In 2000, less than 30% of GE’s business was conducted overseas. Just over ten years later, its international business doubled. During its expansion into new markets, GE followed a guide to hiring abroad. It’s our goal to provide business leaders like yourself a guide for your new venture in this post. After developing a firm grasp on how to hire internationally, you’re one step closer to expanding into new markets.
Employers Guide to Hiring Abroad: Options
As businesses continue to forecast growth and include global expansion into their plans, the need for hiring assistance increases. There are some regulatory requirements to maneuver in foreign markets and it’s a lot of responsibility for small to midsize teams. Do yourself a favor and don’t reinvent the wheel. Seek assistance when your team is getting ready to enter a new territory.
Foreign Subsidiary
A foreign subsidiary is a company located in a different country that is controlled by another ‘parent’ company (i.e., your headquarters). The branch acts and operates as its own entity, but it’s connected to the larger company. If there is majority ownership or control, the investor corporation guides the resources, business policies and operating decisions of the foreign subsidiary.
Don’t be fooled and assume that you need to establish a subsidiary to hire employees overseas. That’s not true. It should be avoided if possible. Unless you’re in an industry such as manufacturing or real estate, you will likely be able to avoid establishing a subsidiary and be able to hire employees with one of the options below.
Foreign subsidiaries are expensive and time-consuming. It also limits your ability to exit if your business doesn’t work out as planned. Here are a number of other reasons why you should avoid establishing a foreign subsidiary.
Foreign Independent Contractors
International employers face common traps when working with independent contractors. If you have one-time projects, a contract may be an option for your company, but overall, this is another hiring option that should be avoided.
Contractors do present cost savings in the way of benefit reductions and are becoming an increasingly popular option in certain industries, like IT. If you choose to work with contractors overseas, you need to keep a close watch on how you manage them. They must work autonomously at all times to be considered an independent contractor. Also, you’ll need to establish an agreement in-country, following the rules and regulations set forth by that jurisdictions labor laws. Unfortunately, even if you have a local agreement in place, labor courts can bypass the agreement and rule for the contractor if that individual fights their employment status. If it’s found that the contractor is acting as an employee, they are subject to withholdings and benefits, plus, your firm may face some hefty fines.
Foreign Business Process Outsourcing (BPO)
We’ve all experienced BPO at some point. Whether it’s calling into a customer service line and talking with someone outside of the country, or receiving our payroll checks from a third-party provider, it’s a common practice. Essentially, BPO is when a third-party provider takes over the operations and responsibilities of an entire business process.
Benefits of using BPO include:
- Focus on business strategy, not daily admin tasks.
- Control costs.
- More time for the internal team may lead to increased innovation and new products or services.
Disadvantages of using BPO include:
- Lack of personalized attention from the outsourced company.
- No direct control over the quality of your outsourced processes.
- Hidden service fees, which can start to add up.
If you have a specific process for your international operations that you’d like to outsource, this could be an option for your company. Shop around, get referrals, and go with a provider that aligns best with your firm’s goals.
Employer of Record and FSaaS
An Employer of Record service (also known as International PEO) puts the control back in your hands while managing the risky aspects of hiring overseas. These risks include compliance, legal, and tax requirements. Laws frequently change in foreign markets, and it’s tough to manage the updates in-house. Services like Employer of Record and Foreign Subsidiary as a Service (FSaaS) create a legal entity in your target market and allow you to hire local employees. The third-party manages all of the legal requirements and payroll, while you manage your international team on a day-to-date basis.
If you’re hiring your own international employees, this option has the lowest risks and lowest costs.
Employers Guide to Hiring Abroad: International Hurdles
You’ll face many obstacles when entering a new market. Similar to starting up your entity in the States, there are regulations, cultural aspects, and competition to maneuver overseas.
Taxes, Withholdings & Other Obstacles
When you’re hiring overseas workers, you need to be aware of the international tax and withholding complexities. Every country has different regulations about the benefits, vacation time, sick leave, and other entitlements. These are requirements and must be accounted for every team member.
In addition, non-compete agreements may not be legal, and you will likely face restrictions on the amount of notice you must give before firing someone. A third-party resource such as Employer of Record can help your team manage these requirements.
Understand the Culture
Before you decide to move to a new country, make sure you fully understand the culture. Ask yourself, Will my business work here? Is there a consumer base that wants my product? Am I filling a need? Once you determined it’s a suitable market for your business, you’ll also need to learn the expectations of employers.
Start to understand the business norms. In some countries, employees may be open and direct. In others, communication may be more complicated and take time. Confide in an international consultant to get insight into your new markets and learn about industry best practices.
