According to Velocity Global, State of global expansion 2020 report in the next five years the proportion of tech firms with a presence in five or more markets will increase dramatically. Companies expand to the international market for various reasons. Growing customer base, developing greater scale and efficiencies, and access to talent are the top reasons for global expansion.
However, not all expansion is successful. Many companies end up exiting an international market after setting up their operations. Some major factors contributing to these exits are challenges in talent sourcing & recruiting, payroll processes, communication issues, and immigration management.
Here are 6 factors to keep in mind when looking into global expansion:
It’s important to look beyond the commercial aspects of a location. A location that’s well-suited to the company type can help attract the kind of people that will match the company culture. Consider the amenities available in the location for supporting employees. Selecting a location that is accessible and is well-connected is vitally important. Location and commuting are some of the five things that job seekers take into account before accepting a job offer. Safety and security are other key aspect of a location.
2. Ease of doing business
Every market has its policies, regulations around employment, payroll, taxation, etc., that determine what activities are permissible in the market. Companies must adhere to the local laws and regulations when hiring international, compensating, or terminating employees. For companies expanding internationally, not being aware of such local laws and regulations can have heavy consequences. Non-compliance can drive the company to withdraw from the new market.
The cost of international expansion goes beyond the real estate cost. For example, the cost of living in a location influences the cost of providing benefits and compensating employees appropriately. There are expenses related to legal requirements, for example, compliance with local regulations, opening a bank account, etc., that can sometimes take months to accomplish. Moreover, relocating employees can be expensive. Hiring locals can be cheaper but the cost of recruiting can be high. All of these costs are part of the expense incurred with expansion to a new market. It is critical to research well and reasonably account for all such costs during the due diligence process.
4. Talent availability
Although access to a new talent market is one of the reasons for global expansion, sourcing talent is one of the major challenges to global expansion. Selecting a location with a significant talent pool for your business is very important. Consider future skills needs too and not just the present ones. Research into what higher education is available in and around the location. It will provide you with an idea of the quality of the local workforce. Recruiting is one of the biggest challenges and having options will help with the relocation process.
See where competitors are situated to get an idea of operating in those areas. Look beyond the business competition only. Look at the competition for talent in the market. Will you have to lure workers away from other companies? Or will other companies lure your workers away? This will influence the cost of operating in the new market.
Consider the growth stage of the company and plan around that growth. Would the new location be able to accommodate future growth? Smaller places might be cheaper, but with expansion think about how the site can grow with the business. Consider the potential growth of the business. The last thing anyone wants is to plan another relocation because of a miscalculation in future business size.
When looking for the right location remember that it will be a place to nurture the future of business. It must meet the current business and skills needs of the company. At the same time, it must be strategic enough to meet the future needs of the company. To anyone contemplating the expansion of their business, “Expanding into Europe” by Dominic Jacquesson is a highly recommended read. It is jam-packed with practical information and some really interesting case studies sharing the expansion experience of US companies into Europe. Although the guide was written for US companies expanding into Europe, the various aspects of the expansion process discussed apply to any company contemplating expansion to anywhere in the world.