Despite the COVID-19 pandemic, CFOs continue to press on with international expansion, unwilling to give up opportunities to capture market share.
That was one of the findings from a recent survey of 166 finance chiefs and other senior financial executives by CFO Research (part of Argyle Advisory and Research Services) and employer of record (EOR) Globalization Partners. While the economic upheaval caused by the coronavirus has added obstacles, most financial executives said they were not abandoning their global expansion plans.
Nearly nine out of 10 of the surveyed executives have had experience with international expansion, reporting that their companies had already expanded to two or more countries outside the United States. Some 16% had expanded into 20 or more countries. Along with this experience comes first-hand knowledge of the business obstacles of entering a new country.
Among the COVID-19 concerns related to global expansion, employee health and safety was first, cited about twice as much as the concerns of developing new business strategies, increasing sales pipeline and revenue, and reducing organizational costs.
Eighty-three percent of the executives were concerned about having to deal with multiple third parties and stakeholders in a foreign country during a volatile economic climate. And 74% were worried about dealing with foreign banks and international employee payrolls in volatile times.
Aside from current pandemic concerns, companies face weighty challenges when carrying out an international expansion. Nearly eight out of 10 of the surveyed executives agreed that legal, human resource, and tax compliance demands were a substantial barrier in the countries they were venturing into. They said managing legal concerns was the most challenging area of global expansion, followed by dedicating resources to global operations and recruiting talent.
Despite the hurdles, only 37% of the executives in the CFO Research survey have shut down their global growth plans because of COVID-19. Forty-five percent were either currently expanding globally or delaying their global expansion for less than a year, and 9% were in a year-long holding pattern.
Why persevere with international expansions during the COVID-19 pandemic? Opportunities for capturing market share were the top reason. Second on the list was expanding sales, followed in third by diversifying investments. Tied for fourth place were acquiring top talent and reducing costs.
The surveyed executives reported that their companies’ biggest benefits from global expansion would be an expanded talent pool, sales advantages, scaling of operations, and productivity increases.
A company’s speed-to-market directly impacts how fast it can build its business and generate revenues, and expanding operations into another country can be frustratingly slow. Global expansion has been or is expected to be a long process for most of the surveyed executives. Eighty-six percent said their global expansion either took or would take at least five months. That 86% figure included 42% who clocked the process at more than one year—an astoundingly long wait.
Speed is one of the key reasons that companies engage a global employer of record (EOR) for international expansion. A company engages an EOR for its workforce in discrete countries and to manage local legal matters, including HR issues. All employee work is directed by the company. A top-tier EOR can have a company’s expansion started in a new country — hiring employees there — within just a few business days.
The surveyed executives were familiar with global EORs and held the concept of the “trusted global EOR” in high regard. Forty-six percent of the executives planned to engage a global EOR to support their international business strategies, and 32% said they currently engage a global EOR. Nine out of 10 surveyed executives agreed that a trusted global EOR can do much better than a typical company in overcoming potential barriers to operating in a new country.
Similarly, 88% agreed that it was essential for CFOs to understand the EOR capabilities to better inform enterprise decisions about overseas expansion. And 87% and 84% agreed, respectively, that using a trusted global EOR was a best practice for relieving the management and administrative burden and addressing the enterprise risk that comes with overseas expansion.
U.S. companies have also turned to global EORs to solve international problems during the economic downturn caused by the pandemic. Some companies negotiated temporary salary cuts with overseas workers through their EOR instead of implementing layoffs. That feat would have been impossible for U.S.-based company managers with a directly employed workforce because of COVID-19-related travel restrictions.
Travel restrictions also led U.S. companies to rely on global EORs to hire international talent in their country of origin. That enables a company to hire its top candidate of choice, without needing to set up an entity. It also allows employees to work for a U.S.-based organization regardless of visa status. An EOR can be a stopgap solution that smooths the path to eventually bringing a candidate to the United States once the H-1B visa program resumes.
It could also be a permanent solution, allowing the company to employ international talent regardless of what changes may come to the H-1B visa program in the future.
For the executives in the CFO Research survey, the biggest benefits realized from global EORs were legal and HR compliance, followed by regulatory compliance and risk management. For global expansion, regulatory compliance was the top area where the surveyed executives would want assistance from a global EOR, followed by the legal, labor law, hiring, payroll, and corporate tax areas.
One trend from the effects of COVID-19 could be felt for the long term: 83% of the surveyed executives say they were looking into a remote, global workforce model because of changes brought on by the coronavirus pandemic. Companies that use a global EOR for their international operations typically employ a remote workforce model. For companies looking to conserve cash during the COVID-19 economic downturn, working through a global EOR has been much less expensive than setting up their own entities and paying for their own global HR, audit, tax, and compliance support.
When the executives were asked about their expansion strategies for specific global regions, every region garnered pledges of new or expanded operations plans from more than 55% of the survey respondents. The most popular region for adding or expanding operations outside North America was the Asia-Pacific-excluding-China region, targeted by 65% of the executives. The Asia-Pacific-including-China region was targeted by 58% of the executives.
Keith Button is a freelance writer based in Valley Cottage, N.Y.