Choosing to expand into a new market is a bold choice with the potential to reap great rewards and push into new and profitable opportunities. International growth does not come without risks, though. The associated costs of business expansion can be a crippling burden to the company if you don’t plan carefully.
In this article, we explore all the costs of expanding a business into international markets, including hidden costs you may have overlooked. We also show you the differences between the two main expansion methods to help you find the most cost-saving and timely plan.
What are the Costs of International Company Incorporation?
Company incorporation is the process of setting up a company as a legal entity to begin operations. Regarding global expansion, company incorporation can apply to setting up a branch or subsidiary of an existing company in a new country. Alternatively, it may mean starting an entirely new company in a new market.
Either way, the costs and complications of international expansion are many and varied. Without a thorough evaluation of the expenses necessary, you may find yourself overspending or out of funds. Below are some of the costs you’ll need to consider:
1. Set Up and Registration
Registering your company’s subsidiary with the local labor office usually requires a fee. The exact amount varies depending on the laws in the country and region. Some countries also charge a fee for selecting and registering the company name.
Establishing a branch of your company in the new market can take several weeks or even months due to legal paperwork processes. During this time your employees’ time is taken up by expansion processes rather than more productive activities.
2. Relocation and Recruitment
If you are moving staff from an existing company into an overseas branch, you will need to offer relocation packages. Moving to a new country is a big change, and most employees will not be willing to leave their families and home country without a good relocation package. This will likely include increased funds for housing, transportation, local language training, and more.
If you want to hire local staff you may need to invest in posting to new job boards, hire local legal advisors to ensure compliance with local employment laws, work with translators, etc. These costs quickly add up if you want the best expertise from a variety of advisors.
3. Payroll and Taxation
A new market means a new payroll and tax system with local regulations that are likely to be unfamiliar. You will also need to set up local bank accounts or subscribe workers to local social insurance schemes.
To keep your company and employees legally secure, you may wish to hire a local payroll expert or partner with a knowledgeable service provider.
The “Hidden” Costs of Business Expansion
Expanding to a new market involves more than just the costs of the initial setup and guaranteeing a solid legal framework. There are also other expenses that you might overlook until you’ve already spent vital time, funds, and resources. These include, but are not limited to:
It’s essential to remember that what works for your current customer base may not work in a foreign market. Even more so, with cultural and linguistic differences, you may be putting yourself at a disadvantage in target markets if you don’t have the right know-how.
It can cost a lot to find a new market entry strategy in your target country that properly takes into account new perspectives. This could mean finding local experts who can tailor your product or service to the local market. Alternatively, it may mean finding the best way to integrate advertising from your home market to new media.
Office Space Rental and Real Estate
Setting up a subsidiary means spending money on finding a suitable work location for your team. If you are expanding virtually, you’ll still need to invest in a reliable online system and communication apps. That way there’ll be no interruptions or delays to your workflow.
Expatriate Visa and Work Permits
Bringing your staff into a new country means that you have to register them as foreign workers. Most country’s departments of labor will require the employer to provide work visas or work permits for them.
This involves fees as well as added legal processes and application time before you can obtain a work permit and start safely.
Licensing and Insurance
Registration and work permits are not the only things that will cost you. You may also need to meet a whole range of other legal requirements including fire and safety insurance, licensing, permits, etc.
Every successful international business growth strategy requires more than legal issues beyond visas and application processes. Having the right insurance can also be key when there’s problems with the civil law systems of new markets.
Apparently minor steps can take time, and you could be continuing to spend money on transport fees going to and from the local city offices before you even start to make income.
How to Expand Overseas and Save Costs with a PEO (Professional Employer Organization)
Having to partner with multiple services to meet all your expansion needs tends to be costly and lengthy. On the other hand, trying to manage the local legal system on your own and ensure that your current and new staff are being taken care of can be equally overwhelming.
A PEO or global EOR (Employer of Record) hires or manages employer HR responsibilities for staff on your behalf. This allows you to skip many of the most costly and complex steps involved in overseas expansion.
Using a global PEO allows you to expand without overspending while maintining legal compliance in every way. With a PEO partner, you can have all your services met with a single point of contact. This includes recruitment, onboarding, relocation, payroll and tax, and more.
Below you’ll find some of the key differences between expanding with a PEO or with company incorporation. It’s important to evaluate each of the processes so that you can make the right choice for your specific situation.
The Key Differences of a PEO vs Company Incorporation
Reducing Set Up Wait Time
Company incorporation takes several months to a year before you can begin operations. A PEO will act as the legal entity so that you don’t have to set up a separate subsidiary. You can bring new staff over to the new country and be running smoothly in less than a week.
Meeting International Banking Requirements
When correctly processing payroll or transferring money from other overseas company branches, you will need to set up a local bank account in new markets. Opening a bank account as a foreign business potentially involves adhering to additional local laws and regulations. A PEO can handle every aspect of that process for you so that you don’t make any errors.
Finding New Talent
With company incorporation you have to find and recruit talent on your own, limiting the scope of the talent pool. A PEO employs a much more thorough search with innovative methods that make the most of talent pools all around the world.
Hiring with a PEO also reduces the chance of contractor liabilities by removing the chance of false self-employment.
Providing Benefits for Your Employees
High employee turnover, especially during a transitory period, can be detrimental to the success of a company entering a new market.
One of the best ways to ensure the longevity of your employees is to provide them with benefits like health insurance, paid time off, sick leave, etc. While it may cost too much to offer these services on your own, a PEO can make sure that your employees receive these benefits and more in the most effective way.
Why Choose to Expand with INS Global?
INS Global can help you set up quickly and easily so that you can focus your energy on reaching company goals. We have been assisting businesses with global expansion for more than 15 years as an industry leader. Our PEO and EOR services are now available in more than 100 countries including the United States.
The INS Global team is equipped with the experience and knowledge needed to expertly handle every aspect of payroll, contract management, recruitment, and HR services. Our counselors are always on call to give you the advice and solutions that you need. Furthermore, all of this can be provided through a single streamlined point of contact.
Contact our expert advisors today to learn more.