Davy Crockett, King of the Wild Frontier, dressed in buckskin clothes and a coonskin cap, existed between worlds, extending frontiers and expanding outwards into the unknown, chasing success. Today, of course, we question Crockett's morals, but his folklore has seriously influenced the American "go get it" attitude. The Davy Crocketts of today are SaaS companies (armed with MacBook Airs and far better moral compasses) expanding their business internationally—and smashing sales targets rather than skulls.
There are several options available for tech companies contemplating how to expand their business overseas. So after understanding the central questions about international expansion, choosing the best expansion method business will be easier.
Key questions when expanding your business internationally
- With which laws and regulations will you need to comply?
To avoid fines and lawsuits, you must ensure compliance with different types of law, including employment law, private law, and corporate law, in addition to regulations such as Health & Safety and payroll. Laws and regulations are forever changing, so it's essential to keep up to date to ensure the smooth running of your business and avoid fines.
- How do you obtain a business license? And which ones do you need?
Depending on the jurisdiction into which you are expanding, you may need a business license to operate. The licence type depends on what company you want to set up. Additional registrations may also be required, including Payroll Tax registration and VAT registration.
- How will you find the best talent abroad?
Successful expansion relies on having employees with the right skillset who share your company culture. It's no secret that the labour market is very tight, so the best candidates are unlikely to actively search for jobs. Therefore, it's vital to consider the best method of identifying talent: via LinkedIn, using multiple recruitment consultants, or through a retained executive search partner?
- What salary and benefits package will you offer?
First, you need to understand what is considered a competitive salary and benefits package in your target market and what benefits you must legally include. Second, you need to know if the base salary is required to include additional expenses such as housing or a thirteenth month's salary.
It is also important to consider how you want to pay employees: directly through your own entity or through an intermediary mechanism.
- How will you sell yourself to top talent?
During the hiring process, candidates need to sell themselves to you, but you also need to sell your company to them. Why should they work for you when there is a skills shortage and so many companies are hiring? To sell your company, you need an in-depth understanding of the market and culture you are expanding into.
- How will you run payroll and ensure you are compliant?
There are myriad payroll solutions available, but you must have the correct tax and infrastructure to comply with local procedures. Paying staff on time, regardless of where they are on the globe, is your top priority.
- How do you support staff and address HR issues?
It is important to have a structure in place to hire staff, onboard them, and then support them. But could this be affected by time zone differences? Does your HR team at head office understand foreign employees' challenges? Will they have the tools and resources available to support staff?
How to expand your business overseas
By contemplating the questions above, it will be easier to identify the best route to international expansion. Here are the three most common approaches to expanding your business overseas.
1. Open your own foreign entity
This is possibly the first expansion method that comes to mind—and the preference of many businesses. Setting up your own foreign entity seems to make intuitive sense; you could send your best staff and ask them to lead the operation abroad, leveraging all their experience and using the same plan that made you so successful in your home market.
This method certainly means you will retain complete control of the process. Still, you might not be in control. For example, there are differences between employment law and corporate law within the United States—making national expansion hard enough—so imagine differences between the US and EMEA markets.
Your national staff cannot be expected to have a deep understanding of the local market and culture. But not being aware of differences means it is easier to lose control of the process. What makes them an asset at home could turn them into a liability abroad.
Of course, you don’t have to send a team from head office. You could always open an entity and hire employees overseas, supporting them remotely whilst leading the international expansion.
After deciding on the type of entity that is right for your business (a branch or subsidiary), you will need to find premises, either your own or a serviced office. You will also need to create locally compliant contracts for your employees, as well as employee handbooks, HR policies, and benefit structures. Your HR function could be managed in-house by your team at head office.
Setting up your own entity is the expansion end goal for any company, but whether you decide to do this at the beginning of the journey depends on your in-house expertise, risk tolerance, the time you have available for administration, and the amount of money you have to pay for external legal consultants.
2. Use a PEO/EoR solution
The terms PEO and EoR are sometimes used interchangeably; however, they refer to different services.
An EoR is a third-party service that enables businesses to expand overseas employees without having to open an overseas entity themselves. EoRs assume the role of the local, legal employer in the foreign jurisdiction. Similar to EoRs, PEOs employ workers locally using one of their own companies or a subcontractor. However, in the PEO model, both the client and the PEO employ the workers together—known as co-employment.
Despite gaining popularity relatively recently, they have been around in one form or another since the 1960s, when they helped businesses in the United States operate in different states.
On the whole, they are helpful solutions that can help expanding companies in several ways.
- They reduce time to market by providing companies with a structure in the target market.
- They allow firms the time to focus on global expansion by taking care of administrative issues.
- They take care of some basic assured HR functions.
- They offer some rudimentary assistance with local compliance issues.
While they offer several valuable services for non-specialist companies, for SaaS companies, there are severe pitfalls of global expansion using EoRs and PEOs. As their structure was created many years ago, they are not designed to meet the needs of complex companies with specialist needs. SaaS companies using these solutions are putting themselves at risk.
- EOR/PEOs offer firms no protection from legal proceedings. In the event of a lawsuit, US firms are liable in foreign courts of law and must address foreign legal systems.
- US-based company’s Intellectual Property is at risk, as these traditional expansion arrangements cannot protect it.
- EOR/PEOs cannot offer continuation of employment, meaning that when you open your own entity, you will be unable to transfer your staff compliantly. They will lose some of their most important legal rights to sick pay and accrued entitlements such as bonuses and holidays.
3. Open your own virtual subsidiary
A virtual subsidiary is a bespoke entity explicitly created for tech companies expanding into EMEA markets. The model combines the control you would have if you opened your own entity with the benefits that come with being able to outsource to a local partner.
A virtual subsidiary is a temporary solution that establishes the essential infrastructure and ecosystem you will need when you are in the right position to open your own entity. And virtual subsidiaries also allow you to transfer your employees to the new entity compliantly with their benefits intact.
Virtual subsidiaries offer SaaS companies expanding overseas many benefits.
- They allow you to launch overseas without the cost, complexity, and delay of opening your own subsidiary.
- They accelerate your expansion plans by securing the best local talent to drive your growth.
- They ensure your employees are onboarded, paid, and supported.
- They ensure you are fully compliant with all local laws and regulations—eliminating all risk.
- They take care of your payroll.
- They guarantee your Intellectual Property is fully protected and transferred back to head office.
Virtual subsidiaries are a final stage evolution beyond any PEO and EoR—a remote solution that eliminates the risk of opening your own entity at the beginning of your expansion journey. They behave as a contractual trust, so when your business has succeeded and you are ready to open a subsidiary, it's only a case of transferring your assets.