The traditional route of setting up a legal entity abroad involves intricate processes and significant financial investment. Jane Lee, GTM leader and Senior Director of Sales, APAC at Remote, shows how the EOR approach can be an effective alternative.
This article is brought to you by Remote.
In the exciting culture created by startups, the question of expanding beyond borders often arises as companies seek to tap into new and promising markets. While many multinational corporations effortlessly establish international entities, startups often face the daunting challenges of cost, time, and complexity. The traditional route of setting up a legal entity abroad involves intricate processes, significant financial investment, and the capacity to handle operational details.
International entities, such as those exemplified by industry giants like McDonald's or Apple, have strategic advantages. They are able to tailor products or services for global markets from the outset, preventing costly adjustments later. However, for a company of limited resources, the decision to establish a legal entity abroad demands careful consideration of factors like market research, cultural adaptation, legal compliance, and workforce management.
Launching a foreign entity involves defining its purpose and structure, selecting the right jurisdiction, establishing a local physical presence, managing legal compliance, setting up administration and operations, dealing with taxes, and building local networks—all of which consume time, attention, and financial resources. The average cost of such an endeavour can range from tens of thousands to several hundred thousand dollars, making it a restrictive option for startups with limited budgets.
Explore the game-changing solution known as Employer of Record (EOR). An EOR is a cost-effective shortcut for startups looking to expand globally without the burden of establishing a legal entity. This third-party organisation takes on the legal and logistical responsibilities of employing a company's workforce in a foreign country, managing services like hiring, payroll, benefits, taxes, and compliance with local labour laws.
Partnering with an EOR, such as Remote, allows startups to focus on their core business operations while swiftly and flexibly expanding into new markets. The EOR handles the complexities of international employment, providing a practical solution for startups until the point at which opening a full-fledged international entity becomes financially viable.
An Employee Cost Calculator can be an invaluable tool for comparing total hiring expenses across various countries, aiding in more efficient budgeting. Leading EOR platforms offer guidance on determining the appropriate employment relationship between a full-time employee or an independent contractor, depending on the classification laws applicable in the relevant country.
By leveraging the expertise of an EOR, startups can gain insights into local markets, refine hiring options, and ensure compliance with complex international regulations.
The steps involved in going global with an EOR include:
- Identifying the target market: Conducting market research to determine consumer preferences, purchasing power, local competition, and potential demand for the product or service in the target market. Assessing whether the product’s pricing is compatible with the local market’s economic conditions and if there is potential for profitability in that market.
- Understanding the cultural landscape: Cultural adaptation and sensitivity arise when entering a foreign market. It involves aligning products with local customs, tastes, and traditions, and adapting them in a culturally sensitive manner to meet local expectations. Additionally, investing in translating marketing materials and the website into the local language may be required.
- Navigating licensing and permits: Local regulations, ensuring products comply with standards like labelling, safety, or environmental requirements. License requirements, with some industries necessitating specific permits to operate in particular countries.
- Hiring the local workforce: Hiring in a foreign country involves understanding local labour laws, managing international payroll and taxes, and classifying workers correctly to avoid legal issues. Protecting intellectual property is crucial, requiring compliance with local regulations and the inclusion of confidentiality agreements in employment contracts. The EOR, as your local partner, will be crucial in ensuring local compliance.
- Building a repeatable and scalable process: To expand internationally, invest in replicable processes, including detailed documentation, ongoing metrics tracking, adaptable employee training, regular process reviews, and scalability testing for seamless growth.
While the allure of international expansion may be strong for startups, the traditional method of establishing legal entities abroad can be financially burdensome and operationally complex. The EOR approach offers a cost-effective and efficient solution, enabling startups to access global talent pools, adapt to new markets, and scale their operations with speed and ease.
As the business world continues to evolve, embracing innovative alternatives like EORs becomes crucial for startups seeking to thrive on the global stage.
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