Key Takeaways
1. Globalization, along with the rapid shift and acceptance of remote working models, has provided newfound opportunities for businesses to expand their operations overseas.
2. Some benefits for companies to expand overseas include: Access to a bigger market of consumers; higher revenue potential; more advantageous markets; the opportunity to slash costs; and being able to access a wider net of talent with different skills and expertise.
3. There are several ways that a company can expand overseas, with each method coming with varying costs and compliance obligations. Companies can open a representative office, open a local branch, invest or acquire a local subsidiary or take on a joint venture.
4. For companies that would like to test a foreign market before going ahead with opening a new branch, they can utilise the services provided by a Global PEO to quickly expand into a new foreign market, while still being able to exit a market without direct legal ties.
Overseas business expansion is when a company expands their business operations into a new market in another country. In the past, expanding into new overseas markets was predominantly seen as an opportunity appropriate for large firms and multinational corporations. This is because It was considered a risky and costly endeavour, often resulting in failure. These days, globalization and remote working have set the conditions to make overseas expansion possible for small and medium enterprises (SMEs) as well. This article will cover the common benefits of overseas expansion, and introduce some common ways to facilitate the legal expansion of a business overseas.
What are the benefits of overseas expansion?
As the prospect of overseas expansion becomes more accessible to companies of all sizes, so too does the opportunity for companies to take advantage of the associated benefits that were once reserved for larger firms. Here are some benefits that come with expanding business overseas.
- Bigger markets and revenue potential
- When businesses look to go global, they expose themselves to a larger market of consumers. This providing further opportunity to diversify their portfolio through offering new products or services that may not be fit for their original market. This can result in greater revenue and higher profit margins, whilst opening doors to further expansion opportunities into other markets. For some companies, entering a new market could even prove to be more lucrative for the company than remaining in their local market.
- Gain a competitive advantage
- Expanding a business overseas can add an extra level of competitive advantage to a company. They may be able to be ‘first to market’ in a location and beat out their competitors.
- Geographical arbitrage
- By having operations overseas, businesses can mitigate risks (e.g., compliance and macro-economic risks) in any one specific location.
- Slashing expenses
- As location becomes more arbitrary, remote working has produced new and innovative ways to slash expenses across many divisions within a company. For example, companies can now hire foreign talent for roles that do not require a high level of company knowledge, or have lower salary thresholds than in a company’s local market.
- Access to a wider net of talent
- Companies can get access to a new, wider net of talent when they expand overseas. Having this access presents a great opportunity to diversify their teams and ensure intercultural fluency. Hiring foreign talent can introduce new skills, new perspectives and unthought of ideas which may steer the company in new prosperous direction. There is also the possibility to hire specialised skills at a lower cost than if hiring within a company’s own local talent market.
- In short, overseas expansion can be a crucial component of your strategic workforce planning.
- Specific growth opportunities
- There are other specific growth opportunities that could motivate a company to take the leap and expand overseas: For example, there could be a specific merger or acquisition opportunity in a given country.
What is the best method for overseas expansion?
There is no one blanket best method that all companies can take to expand their business overseas: Facilitating such an endeavour does not happen overnight, and some methods are faster than others. Motives and ability to expand primarily centre around a company’s vision, needs and goals. Let’s go over some common solutions for overseas expansion.
- Representative office
- The first strategy a company can take is to open up a representative office in their overseas target market. This strategy is cheap and easy to set up, and provides a chance to conduct market research of the local market before committing to expanding operations there. Some disadvantages include a lack of legal status in the country meaning that no-profit making activities can take place.
- Opening a new branch
- Opening a branch overseas is another route companies can take to expand globally. This strategy is relatively easy to set up (just register the international company with local authorities), and allows the company to legally operate with the same range of activities as the parent company in the chosen market. The parent company also remains in control of all processes and business decisions of the branch. Opening a new branch overseas can require significant resources and introduce a new set of compliance challenges for the company to ensure they meet local standards.
- The major disadvantage of this approach is that any liabilities of the international branch become liabilities of the broader company.
- Opening a Subsidiary
- Opening a subsidiary company in a foreign market brings several benefits. The international company can have majority or whole ownership in a locally incorporated entity and have considerable lee-way in how the subsidiary company is run in that local market. Another way to open a subsidiary in a foreign market is through acquisition of a local entity. To go down this route for global expansion can be a costly endeavour and bring about local compliance issues.
- Taking on a joint venture
- Companies can look to take on a joint venture or partnership beyond their local borders as another way to gain access to a new overseas market. An international joint venture can facilitate easier routes for undertaking international trade, provide growth opportunities and split costs between the companies involved. One of the key risks involved with this strategy is that companies will cede partial control to the local company partner.
- Hiring a Global PEO
- Hiring a Global PEO can be a great way to enter a new foreign market quickly, without the costs and structures associated with setting up an entire new office in a target country. Global PEOs can support your company in hiring top foreign workers into any country you choose.
- While Global PEOs do not carry out any business operations in the name of the international company, they take care of employment compliance responsibilities (including payroll and tax) in the country of expansion.
Hire globally in 24 hours with Horizons PEO services.
Horizons enables overseas expansion
If you are looking to expand overseas, then Horizons can help turn this goal into a reality. Horizons is a leading Global PEO that has the ability to support overseas expansion to any country in the world.
By taking care of all payroll and compliance obligations when entering a new market, Horizons gives you the time and headspace to focus on revenue generation.
Frequently asked questions
An overseas business expansion means that a company is looking to expand its operations in some form beyond its local borders to one or more new target countries.
There are several strategies that a business can take to expand overseas: If a business is looking to simply conduct some market research, they can open a representative office. If they have decided that their company could be a great fit for the new market, they can open a local branch. They may also look into opening a subsidiary company, forming a joint venture, or acquiring a local company.
Finally, they could hire a Global PEO to hire foreign workers overseas, either to take advantage of lower salary thresholds, gain access to specific expertise, or diversify their team.
