regulations and standard practices.
What Is The Duration For Hiring Individuals?
Rules for employees and contractors might vary - in some countries, they don't need to give notice.
What Are The Regulations Regarding Job Terminations?
An agreement could contain a provision mandating the employer to provide notification of termination at least two weeks or one month prior to the official end date. It is important to consider severance requirements because certain countries enforce laws regarding the minimum severance pay for employees who are let go. You might have greater freedom when working with contractors in numerous countries.
Do Paid Leave Requirements Exist?
When thinking about expanding globally, it is crucial to keep in mind that several countries mandate employers to provide a minimum number of paid days off for full-time staff, resulting in an added expense for your company. These days might consist of public holidays, vacations, sick leave, and parental leave. There are certain countries, such as the United States, where businesses are not obligated to provide paid time off for any purpose, including parental leave, although some states in the US do have this requirement.
Also, in numerous American sectors, taking paid time off is a common practice regardless of legal requirements. Many other countries, like Mexico and the Czech Republic, typically offer up to two years of extended paid parental leave, which may not significantly impact the finances due to lower living costs and wages in those nations. Based on what we’ve seen, contractors do not receive paid time off in any location, but it's important to verify this in all countries you are exploring.
Also, in numerous American sectors, taking paid time off is a common practice regardless of legal requirements. Many other countries, like Mexico and the Czech Republic, typically offer up to two years of extended paid parental leave, which may not significantly impact the finances due to lower living costs and wages in those nations. Based on what we’ve seen, contractors do not receive paid time off in any location, but it's important to verify this in all countries you are exploring.
What Are The Hourly Wages?
What is the lowest wage allowed in the market of the country? What is the minimum wage that you are allowed to pay someone by law? Different countries have varying beliefs about the minimum morally acceptable standard of living, the impact of minimum wage on employment and pricing, and individual responsibility.
What Other Kinds Of Employee Perks Are Expected?
Ensure that your benefits package is on par with the packages provided by companies that are based in the country you are focusing on. Keep in mind that you are in competition with nearby companies. Take into account retirement funds, medical coverage, complimentary or discounted meals, equity incentives, and additional benefits. Once more, it is possible that contractors may not receive all of these benefits, therefore it is important to consider this when creating your plans.
Comprehending Taxation
It is essential to determine the expenses of taxes since various nations have varying tax systems and widely varied tax percentages. We consistently recommend that business owners bring on board a consultant with experience in the specific country who is familiar with the legal regulations, commonly followed customs and not-so-well-known exceptions. Having a local tax expert overseeing your activities will make sure you're consistently following the rules and may also lead to cost savings for your business. Some particular tax concerns to be taken into account are:
Corporate Income Tax
In 62 countries that are party to the Estonian tax convention, such as the US, Georgia, Italy, and Japan, for instance, businesses are not required to pay taxes on their earnings unless they choose to distribute them. Therefore, if you operate back-office activities in a different country, you could opt to reinvest any earnings from that branch back into the company without incurring any taxes.
Personal Income Tax
In lots of nations, individuals are responsible for calculating and paying their personal income tax; while in other countries, the employer deducts the personal income tax. In any situation, employees care about their take-home pay after taxes. Therefore, individuals and corporations both shoulder the personal income tax burden to some extent. The greater the rate, the more detrimental it is to the company's financial results.
The expenses for income tax may differ based on the type of workers your company employs, as contract workers may face distinct tax regulations. In Georgia for example, permanent employees have 20% of their income withheld as tax. Nonetheless, contractors in specific sectors may be eligible for tax breaks and only need to pay a 1% tax rate. This could lead to contractors being more cost-effective to employ compared to full-time staff.
The expenses for income tax may differ based on the type of workers your company employs, as contract workers may face distinct tax regulations. In Georgia for example, permanent employees have 20% of their income withheld as tax. Nonetheless, contractors in specific sectors may be eligible for tax breaks and only need to pay a 1% tax rate. This could lead to contractors being more cost-effective to employ compared to full-time staff.
Tax Exemption
Knowing how to reduce unnecessary taxes is extremely important. Several countries provide tax incentives for specific industries, goods, employee categories, and other criteria. Working with a local expert is crucial because they can help to accurately determine the ROI of expanding into a new country.
Standards Of Professionalism
You should also check out the standards of professionalism in a country. For example, many Western pharmaceutical companies have started collaborating with Chinese labs for drug development now that China has revamped its system of regulation. On the other hand, it might be simpler to relocate only those tasks that usually do not need thorough examination, like IT, marketing roles, legal assistance, and customer support.
Certain financial functions like internal financial reporting, financial planning and analysis, financial management, and investor presentations can be outsourced offshore. Nevertheless, not every financial activity can be safely relocated offshore—especially tax accounting and external financial reporting. Similarly, offshore may not be practical for activities requiring specific safety regulations to be met.
Certain financial functions like internal financial reporting, financial planning and analysis, financial management, and investor presentations can be outsourced offshore. Nevertheless, not every financial activity can be safely relocated offshore—especially tax accounting and external financial reporting. Similarly, offshore may not be practical for activities requiring specific safety regulations to be met.
Climate Of The Political Environment
Additionally, businesses may be worried about the political tension that comes along with the country as they prefer stability.
Factors Related To Society
When setting up a new office or collaborating with international contractors, it is important to make sure that your new coworkers are ready to thrive in your company and that your company is ready to effectively oversee them. Three important cultural factors to take into account are:
Language
Check out the way in which people in that country communicate and express thoughts and ideas. Make sure you can hire a sufficient number of local employees who are fluent in the language you use for business before choosing a location for expansion. For example, the main factor behind India's emergence as a prominent destination for IT and customer support outsourcing is its broad fluency in English.
Education
Education is another crucial element to take into account. Ensure that there is an adequate number of individuals with the necessary skills and/or certifications in your new area.
Culture In The Workplace
Culture is important when it comes to incorporating your team from a different country. Some cultures have a tradition of maintaining formal relationships and meetings, while others prioritize employers and employees developing personal connections and "spreading the bread" through shared meals. Understand the expectations of potential hires and ensure they match your company's culture.
Final Thoughts
It is recommended that brands that are establishing operations abroad hire a dedicated individual to oversee the smooth running of operations. As a business owner, it is important to ensure that remote teams feel a sense of inclusion and align with the same objectives and principles as employees working at the main office. By using this manual as a foundation, you might realize that expanding globally is crucial for saving money and building stronger business resilience.
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