Running a business on a local level has its risks. To put it into perspective, eight out of every ten businesses fail within the first 18 months. When your company decides to take operations overseas, international risk mitigation is an absolute must.
There are common traps that companies face during global expansion. We’ve heard the stories and seen the consequences first-hand. We don’t want your business to fail during global expansion, which is why we’re discussing the most common risks and how to prevent disaster.
The Top Three Risks During International Expansion
There are some traps during global growth. The best way to avoid these hurdles is by developing a robust international risk mitigation plan. Here are the top three pitfalls we see.
Disobeying Mandatory In-Country Requirements
Each country has its set of regulations surrounding labor law requirements. Staying compliant is one of the most important steps to success during international growth. Employers are responsible for all benefits withholdings, taxes, mandatory bonuses, and contract requirements overseas.
Things start to get complicated when you’re dealing with variances from country to country. Many markets have nuances that are not always obvious, and if you’re not an expert in the local labor laws, you may miss a major requirement.
For example, in China, employers must withhold funds for their employees’ pension, job loss insurance, medical insurance, housing contributions, and taxes, just to name a few. Trying to navigate the withholdings internally is tough.
In addition to managing the payroll process, if there comes a time when you need to close the business, there are strict laws to consider. When terminating a business overseas, there are usually long processes surrounding government approvals, tax payments, and employee rights. Before starting a new operation, build a plan to prepare for the worst.
Not Protecting Intellectual Property
Don’t make the mistake of assuming that your intellectual property (IP) rights are protected once you leave the US. IP rights are territorial and do not extend to operations in your new country. You will need to apply for protection in each country of operations.
If you have vital information that needs to be protected, this should be one of the first steps on your list during international expansion.
Simple ways to protect your IP overseas include:
- Partner with a local attorney to legally protect your IP under the country’s guidelines.
- Be careful when working with independent contractors. Establish clear language in agreements about IP and understand that it may not be protected in labor courts.
- Register your IP in your target country via patents, trademarks, etc.
Using International Contractors
International contractors are full of risks. Since “at-will” employment doesn’t exist outside the US, all employees must receive the benefits and taxes established by local labor courts. Contractors live in other countries, but they are difficult to manage.
For a contract relationship to work, they must operate with complete autonomy. As a result, you as the employer can have no say over their schedule or how they finish their work.
If for any reason, the contractor decides to fight their employment status in court, they will probably win. If that occurs, the contractor is entitled to all of the benefits and withholdings gave to employees. That can start to get expensive - fast.
Prepare for International Risk Mitigation
The best thing you can do for your international business is avoiding establishing a foreign subsidiary. International risk mitigation is too difficult to manage on your own.
You can get assistance through employer of record (EOR) services including International PEO and Foreign Subsidiary as a Service (FSaaS). These services help international companies manage compliance. They also take care of a company’s payroll, entitlements, withholdings, and taxes. Companies are still responsible for day-to-day management of responsibilities and employee liabilities, and the EOR keeps them compliant.
To learn more about how an EOR service can help with your international service, contact us!