Expanding globally can be highly beneficial for international companies as it provides access to new revenue streams and a larger talent pool. However, doing business across borders comes with several logistical challenges and compliance risks.

To expand globally, companies must manage global payroll, benefits, and HR support for their distributed workforce while ensuring compliance with employment and tax laws across multiple regions.

This guide provides an overview of the global marketplace, including the benefits and challenges associated with global expansion. It also outlines the four main methods that businesses typically use to enter new markets. In addition, it offers guidance on how to simplify global expansion and reduce compliance risks.

🌍 What Is the Global Marketplace?

The global marketplace involves trading goods, services, and labor across international borders. While some companies, like Apple, operate in most global markets, others, like regional airlines,operate in only select regions.

By expanding globally, companies can access new customers, revenue streams, and talent pools. However, they must also navigate logistical challenges such as global payroll management and compliance with international regulations. Despite these challenges, expanding globally offers significant benefits to businesses.

🚀Advantages of Engaging the Global Marketplace

Participating in the global marketplace offers more than just expanded market share and increased profits. Amid economic uncertainty, companies that expand globally are better positioned to thrive. Moreover, global expansion allows businesses to diversify their workforce, tap into innovative solutions, and reduce costs. These benefits make a compelling case for companies to consider global expansion as a key strategy for long-term success.

We discuss each of these in detail below.

💪Improve Stability Amid Economic Uncertainty

Engaging in business across multiple countries offers the advantage of market diversification, which presents a valuable risk-reducing strategy during times of economic uncertainty. By expanding operations into multiple markets, companies can mitigate the impact of economic downturns in any one market by relying on success in others to offset losses.

One noteworthy example of this comes from a recent Chief Executive study, which found that almost 20% of global companies were able to achieve enough growth from their international operations over a four-year period to offset negative growth in their domestic markets. This highlights the importance of global expansion as a means of mitigating business risk and ensuring long-term success.

👥Access a Broader Talent Pool

International expansion not only provides companies with access to new markets but also enables them to tap into the global talent pool. This enables candidates with diverse backgrounds, sets, and salary expectations to be engaged. By accessing global talent, companies can offset domestic skill and labor shortages, have greater flexibility in salary negotiations, and tailor their workforce to their unique organizational needs.

Furthermore, a broader talent pool enables global companies to foster a more diverse and inclusive workforce. According to a Glassdoor survey, 76% of job seekers prefer working for companies that prioritize diversity and inclusion. By leveraging the global talent pool, companies can create a more welcoming and inclusive workplace that can attract top talent and fosters a more innovative and dynamic culture.

💡Harness New Innovative Solutions

Expanding into the global marketplace provides access to new technologies, innovations, and cultural norms. Companies can leverage these resources to drive competitive innovation, adapt new technologies, and cut costs both domestically and abroad.

💰 Reduce Costs of Doing Business

The global marketplace offers cost-saving opportunities for companies relative to their domestic markets. For instance, living costs and wages may be lower in foreign markets, resulting in reduced staffing expenses.

Moreover, global companies can benefit from access to cheaper raw materials, superior technological processes, and favorable tax incentives, all of which can help reduce long-term operating costs. By leveraging these cost-saving opportunities, companies can increase their profitability and invest in other areas of their business, such as research and development, marketing, and expanding into new markets.

🤔Challenges of Engaging the Global Marketplace

Despite the benefits of global expansion, doing business across borders comes with a unique set of challenges.

💸International Tax Liabilities

Global companies must comply with local tax laws in every country where they conduct business. This requires companies to familiarize themselves with corporate tax and Value-Added Tax (VAT) laws across multiple jurisdictions.

The extent of local tax liability typically hinges on whether a company has established a permanent presence or "permanent establishment" in the host country. Even sending remote employees abroad for short-term assignments can trigger a local corporate tax liability.

Failing to account for local tax liabilities can result in fines, back payments, and limited business opportunities. Therefore, it is essential for global companies to prioritize tax compliance as they expand their operations across borders.

