Many companies are looking toward recovery as restrictions due to COVID-19 are cautiously lifting around the world. Some look to make up delayed revenue, while others want to gain an advantage in their sector. Business leaders assessing the new normal begin to establish a framework that supports healthy operations and even expansion. Global expansion is back on the table.
During January and February, we saw expansion to the Asia-Pacific (APAC) region slow by a third compared to the previous six months. However, as the region reportedly moved to recovery in March, the number of companies that expanded into APAC more than doubled -- and data suggests that the European economy will follow the same pattern as early signs of recovery draw near.
In fact, in the first quarter of this year, we saw more interest from companies seeking to expand globally in Europe than in any quarter over the past five years. In the pivot to recovery, businesses must take stock in the fundamentals that aided their survival: talented workers, solid products and a sound growth strategy.
Let's break down a couple ways to handle HR risks while still seeing global expansion success this year and into the future.
A quick look at global expansion by the numbers
In some cases, businesses resumed global expansion plans already underway before the virus hit. If a company acts quickly on that strategy, it attains a competitive advantage over those who are late to those markets. Indeed, according to the Velocity Global 2020 State of Global Expansion -- Tech Industry report released during the initial stages of the pandemic, 95% of the finance leaders at U.S. and U.K. tech companies planned to expand their operations into new countries this year, and 70% of those companies anticipated a presence in five or more global markets by 2025.
Two-thirds of companies cite growing their customer base as the primary reason for expanding overseas, and just about as many seek to develop scale and efficiencies. About 46% of companies cited the need for top talent as global expansion goals require talented employees to apply the company's vision.
Managing HR risk around global expansion
Companies have several options for enabling overseas hiring, including creating a foreign entity, relying on independent contractors or seeking partners. Each requires varying investment and risk tolerance.
Traditionally, to tap global markets, companies had to create a foreign entity, which requires significant investment in time and money, ongoing maintenance and long-term commitments. For some, this solution is the right answer. Typically, a company is well-served with a full-fledged entity if it is committed to a country for at least five years, is planning to employ dozens of workers or acquire physical assets in-country, and can wait through the months-long approval process. Recently, many countries have halted foreign entity approvals as they focus on COVID-19 relief programs.
Some companies forgo investment in a foreign entity by classifying their overseas employees as independent contractors. However, doing so could put companies at risk of incurring severe penalties for misclassifying workers. On average, 95% of independent contractor relationships that we see are misclassified. Just one misclassified contractor can cost a company up to $350,000 in fines.
Finally, some companies seek partners to bear the burden of the risks for international hiring. Companies still must navigate the risks of finding a reliable partner they can trust.
Global expansion doesn't have to be complicated
While companies prepare for successful expansion, factors beyond their control -- like a global pandemic -- can force a need to review goals and processes. For companies blazing a path to recovery, flexibility is paramount. The global market remains uncertain beyond the foreseeable future as each country handles the pandemic a different way. Tech companies can potentially outpace uncertainty with an agile global strategy.
About the author
Ben Wright is the founder and CEO of Velocity Global, the leading provider of compliant global employment solutions in more than 185 countries, supporting thousands of employees for hundreds of businesses through services including International PEO, entity setup, talent acquisition and immigration. Wright has supported companies doing business across the globe for two decades and is a recognized expert on global expansion strategies He is a graduate of the University of Notre Dame, a proud father of two children and believes deeply in giving back to the community.