The Book of Genesis claims that God created the world in six days. And Brazilians say that on the seventh, He created Rio de Janeiro. And let's face it, what's not to love about Brazil? It's incredibly rich in biodiversity and culture, the world's thirteenth-largest economy, and a great place to expand your business internationally.
The Global Business Complexity Index 2021 ranks Brazil as the number one most difficult place to expand your business. A combination of factors, including labour laws from the 1940s, a multi-layered level of governance, and hugely complex tax laws, make it more of a business quagmire than Heaven on Earth.
Brazil might be the most extreme case, but whichever country you choose to expand into, there will always be a number of challenges companies face when going global. Here are the top seven.
1. Not understanding taxation
US corporation tax is a conundrum as tax regulations can vary significantly from one state to another. Differences include tax rates, filing requirements, and apportionment rules. Like interstate problems, international corporation tax issues can be even more of a headache—remember Google’s billion-dollar tax bill in France?
While there are many potential reasons a particular country could be an attractive destination for expansion, learning about a country's taxation system and the possible benefits for your company is harder.
Many governments offer tax credits, such as grants, cost reimbursement, and tax credits for job creation, retention, and training for businesses expanding into their territories. So there are definite benefits of obtaining professional advice on the tax credits your company could receive.
However, many businesses either do not make extensive enough enquiries or partner with a standard PEO/EoR that cannot provide advanced tax advice and foreign tax risk avoidance. Organisations that do not take advantage of tax benefits are negatively impacting their profits, which might indicate not adequately handling the complexities of overseas expansion.
Involving tax professionals as soon as possible in the global expansion plan will ensure that a company obtains the most benefits possible. An expansion partner with expertise in multiple countries will also be able to advise on the country that has the most beneficial tax structure for your business at the beginning of the expansion and several years down the road.
2. Hiring and onboarding talent
Hiring the right people (and then retaining them) is crucial to international expansion. While you could send a team from head office, doing so could be detrimental to your domestic operation, and they might not have the knowledge of the local market necessary for success.
However, finding talent abroad with a deep understanding of the local market is critical to succeeding in a specific region. Without this anchor and driving force, your expansion could go wrong.
But identifying these people in a country you do not know intimately with a very different system is challenging. Using cold methods to hire active candidates is not the best way to ensure success.
And, once you have found the candidate with the right skill set who is aligned with your company culture, they need to be onboarded. Doing so remotely will likely result in a patchy experience for the new hire—not leaving the best initial impression of your company. Creating trust during this initial phase is extremely important, and providing the right experience is even more critical in a tight labour market.
After the right candidate has been hired and onboarded, retaining them is also vital to ensure continued success. It is critical to provide employees with the support they need—again, something that can be difficult from many time zones away and coming from a different culture.
Relying on a local partner with an intimate knowledge of the local landscape and a network of top talent cultivated over many years is one way to resolve these problems. Not only will the partner be able to find the best candidates, but they will also be able to seamlessly onboard the employees and give them an excellent employee experience by providing continuous support.
3. Speaking the same language
If you are expanding into an English-speaking country, don't assume that you both speak the same language just because you speak English. Levels of directness, tone, and cultural barriers can seriously affect communication success.
However, if the country's official language is not English, there is a host of additional complexities to deal with. You will require interpreters and translators to help with business communication. You will also need to translate your user manuals, website, marketing materials, proposal templates, invoices, sales collateral, and other content. And if you are a SaaS company, you will need to translate your user interface and online help.
So, what are your options? You could ask multilingual sales reps to act as interpreters and translate all the necessary materials, but that would take up a significant chunk of their time, which means they are not selling. Alternatively, you could engage a specialist translation agency with experience in technical translation, transcreation, and localisation—working closely with them to ensure the messaging is on point. And every time a version is updated in English, you must ensure that these changes are reflected in the foreign language versions.
4. Juggling time zones
Expanding within the Americas has the benefit of relatively close time zones, but expanding into EMEA markets means there could be a potential difference of up to twelve hours (between San Francisco and Dubai). There is a five-hour difference even between the closest places (the East Coast and the UK or Ireland).
Holding business conversations and taking care of administrative issues is complicated by operating in time zones more than four hours apart. So developing and supporting your business becomes more of a challenge because you cannot be as agile or responsive as you need to be.
Not being responsive will likely have negative ramifications, including unhappy customers and employees.
5. Understanding compliance
Paying tax abroad and complying with foreign rules and regulations can be incredibly difficult. Having started a business in the US, you will be accustomed to conducting business in a way that is completely different to the foreign territory. But not complying with overseas regulations relating to areas such as employment law, corporate law, and private law can result in astronomical fines and court fees.
It is not enough for head office to research overseas regulation—someone with experience and knowledge of the specific system must be in charge of addressing these challenges. What's more, regulations change; therefore, a professional needs to keep abreast of these changes and ensure compliance.
6. Understanding Value-Added Tax
While Value-Added Tax (or VAT) doesn’t exist in the US, it applies to sales in the EU and other European countries. SaaS companies should be aware of this tax on consumer spending as it is levied on digital goods—even though it is paid by the customer rather than the firm. The rate varies between 17–27% depending on the country of sale.
Firms must first understand the place of supply rules that determine which country has the right to tax the sale of digital services. They should also be aware of the applicable VAT rate in the customer's home country.
SaaS companies may also need to register for VAT in the country where they sell digital services, even if they do not have a physical presence in that country. When sending invoices, it is important to ensure that invoices meet the local VAT invoicing requirements and that records are kept of VAT transactions—to comply with local VAT regulations.
Managing VAT can be tricky for US-based companies as they are not likely to be used to it. However, understanding VAT rules is important as non-compliance with regulations can result in significant fines and penalties.
7. Ensuring a smooth employee experience
When companies first expand internationally, they will likely be unknown in the foreign country. Prospective employees might have reservations about working in a company with no history in their country. This challenge can only be resolved initially by an excellent executive search process that sells your organisation to the candidates, followed by a smooth onboarding process.
But it doesn't stop there. Retaining employees involves more than just offering a good benefits package. Companies also benefit from providing employees with an excellent experience, which includes paying close attention to issues including regulatory compliance, payroll obligations, HR, and employee support services.
Some of your competitors may only operate in the country where you have expanded; they probably have a dedicated HR team that is permanently available to assist employees. Requiring your US-based team to fulfil the HR function at home and abroad could stretch them and ruin the employee experience.
International expansion is an exciting but frightening time. Getting it right will mean taking advantage of a lucrative new market that could substantially drive growth. But there are serious challenges companies face going global—the examples above are to mention but a few.
Most companies would benefit from a trusted expansion partner in the local market. The right partner should provide three key benefits: ongoing executive search, a support structure for your overseas business, and legal protection. Together, this help will enable you to face every challenge global expansion throws at you.