The risks of expanding your business 'internationally'
"There are known factors and unknown variables, with the doors of perception in between." Aldous Huxley may not have directly referred to the challenges of international business expansion in this quote, but the analogy holds true.
In this context, the domestic market represents the familiar, while the foreign market signifies the unfamiliar. The doors of perception symbolize the risks that lie in between. Successful global expansion requires navigating these risks effectively by choosing the right doors and understanding what lies beyond them.
Here are seven big risks you face when you expand overseas.
1. Not being able to find the best overseas talent
Your business relies heavily on the quality of your employees. While finding talent in your local market is challenging, identifying candidates with the right skill set and a cultural fit abroad can be exceptionally tough.
A strong professional network and a deep understanding of the market are essential for hiring the right talent. However, establishing this in a foreign country can be near impossible. Without expert assistance, you may find yourself resorting to ineffective methods like cold outreach to attract candidates or working with multiple recruitment agencies focused on quick placements rather than quality hires.
Neither of these approaches will help you build the best possible team to drive your international expansion. Rushing to hire employees without ensuring the right fit can lead to low morale and decreased productivity. Employees may struggle to adapt and could ultimately leave the company, resulting in high turnover rates that are costly and disruptive.
2. Employees leaving due to poor employee experience
Employees who do not align with the company's mission and vision are more likely to seek opportunities elsewhere, making it crucial to retain top talent when they are found.
Providing an exceptional employee experience may pose challenges, especially when expanding internationally. Setting up a foreign entity with its own HR department can simplify this task. However, managing HR and employee support remotely from a different country and time zone can present difficulties.
It is imperative for companies to prioritize the well-being and satisfaction of their employees, promptly addressing any administrative inquiries to foster a positive and productive work environment. Neglecting to provide an excellent employee experience can result in various negative consequences for a business's success.
Firstly, organizations that fall short in delivering an exceptional employee experience are likely to encounter high turnover rates, which can be both costly and disruptive. Secondly, unmotivated employees who choose to remain may negatively impact work quality and productivity.
Furthermore, there is a risk of damaging the company's reputation, hindering the ability to attract top talent, and potentially diminishing customer trust and loyalty. In extreme cases, a lack of emphasis on employee experience could lead to legal complications, including violations of labor laws.
3. Losing business due to language and cultural differences
When expanding your business into a country where English is the native language, it's important to remember that language alone does not guarantee a shared culture or communication style. Misunderstandings can have significant impacts on both customer relations and employee interactions.
Moreover, venturing into a country with a different official language requires proactive measures to ensure effective communication and understanding. Neglecting to consider cultural norms and expectations may lead to offense among customers and employees.
To build strong relationships in international markets, it is crucial for companies to invest time in understanding the local language and culture. Failing to do so can result in a damaged reputation, lack of trust, and ultimately, loss of business.
Additionally, it is vital to accurately translate and localize all content, including user manuals, websites, marketing materials, and other documents, to prevent confusion and avoid potential rejection.
4. Losing Intellectual Property (IP)
Your intellectual property (IP) is a critical asset, driving revenue and adding significant value to your business. It encompasses various legal components, each crucial to different aspects of your product. From code to graphical interfaces, databases, tech sheets, and design materials, your IP is accessed by different teams within your organization. For instance, your tech team needs access to the computer program, while sales teams require tech sheets.
Expanding internationally exposes your IP to risks as it may not be protected by the same measures as in your home country. Without the immediate ownership of the IP created by your employees, there is a potential gap in the chain of trust and possession, putting your valuable IP at risk.
Losing control of your IP can have severe consequences for your business. It may lead to a loss of competitive edge, revenue, and even legal challenges such as copyright infringements or trademark violations. Additionally, a breach in IP security can erode trust among customers, partners, investors, and other stakeholders.
5. Facing a lawsuit in a foreign jurisdiction
Facing a lawsuit in a foreign jurisdiction is a significant concern for any company. When expanding internationally using common methods like PEOs, there are inherent risks involved.
Companies opting for PEO solutions must engage in a co-employment model, which retains full legal responsibility for their employees. As the co-employer, they are subject to foreign laws and courts in different legal jurisdictions.
For instance, a US company utilizing a PEO in the UK to manage HR services for employees in the UK and France could face challenges. In case of grievances from employees abroad, the US company would be accountable under UK and French laws. This situation can be complex, especially if company lawyers are unfamiliar with foreign legal systems and languages.
While US companies may believe they are protected legally by using PEOs for international expansion, co-employment agreements come with significant risks. The potential for facing a lawsuit in a foreign jurisdiction could result in substantial financial implications.
Furthermore, employers may be held liable for both civil and criminal offenses committed by their employees overseas. For example, if an employee engages in a dispute with a client and causes harm, the employer could face legal repercussions. Co-employment does not shield US employers from being accountable for their employees' actions in foreign countries, exposing them to local legal risks.
6. Being fined for non-compliance
Facing potential legal issues overseas is a major concern. Non-compliance with foreign regulations, including employment, corporate, private laws, and taxation, can lead to hefty fines and legal fees.
Specific compliance requirements vary based on the business type, size, and location. It is crucial for companies to be mindful of various areas of compliance:
- Health and safety: Ensuring employee well-being by adhering to health and safety regulations.
- Employment law: Complying with laws related to hiring, wages, benefits, and working conditions.
- Taxation: Meeting tax laws, including timely filing of tax returns and payments.
- Data protection: Adhering to data protection laws, such as the GDPR in the EU.
- Advertising and marketing: Following regulations for truthful advertising and data privacy.
- Intellectual property: Respecting others' intellectual property rights and obtaining necessary licenses.
It's essential for businesses to stay updated on regulatory changes to maintain ongoing compliance.
7. Losing your best talent because there is no continuity of employment
The ultimate goal for companies expanding internationally using solutions like an EoR is often to establish their own entity when the timing is right. Naturally, they aim to transition their employees from the EoR to their new entity.
Many local regulations govern the transfer of employees when one company moves them to another. For example, in the UK, these are known as TUPE regulations, while throughout Europe, they are based on the EU's Acquired Rights Directive. Understandably, employees place high value on these local laws.
However, since an EoR acts as a nominal employer rather than the primary employer, it cannot transfer employees in compliance with these regulations. As a result, there is no continuity of employment, leading to employees losing all their accumulated rights.
Failing to offer continuity of employment is likely to have a negative impact on your ability to attract top talent in the first place. No one wants to lose the valuable benefits they have earned, especially as they typically improve the longer an employee stays with a company.
Moreover, if employees are not informed about the lack of continuity of employment when they join, they will undoubtedly become aware of it when they lose their rights. This could lead to disgruntled employees at best and a high turnover rate at worst. This situation could potentially harm your company's reputation and hinder its ability to attract and retain talent in the future.
Conclusion
Expanding internationally comes with its challenges, but the potential rewards are substantial. Blindly diving in without a solid strategy is not advisable. Instead, a calculated approach with thorough research, legal guidance, and a reliable local global expansion partner is key to success, minimizing potential risks.
