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Expanding to a new geography takes more than just setting up an office and hiring employees — it is imperative to understand the local market, compliance issues, human resource functions, payroll, in-country capital requirements etc. That involves around $80,000 — average cost to setup a startup in a new country that can be a huge cost. Rick Hammell - chief executive officer at the Chicago-based global employer of record (EOR) services firm, Elements Global Services highlights key problems that startups face in doing so.
It is important to understand the country’s culture where a company wants to expand. US-based online food ordering company Grubhub couldn’t do well in Singapore because it operated there as an American company. It didn’t understand the local culture at all. Small businesses and startups often don’t consider differences in working cultures abroad - especially when hiring locally. For example, in several markets across the AsiaPacific, employees are entitled to a week’s worth of leave. In South Korea, Taiwan, and Indonesia, women can take anywhere from one to three days of menstrual leave per month. Many startups venture out abroad without understanding the market, despite it being pivotal for their survival. By the time a company decides to expand they already have a work culture in place. It becomes difficult for them to adapt another culture and adjust according to an alien market. However, there are companies like Google which have been very successful in doing that.
There are companies that don’t have capital for expansion, still they want to. The investment required to expand to different countries varies. For instance, in Indonesia you will have to spend around $250,000 in setting up operations. So, understanding strategically where you have to spend your capital is important. Choosing an EOR company will reduce cost to just $10,000.
While recruiting, ensure that you have the right kind of talent and have a plan for how you are going to support your talent and integrate them into the company. An issue we’ve faced when entering a new market is that the talent doesn’t feel he/she is truly part of the organization. When we launched our Singapore operations, we wanted to make sure that the team knew several parts of our operations so that they were comfortable and given the opportunity to acclimate.
Technology can also be an infrastructural issue looking at different regulations affecting different countries. Take the case of the European Union’s General Data Protection Regulation (GDPR). The companies which were managing data on their own digitally can’t do that anymore. They can’t transfer information into India through GDPR. While compliance can cost more for businesses, they can grow very quickly if they are compliant but if they are not then it can cost a lot of money in new geographies
(This article was first published in the November issue of Entrepreneur Magazine. To subscribe, click here)