There comes a point when every growing business looks to expand beyond their local audience. By setting up an entity overseas, businesses gain access to consumers, talent and opportunities that weren’t previously accessible to them. Despite the wide array of benefits, there are significant unknowns that need to be addressed before committing to such a move. To drive home how important that is, we’ll refer to the most popular business case study in failing to understand the nuances of setting up in another country.
Walmart, the world’s largest company by revenue, decided it was time to leave the American shore and target audiences in Europe. In 1997, Walmart opened up 85 stores in Germany, aiming to tap into the country’s lucrative discount department market. However, they did so without fully taking into account the complex labour laws, limited business hours, corporate taxation and other legal regulations. Finally, the business was forced to close shop in 2006 at an estimated loss of USD 1 billion! Smaller businesses and startups may never be able to recover from such a move.
Today’s business leaders and entrepreneurs need to be more aware of the groundwork that needs to happen before they can set up in a new land. There’s a lot to worry about, and a lot that can go wrong. If you are aiming to set up an entity overseas, you should be aware of the challenges and obstacles that are headed your way.
In this blog, we will cover five common challenges faced by growing businesses that are looking to establish a presence overseas.
What Are The Challenges Of Setting Up An Entity Overseas?
Expanding into different countries comes with unique challenges based on local labour laws, taxation policies, compliance regulations, etc. Had Walmart decided to expand to India instead of Germany, they would have faced an entirely different set of issues. As the challenges vary from country to country, it is important to develop a tailored strategy to navigate the obstacles. Although the list may seem endless, here are five major obstacles you will face while setting up an overseas business entity:
Acquiring The Right Talent
As a company grows, finding the right local talent to hire becomes an ongoing struggle. But when a completely new demographic is involved, your hiring team may feel greater pressure and strain to identify suitable talent. Moreover, other nations might have different hiring practices, including methods for reaching out to prospective candidates, conducting interviews and framing the contractual obligations of the job offer.
Managing And Training The Workforce
Regardless of location, maintaining productivity and ensuring an outstanding employee experience depend on effective personnel management and training. Businesses that don’t manage their overseas workforces effectively or fail to offer the appropriate training may find them being cut off from the company culture and organisational values.
Handling Payroll Administration
Payroll management entails a variety of duties; from assuring compliance with regional workforce regulations to determining fair remuneration for employees. Payroll administration can quickly become complicated depending on the country’s labour laws. Thus, it is necessary to evaluate various factors such as pay components, statutory reporting, nationalized benefits, etc. to be compliant.
Keeping Human Resources Teams Updated
It is often difficult for businesses to keep up with the HR-mandated policies in another country and to train HR professionals according to these changes in a timely manner. Since Human Resources teams are required from the get-go, ensuring compliance, aligning HR professionals with the local workforce’s culture and informing them of local regulations becomes critical when it comes to setting up overseas.
Understanding Local Tax Codes And Compliance Policies
An understanding of local tax laws and financial regulations that must be followed is a prerequisite for establishing an entity abroad. For instance, several nations impose penalties on workplaces that fail to file their local tax returns before the deadline. Moreover, corporate tax rates vary from nation to nation, with some charging corporations no tax at all, while others may charge up to 35% of the capital gains.
Why You Must Explore The Option Of Offloading It To A Third-Party
Founders of growing businesses end up spending a huge portion of their productive time tackling these challenges, rather than focusing on business growth and development. Hiring experts and specialists to help set up an overseas entity can ensure a smooth, frictionless move. This also allows business leaders and key stakeholders to focus on their day-to-day, without getting sucked into a vortex of research and planning.
Moreover, experts can provide decision-makers with answers to all the important questions as they already have the know-how of successful local operations. Working with third-party experts who have an established setup can ensure that you don’t waste time and energy on learning through trial and error. By outsourcing your expansion to a third party, you will have a team of dedicated experts who will streamline your pre-existing processes and replicate them effectively in your overseas entity. In a nutshell, third-party experts can assist you in making more informed choices to ensure reap the benefits of expanding your presence to a foreign country.
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