Ben Wright, CEO at Velocity Global, the leading provider of global business expansion solutions, advises firms on the essential components of any international growth plan.
As the uncertainty surrounding Brexit endures, we’re seeing an increasing number of British businesses look to foreign markets for opportunities to drive growth.
From statistics found in our State of Global Expansion 2019 Report, which includes survey results from 500 UK-based technology companies, 90 percent said they were planning to expand into new countries in the near future, with 43 percent citing the uncertainty surrounding Brexit as the driving factor in this decision.
But moving into a new market can be a daunting prospect and, like most significant business decisions, has the potential for risk. The key to mitigating these risks and ensuring a successful overseas expansion is choosing the right market to move into.
Getting that decision right often comes down to three critical factors.
Understanding the lay of the land
Each country has its own unique political and economic environment, and understanding what impact this is going to have on a business plan is essential. Locations with governments that promote foreign business are often considered the safest bet, but there are potentially lucrative markets to explore that might not always offer this.
For example, China’s joint venture system means that western corporations usually have to partner with a local entity to do business there, making it a more challenging and potentially risky place to expand into. But that doesn’t stop it from being a highly valued market. In fact, almost 60 percent of the tech companies in our survey considered China one of their top three most promising locations in terms of opportunities for profit and revenue growth.
The firms that are able to take advantage of markets like China are those that perform due diligence, understand the business environment, and prepare accordingly.
Knowing the talent pool
The core of any business is its people, and the need to have a dependable workforce is especially true for those with offices across a number of global locations. An overseas arm of a company must be able to operate effectively without the need for extensive oversight from its headquarters. Having members of staff with the confidence and ability to act semi-autonomously is therefore essential.
While bringing existing employees over can help initially, it will likely not be a viable long-term strategy. Finding the right talent locally will ultimately enhance a business by providing more diversity in perspective and experience. This can eventually inform strategic, company-wide decision-making.
Having people with a local understanding of the region can also help with tailoring marketing, PR, and recruitment campaigns that are orchestrated from its headquarters so they resonate in the new market.
Hiring locally brings people in who have established networks and provide immediate access to new business opportunities and partners. Having somebody who speaks the language and understands the nuances of doing business in that country is also immensely valuable.
Establishing a footprint
The process of setting up a legal entity in a new country can be a challenge. However, many are unaware that this is not the only option, and often not the most efficient way of building a presence in a new market.
Project-based contractors offer one possibility. They allow businesses to hire locally at short notice and for shorter periods of time. But, while independent contractors seem like a quick and easy way to plug a human resource gap, this method comes with complications. Setting up and managing temporary contracts that meet with local compliance standards provides more work for HR and can pose a threat to the security of intellectual property.
Employer of Record services – sometimes called International Professional Employer Organisations (PEO) – offer a potentially less complex and more flexible solution. Overseas workers are hired through the Employer of Record, who then handles all the administrative burdens of payroll and local employment compliance requirements that can arise when recruiting overseas. This makes it possible to be up and running in a new market in as little as 48 hours.
Using this more agile way of hiring overseas also means a business can test a market and only transition to a legal entity when a local presence and workforce size makes sense.
Taking the first steps towards global expansion is likely to be a daunting prospect for any business, but exploring new markets is an essential stage of development for a growing company. Considering the factors outlined above, and how they affect an expansion strategy, is vital to successfully building a footprint overseas.