With the global markets becoming more accessible, it is only rational that the next big step for your business is expanding globally. You can reach untapped markets, find new opportunities in regions like Asia and Europe, and go all the way with establishing business operations in different parts of the world.
Growing internationally is not without its challenges, but there are also more resources and services to help you make international growth possible. Third-party service providers that specialize in local laws, for example, can help you establish the right form of business entity, navigate through local employment laws and other regulations, and much more.
Before you can start planning your business’s international growth, however, there are a number of things to understand. In this article, we are going to focus more on the 5 terms that you need to understand when considering international business growth as well as what those terms represent. Let’s have a look, shall we?
Professional Employer Organization
The first term to get accustomed to is Professional Employer Organization, or PEO. What is a PEO exactly? A PEO represents an entity – based locally – that takes charge of your employment and operational needs. Rather than recruiting employees or trying to establish business operations on your own, you can now hire a PEO to handle these tasks for you.
PEOs are also known as co-employers; the term clearly defines what PEOs offer as far as services and products go. PEO companies are meant to help companies save a lot of time and money when establishing business operations in new countries. At the very least, PEOs let you have international operations without having to establish foreign subsidiaries.
So, in which areas can peo companies help your business? The primary area, as the name suggests, is employment or HR. PEOs allow you to worry less about providing employee benefits and handling payroll-related tasks, and more about finding the best talents and accessing the local talent pools. PEOs also have tax and accounting experts to help with employee benefits.
GlobalPEO is a good example of a PEO that can help you penetrate new markets. The company significantly reduces the complexity of setting up business operations in a foreign country. It also speeds up the process of getting your international operations up and running significantly. You can read more on PEO here and see how it fits your business.
If you are a business that manufactures physical products, there is a big incentive in establishing operations in countries where manufacturing costs are lower. Countries with a more affordable workforce, better supply chains, and established supporting infrastructure offer opportunities for manufacturing companies to lower production costs by a substantial margin.
Plant transfer is the process of moving jobs from costly countries to cheaper ones. It is a common practice among larger manufacturers, especially those in a competitive market. By lowering production costs, companies can be more agile and competitive in their respective markets. This is an advantage that you don’t want to take lightly.
There are manufacturing partners to work with too. Moving production from one country to another can be done by either making investments in the new country or working with manufacturing partners. Both approaches have their pros and cons. If you choose to work with a manufacturing partner, your plant transfer process is a lot shorter and cheaper.
Making investments in the destination country, however, lets you yield better benefits in the long run. Rather than an instant saving, you basically gain tax advantages, employment benefits, local government support, and other benefits, all of which greatly affect your long-term competitiveness. The decision between these two approaches needs to be made with careful calculations.
That brings us to the third term that needs to be discussed: strategic partnership. Strategic partnerships and joint ventures are equally interesting approaches to take when you are trying to expand your operations overseas. What you do is find new business partners and then form a strategic partnership with companies operating in different countries.
A strategic partnership allows for all companies involved to share technologies, production resources, facilities, business networks, and development capabilities. All of these resources are used collectively, which means businesses in the strategic partnership also gain access to the markets of other partners in the alliance. It amplifies international expansion significantly.
Forming a strategic partnership doesn’t mean you cannot establish your own operations in new countries. It simply means you now have more resources to tap into when trying to establish your business ops. You can still work with PEOs to recruit top talents or make large investments to gain government grants and other advantages.
Another reason why a strategic partnership is worth considering is technology transfer. When you are forming a strategic alliance with complementary businesses, you are expanding your market reach upwards and downwards. This gives you the ability to benefit from new technologies that supplement your existing products without investing heavily in R&D.
The one element that must be present when you are expanding to new countries is commercial presence. Commercial presence is the establishment of an office, a representative branch, or a subsidiary in a foreign country. The goal of having a good commercial presence is so that you can fully penetrate the market and gain new advantages.
Commercial presence is usually enough to help you earn government aids. Certain regulations related to tax breaks and investment benefits usually require a more established operation, but working with PEOs and outsourcing companies – or forming a strategic alliance to support business operations – will help you get around regulatory limits effectively.
A commercial presence also works wonders when you are marketing your products in new markets. It helps build confidence and boost credibility in the eyes of potential customers. Good commercial presence is even more important if you are targeting business customers since it will be one of the first things B2B customers check when making a purchase decision.
For tangible products, consider taking into account the channel strategy when forming a commercial presence. Since you need to distribute products in a certain way to make sure that you are reaching the right market segments, establishing a commercial presence in a certain way, location, or form becomes important.
Last, but certainly not least, we have global involvement, which represents your degree of commitment to the international marketplace. This is how you keep track of your status as an international business. You will most likely start with becoming an exporter of goods and services, and then gradually increase your involvement level until the business becomes an international entity.
International business needs to have operations in multiple countries. The structure of the business must also be adjusted so that there is no home entity or HQ, meaning all branches of the business operate on the same level. This requires a comprehensive global strategy and a big enough competitive advantage in different markets.
Fortunately, we’ve talked about the different ways you can gain a competitive advantage while discussing these terms. Expanding globally and becoming an international business is not easy, but as mentioned previously, you have more resources at your disposal to turn your global strategy into reality. With PEOs and strategic partners supporting the move, expanding your business operations to new countries is not only easier but also more time-efficient and less costly.