Globalization provides tremendous benefits to businesses and societies alike, including improved living standards, increased innovation, and access to foreign cultures that encourages awareness and appreciation for the people throughout the world. Through globalization, companies can tap into new markets, benefit from lowered costs for goods and services, and avail themselves of motivated and productive workforces throughout the world.
Even though many are the advantages of globalization there are several challenges as well.
Common Challenges of Globalization
Some of the biggest challenges of globalization are discussed below, along with potential solutions.
No Legal Presence
Many companies realize the vast opportunities that are available in new markets, but they usually do not have a legal entity in these countries.
This can be problematic because companies are often barred from hiring staff or generating income in a country when they do not have a legal entity. While the company may be able to incorporate a business in a new country, many business owners are hesitant to invest a substantial amount of money in a new endeavor when they do not know if their expansion will be successful at this juncture.
Even if they are willing to take on this risk, they may not have the resources available to pay for large expenses, such as the incorporation costs or paid-up capital requirements.
Additionally, many countries require businesses to inject capital into a bank in that country that can only be used on business activities, which makes the prospect of setting up a separate entity cost-prohibitive for many businesses.
Difficulty of Testing the Market
Most prudent business owners realize that their product or service may not be embraced on a global scale with the same function and marketing information. Therefore, they invest in market research to see how the potential market perceives their product and brand.
However, businesses that are overseas may have difficulty testing the market when they do not have a local presence.
Additionally, they may run afoul of complex regulations pertaining to foreign businesses. Businesses will want to avoid issues with foreign bureaucratic agencies so that they are not later prohibited from conducting business in the country.
Hiring Staff in a Compliant Manner
To have any type of expansion in a new country, key staff members will need to be in place.
However, many countries do not allow foreigners to hire staff without a legal entity in the country. Even if the company establishes a legal entity in the country or opens a sales office, the employee’s activities may be restricted.
Additionally, many business leaders may not be familiar with foreign laws about employment law, tax, and other legal issues in that country.
Regulatory and Legal Compliance
Of course, businesses want to expand into another country without violating any laws or regulations. However, setting up operations in a foreign country can be complex, especially when business leaders do not speak the local language. The regulatory framework in foreign countries can also often be confusing for foreigners.
To comply with applicable regulations in other countries, the business may need to perform the following tasks:
- Incorporate a business
- Register with tax authorities
- Open a corporate bank account
- Acquire necessary certifications
- Maintain corporate records and filings
- Register trademarks and other intellectual property
- Process payroll and administer employee compensation and benefits
Completing these tasks in a compliant manner can be a difficult undertaking for someone who is not an expert in the country’s regulatory scheme.
How a PEO Can Address the Challenges of Globalization
Businesses hoping to expand overseas will confront these challenges of globalization. However, they are not insurmountable.
Working with a Global PEO can help overcome these challenges in the following ways:
Ability to Test the Market
A PEO hires staff directly in a foreign country on behalf of your business. You maintain daily control over the activities of your staff while the PEO manages administrative functions.
This arrangement allows you to test the market through a soft launch so that you do not have to subject your company to too much risk at the early stages.
You can test the market and the perception of your product or service, providing you with important feedback and giving you the opportunity to make adjustments to better appeal to a new audience. At the same time, you can develop brand recognition.
You can also set up supply chains and establish business relationships so you can have a strong foundation when you later decide to incorporate your business.
Faster Market Entry
Because the company incorporation process often takes several months to complete, using a PEO can help you enter the market faster when opportunities arise.
You can deploy staff within a matter of days instead of weeks or months, giving you the first-to-market advantage.
Compliant Way to Hire Staff
Using a PEO is a cost-effective and competitive way to help businesses compete on a global level. A PEO can recruit local or international talent to fill your company’s vacancies and handle the administrative tasks associated with maintaining the employment relationship.
Additionally, you can scale up or down your business as the market demands.
PEOs are experts in tax, payroll, HR and other back-office operations. They can assist foreign businesses with various compliance matters. Additionally, a good PEO will offer employer-of-record services, which transfers the liabilities associated with the employment relationship from the host business to the PEO.
A good PEO will provide compliant labor contracts that adhere to local regulations and best practices. Additionally, a PEO can provide assistance in the following areas:
- Accounting and bookkeeping
- Human resources
- Global Mobility
- Legal counsel
Overcome the Challenges of Globalization with New Horizons
New Horizons can help you overcome the challenges of globalization through our PEO and Employer of Record services.
Partnering with New Horizons will let you take advantage of the many opportunities that arise when you go global. Our PEO service allows you to establish a presence in new international markets without the time and expense associated with establishing a legal entity.
Contact our experts today to learn more.