Why overseas business expansions fail (and what to do about it)

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The reasons to expand into international markets are often self-evident: if your business is already performing well in its country of origin, then it can benefit from exploring new countries, hiring new employees, and pursuing new commercial opportunities on the global stage. Similarly, if your business is not performing quite as well as it could be within its current location, then it may fare better abroad.

Despite its myriad of benefits, expanding a business internationally isn’t easy. A new commercial environment is inevitably governed by new rules, conventions, and processes. Adapting to these isn’t always straightforward, especially when it comes to relocating your existing staff or hiring new talent. Rushing into an expansion without the proper planning, expert advice, and anticipation of costs (both in terms of time and resources) often results in failure.

So, how can companies make the necessary preparations?

Understanding all the potential obstacles is a good start. We recently surveyed 500 UK business decision-makers and discovered that more than two-thirds (69%) expect to pursue international growth abroad within the next three years. However, we also found out that they don’t expect it to be a seamless process.

So, if you’re pursuing international growth, which problems will prove most challenging for your company?

Legal headaches

An international business is one that has to contend with international laws. Some 26% of those surveyed believe that compliance is a challenge to their expansion plans – and they’re not wrong. Fees, tariffs, taxes, and simple adherence to the law can be a herculean endeavour for even larger organisations (even those such as Apple and Google have been subject to scrutiny) and smaller businesses can find it particularly challenging.

Hiring and managing staff can be particularly problematic, given how significantly employment law can vary by country. Regulations such as the GDPR have imposed restrictions on what personal data can and can’t be handled by organisations – so knowing what you can and can’t process is essential. Without full and proper compliance, your business could face considerable fines and logistical headaches.

 
Partnering with a direct employer of record (EOR) provider will allow you to hire the staff you want, without the headache associated with onboarding and managing them. The EOR assumes legal responsibility for compliance with employment taxes, payroll, mandatory benefits, and more on behalf of your organisation – exposing you to less risk and reducing the time and costs associated with getting it wrong.

Political and economic uncertainty

It’s not altogether surprising that political and economic uncertainty affects businesses – but international businesses are particularly exposed. This is reflected in our research: some 60% cited economic stability and potential as a reason to pursue international growth, while 29% claimed that they decide on which country to expand into based on whether its governments and institutions are business-friendly.

This is understandable: a stable country with a welcoming government is much easier to do business in. That said, it’s worth finding partners that know how economics and politics intersect with regional commerce – without the right specialists and experts with the right up-to-date subject matter knowledge, your international growth could be needlessly halted or curtailed.

If you’re not certain of a region’s stability, then it’s worth using an EOR provider to eliminate the need to set up a registered entity. You can still put staff, for example salespeople, on the ground to test the waters, but you eliminate the risk and problems associated with a fully registered entity.

Cultural considerations

When it comes to administering employee benefits programmes, what works in your company’s country of origin won’t necessarily work abroad. A UK-based or US-based organisation, for example, might be inclined to offer rewards or a recognition system that honours collective, rather than individual, efforts. But if they’re expanding into a region where workplace culture is more geared towards recognising the individual – for example, South East Asia – then they will inevitably run into problems.

Even rules around minimum and maximum working hours can vary significantly from nation to nation: many countries won’t allow full-time employees to exceed 40-hour weeks, while others will allow upwards of 50.

Employment practices must account for the specific beliefs and preferences of each new market. Language is particularly important: even in a country with high levels of English proficiency (i.e. France) you risk isolating and annoying your employees if you don’t publish all training materials in their native language. Getting copy translated is not particularly hard, and neither is recognising key regional variations.

HR essentials

HR is a wide-ranging area and one that requires particular attention for expanding businesses. Per our respondents, the most persistent challenges include setting up payroll (cited by 25%), recruitment – and its associated costs to internal resources (24%), and language and cultural barriers between domestic and global staff (24%).

Accordingly, while HR might not immediately leap to mind as a key consideration for would-be international businesses, it’s vital that they get it right – particularly as a means of supporting talent acquisition and retention. The aforementioned EOR providers can be useful strategic partners here: as experts in global expansion, they have the experience and the know-how to either take care of HR processes or bring yours up to speed.

A global expansion can be an expensive, frustrating, and time-consuming undertaking – made worse by the fact that ROI is far from guaranteed. It’s easy to wonder if moving forward is worth the effort.

But even if you’re running a microbusiness, international expansion is very achievable – and it doesn’t have to be nearly as complicated as you think. Prepare, find the right partners, and allocate the necessary resources, and you’ll find that any company, however small, can be a global company.

By Rick Hammell, CEO, Elements Global Services