At some point in their growth journey, it is normal for an enterprise to become interested in international expansion. Here, we look ats some of the benefits for an enterprise in expanding globally, and look at when the ‘global Professional Employer Organization’ (‘PEO’) is a useful model for expanding the business.

Why Expand Internationally?

There are numerous benefits that international expansion can provide to an enterprise. Some of them include:

• Workforce recruitment and retention. Wherever a business is based, they may find that the best-qualified staff for that business are located overseas. In such a case, international expansion is required to ensure that the enterprise has the best workforce it possibly can. Existing staff also place a premium on the ability to transfer to an overseas location: In one survey, 39% of Generation Z and Millennial staff stated that the inability to travel for work would be a reason to turn down a job;
• Reduced costs. Inevitably, labor and materials may be cheaper elsewhere than they are in an enterprise’s home-base. It is becoming particularly common for businesses to outsource a specific function (such as Research & Development or payroll) to save costs;
• Mitigating risk. A business in any particular country can suffer due to economic, political, or general market events. By having a presence in overseas markets, an enterprise can spread the risk that any one such event presents to the enterprise as a whole;
• Growth. Market research could indicate that there is an excellent opportunity for an enterprise in another country. For example, it may be that a certain product or service does not currently exist there. Through international expansion, an enterprise can be ‘first to market’ in that location;
• Tax and compliance. Other countries may have tax regimes that leave an enterprise better off. For example, some countries have favourable taxation and incentive frameworks for intellectual property or Research and Development (R&D) hubs that are outsourced to that location.

What Are the Global Expansion Business Models?

Though it may have significant benefits, there are also challenges to international expansion. One key challenge is working out which precise business model is optimal. There are several possible business models for expansion:

• Entering into a joint venture (‘JV’) with a local company based in that country;
• Merging or acquiring an existing company in that country;
• Setting up a subsidiary company in the country;
• Engaging a global PEO to employ staff on behalf of your company.

Which mechanism is optimal, depends on the nature of the expansion for each particular enterprise. Here our focus is on when just one of these options, engaging a global PEO, can be optimal.  

What Does a Global PEO Do?

A global PEO operates with branches or entities in various different countries, each of which can operate as the legal employer of a workforce in that country. The workforce still acts on the direction of the client enterprise, but their payroll, human resources, and taxes are handled by the global PEO. Depending on the PEO in question, they may perform other functions as well such as recruitment and market research in the country where expansion is sought.

It is sometimes called a ‘co-employment’ model: An international expansion is made compliant with local laws by having the global PEO handle the employer’s legal responsibilities, while the client enterprise focuses on their core business.

When Is a Global PEO Suitable?

Engaging a global PEO can be useful where:

• Time is of the essence. This is usually the quickest way of setting up in a new market – it can sometimes be set up within days;
• The focus is on establishing a workforce. Global PEOs employ staff and often perform related recruitment and compliance activities. For other activities, such as accessing various government schemes and rebates directly, it may be necessary to set up a subsidiary company;
• An enterprise is ‘testing the waters’. Setting up a company, acquiring/merging or setting up a joint venture in a new country is a substantial financial and time investment. By contrast, engaging a global PEO allows you to start small and scale up depending on whether growth continues as anticipated;
• Cost is crucial. In most cases, engaging a global PEO is substantially cheaper than setting up a standalone business entity in the new country.

Conclusion

International expansion should be on the horizon of every growing enterprise: COVID-19 doesn’t change that. If anything, economic turbulence makes the potential cost savings of international expansion even more significant. While expansion has a range of benefits, enterprises should think carefully about the business model that they use. While setting up a new local company can seem like an obvious option for expansion, engaging a global PEO is often the cheaper and more efficient model. This allows an enterprise to ‘test its expansion’ before committing significant resources.