Why International Business Expansion Needs a New Model

Seizing a new opportunity abroad has significant organizational impact

By Andrea Dumont, Vice President of Marketing, Globalization Partners

Global business expansion should be simple. A company sees an opportunity in a new market, or finds talent in a new market, and opens a sales channel there. Done.

It’s what happens in between that makes this sort of global growth a prohibitive challenge. To get even one sales person on the ground overseas, a U.S.-based human resources staff has to navigate the myriad laws, local regulations, tax implications, bank accounts, and payroll hurdles unique to the locale. As a result, the process often fails before it ever had a chance to begin. This scenario is especially true for companies without the infrastructure, expertise, and bandwidth to investigate these challenges abroad.

And the problems HR faces when it comes to global expansion are only going to continue. Wells Fargo recently reported that 81 percent of U.S. companies surveyed expect the international components of their businesses are important and will expand through 2018.¹

“Consequences for not adhering to GDPR could result in a company being forced to pay out up to 2 percent of total global revenue or 10 million euros in fines (whichever is higher), or 4 percent of total global revenue or up to 20 million euros in fines (whichever is higher), depending on the infraction.”

Until now, there was no reliable model on which HR (or any segment of an organization; legal, finance, etc.) could rely to handle what amounts to the most nuanced and important portion of expanding to a new country: the technical ability to hire.

There has been a need for a new model, and one is beginning to emerge. It’s called the “Global Professional Employer Organization” or Global PEO model. It borrows from an age-old concept in the U.S. described most commonly as co-employment—when one organization outsources its back office human resources to another organization for a variety of reasons.

But the U.S. is way ahead of the rest of the world in terms of this model. Which is why Global PEO must take an entirely different approach to co-employment than what exists in the United States.

There are three key ways in which a Global PEO model sets itself apart from the relative simplicity of co-employment HR has relied on for years: established foreign subsidiaries, built-in data compliance, and a strong understanding of local norms (ie. benefits).

Established foreign subsidiaries

Popular countries in which Globalization Partners has active professionals (or, people on our payroll but who work for our client companies, hence, co-employment) working today are the United Kingdom, Singapore, Mexico, China, and Canada. We are prepared to get anyone working in those countries with relative ease. The reason: recognized business subsidiaries.

In fact, about 75 percent (and rising) of all professionals on our platform are working through our established subsidiaries in locations the world over.

This is the gold rush of the Global PEO industry. The more land we can grab, the better it is for everyone: us, our clients, the professionals, and the in-house HR staff responsible, ultimately, for managing those professionals.

Data compliance

In the European Union, beginning in May 2018, a new set of rules will take effect known as the General Data Protection Regulation (GDPR). The regulation provides sweeping changes to how employee data is shared, stored, and ultimately protected by corporations.

Consequences for not adhering to GDPR could result in a company being forced to pay out up to 2 percent of total global revenue or 10 million euros in fines (whichever is higher), or 4 percent of total global revenue or up to 20 million euros in fines (whichever is higher), depending on the infraction.

The Global PEO model fits into this in two ways: Global PEOs (should) have a compliant workforce management software (built with the legal standard of “privacy-by-design” as a template), and an experienced in-house legal staff with international labor law expertise, specifically.

Expanding to new countries is all about following the procedures put in place by local governments, or, as plainly evidenced through the GDPR-penalty example, the costs—if HR hits a legal or regulatory snag—far outweigh the benefits of opening up shop in the new country.

Understanding of local norms

Each country has its own set of unique benefit requirements, making offering benefit programs to international professionals a distinct challenge for HR. For example, Germany uses a “top up” system, which means the government provides adequate benefits to professions (typically including medical, dental, and vision coverage), but companies may be expected to add supplementary benefits often depending on seniority or other factors.

It’s this way in much of Europe, with many countries offering state-provided health care entirely. In fact, high-end medical benefits are a point of continental pride in the EU. And in Asia, there is a set of culture norms which a U.S. company must learn. In the Philippines, it is typical for an employer to offer a monthly allotment of rice to the employee, for example.

Technically, the Global PEO should provide a wide range of solutions to this most challenging of international HR problems. This is a country-specific problem; but the Global PEO is a worldwide solution.

There is no one-size fits all approach to the problems facing HR when it comes to global expansion—largely due to the sheer volume of territorial rules and regulations concerning business. But it is in this morass in which the Global PEO industry will continue to thrive in the decades to come.

1 Wells Fargo International Business Indicator, April 2017, https://wholesale.wf.com/global-focus/international-business-indicator/

Andrea Dumont is Vice President of Marketing at Globalization Partners, a Global Professional Employer Organization which helps companies expand internationally without having to set up their own subsidiaries overseas. Andrea has over two decades of experience in human resources marketing; Her passion for international expansion and digital marketing has led her to accelerate growth at startups as well as Fortune 500 companies.