📝Compliance With International Labor Laws

Employment law presents a significant compliance risk for global employers. International organizations must establish employment contracts that comply with regional-specific minimum wage requirements, leave entitlements, worker classification laws, and relevant collective bargaining agreements (CBAs) to ensure compliance.

For instance, in Italy, CBAs regulate matters that go beyond local labor law parameters, such as holidays, leave, overtime, and information rights. Failing to comply with relevant CBA mandates can result in substantial fines.

🌐Limited Scaling and Technology Infrastructure

To effectively manage HR and legal operations across multiple countries and time zones, global companies require a variety of tools and technologies.

These tools include those needed to run a timely and compliant global payroll, comply with immigration requirements, and administer locally tailored benefits for teams across multiple jurisdictions.

Smaller companies with limited resources and scaling abilities may find it challenging to source the necessary tools and infrastructure to run these vital processes effectively.

👉Options for Engaging the Global Marketplace

Here are four key ways that organizations can facilitate their expansion into the global marketplace.

🏭Set Up Local Entities

Numerous global companies opt to establish a distinct legal entity in their target country, such as a foreign subsidiary, branch office, or representative office. This approach is particularly suitable for companies that are willing to make long-term investments in their target market.

The benefits of creating a separate legal entity include shielding the parent organization from tax liabilities in the host country, establishing credibility with local authorities, and building trust among local consumers.

However, there are also challenges associated with establishing an entity, including the lengthy and expensive process of incorporation, long-term investments in the target market, and the potential for significant compliance risks to arise.

🤝Acquire or Merge With Foreign Businesses

Some companies opt to negotiate with an established organization in their target country, either to purchase it directly or merge the two companies into a single legal entity. While this approach is similar to entity establishment, mergers and acquisitions offer unique advantages and disadvantages.

On the positive side, an existing foreign business already has a local market share, customer base, and established financing relationships. Moreover, the business is already fully integrated and complies with local tax and labor laws.

However, this approach also involves a number of challenges, including navigating country-specific compliance regulations, managing transitional service agreements, and handling employee onboarding during the transaction period. These factors can be time-consuming, pose legal and financial risks, and lead to increased employee turnover.

💼Hire International Contractors

For companies interested in short-term international projects, engaging contractors instead of hiring employees can offer valuable flexibility.

On the positive side, hiring contractors involves lower levels of commitment, simplified onboarding, and termination, and no additional costs such as payroll taxes and statutory benefits.

However, there are also potential drawbacks to this approach. Hiring contractors may dilute service quality, erode business reputation, and present serious misclassification risks that could result in employee back pay and fines.

👨‍💼Use an Employer of Record

An Employer of Record (EoR) is a third-party organization that provides comprehensive support to global companies throughout the entire life cycle of international expansion, including hiring, onboarding, running global payroll, and providing ongoing HR support.

The advantages of partnering with an EoR include simplifying global expansion by eliminating the need for entity establishment, enabling swift market entry and exit, guaranteeing compliance, and streamlining all processes into a single platform. This approach also relieves the HR team from the workload associated with managing these processes.

However, finding a reliable and vetted EoR that offers a full range of solutions in the target markets and prioritizes compliance requires extensive due diligence.

🤝Achieve Your Global Business Goals With the Right Partner

Partnering with a reliable and experienced partner is crucial in ensuring compliance and speed-to-market when entering the global marketplace. ChaadHR can help you overcome borders and streamline global expansion with our Employer of Record (EoR) solution, available in 160+ countries.

As the legal employer of your international workforce, our EoR solution eliminates compliance risks and the need for entity establishment. This approach enables you to enter new markets and hire top-tier talent quickly and cost-effectively, regardless of their location.

Our team of experts handles hiring, onboarding, immigration, global payroll, benefits, and ongoing HR support, allowing you to expand globally without added stress. Collaborating with ChaadHR can help you achieve your global expansion goals with ease and confidence.