Considering Global Expansion? Now Might Be Your Best Opportunity. With global business creation exploding, now could be the perfect time to onboard talented contingent workers.
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If necessity is the mother of invention, then innovation is the child of adversity. Perhaps that's why we saw an explosion of new businesses in 2020 despite a global pandemic and coronavirus-induced recession. After an initial decrease in new business applications in the United States between March and May, applications climbed to an all-time high in July and remained strong throughout the rest of 2020, according to the National Bureau of Economic Research. McKinsey & Co. reports that in the third quarter of 2020 alone, we saw more than 1.5 million new business applications.
We saw similar trends outside of the U.S. as well. Countries such as France, Germany, the United Kingdom and Japan experienced a rise in new businesses from 2019 to 2020. In France, for instance, 84,000 new business endeavors were formed in October 2020, which is 20 percent more than the same month of the prior year. And in the U.K., the third quarter of 2020 saw the biggest increase in new business formation since 2012.
At the same time, the sudden closure of many offices ushered in a new era of how we work, and 18 months later, the shift to remote work has many businesses rethinking their global strategies. A permanent shift to remote work and increased business expansion outside the U.S. could trigger a trend toward a more global workforce. However, before you jump headfirst into global expansion, it's a good idea to examine some of the challenges and opportunities of global growth.
A three-pronged global expansion strategy
The benefits of global expansion often outweigh the potential risks when you know how to minimize them. So how can you build a global workforce without endangering your company? Start with these strategies:
Research the local culture and market
When you enter a foreign market, don't approach it in the same way you would a domestic one. Researching the culture, history and social norms is a key step in any global expansion strategy. Then, make sure you're prepared to adapt.
For example, China is one of the most challenging markets for American companies to expand into because of the vast cultural differences. In 2009, Mattel opened a 36,000-square-foot Barbie-themed store in Shanghai, but the massive store only lasted two years. Why? The company did not take into account how Chinese culture emphasizes educational and skill-building toys. Ultimately, the doll-laden store was seen as a distraction more than anything else.
On the other hand, Starbucks spent time researching the Chinese market before it entered, and it has been much more successful. For instance, it discovered that Chinese consumers trust foreign beverage brands more than domestic ones, so it didn't localize the brand as much as it might have in another market. Additionally, it found that China has a significant aspirational class that consumes certain products as a means of displaying status. Knowing that, Starbucks bumped its coffee prices up slightly.
Global expansion is still a big step with a fair amount of risk. But approaching it with care and consideration when it comes to local culture will help your business succeed.
Consider the HR implications of hiring a global team
Global expansion creates myriad opportunities for savvy companies. Having workers across the globe helps you attract and retain top talent, approach new markets more easily, and increase your revenue possibilities. However, like any business growth strategy, global expansion comes with its fair share of risks — particularly from an HR perspective.
For one thing, the cost of hiring depends heavily on location. Statutory benefits — think vacation pay, minimum wage laws, employer taxes and the like — vary by country, and you'll have to include those costs in the total price of hiring in a specific location. You'll also need to be mindful of budgeting salary and benefits packages competitively in each area.
Managing a remote team that's spread out across the globe also comes with unique compliance obstacles, including everything from employment contracts and international payroll to foreign currency and complex termination laws. So start small and expand steadily. Consider hiring one or two workers in a few global markets to test the waters before you start to scale your team further.
Even if you take things slowly, you might encounter hiring risks during global expansion because vetting and interviewing candidates from afar can present hurdles. Zoom has become a staple in most workplaces, but did you know that some places require you to inform candidates if they're being recorded during a Zoom interview? Conversely, you don't want candidates recording and sharing their interviews online.
Once you've decided to extend an offer, it's important to be mindful about how you're sharing private information with remote candidates. If you're sending sensitive HR documents back and forth through email, you open yourself up to serious security risks. If you aren't already, consider using e-signature software that offers security to protect people's privacy.
Hire a global employer of record
Traditionally, in order to expand to a new market, a business would establish a legal entity in that country. But that process is time-consuming, expensive, complicated, and labor-intensive, and it might take six months to a year (if not more). It also requires internal employees to reallocate their time and resources, limiting your ability to adapt to the new market and scale your team efficiently.
Using a global employer of record services allows you to have an extensive global footprint without the cost and risk of opening separate business entities in each country you plan to hire and operate in. This service also provides incredible peace of mind when it comes to managing employment compliance with a remote workforce. A global employer of record handles everything from contract writing and payroll to employee benefits — all while ensuring compliance through the maze of ever-evolving local labor and tax laws.
A global employer of record is particularly useful if you plan on using foreign independent contractors to enter an international market quickly. The consequences of misclassifying employees as independent contractors can be severe, and different countries have different laws for determining a worker's status. For instance, employers use the independence test for lump-sum taxpayers in Serbia, while the U.K. uses its off-payroll working legislation.
The globalization of our workforce has been well underway for many years. However, the COVID-19 pandemic and resulting shifts in how we work, do business and live certainly accelerated the trend. If you've been considering moving into the global market, now might be the time to put your global expansion strategy to good use.