Finance professionals can be integral to determining whether it’s smart for the organization to expand into new territory, by first asking the why and then the how, says Ryan Schooler, CFO of Safeguard Global, a workforce management firm based in Austin, Texas.
Schooler spoke with StrategicCFO360 about what flows from those questions and whether you should enter a new market through an in-country entity or a global employee of record.
When entering a new market, what is the most important decision a CFO can make to ensure success?
Truthfully, the CFO’s most important contribution to the decision-making process regarding entering a new market is ensuring that everyone on the leadership team is on the same page about what the organization’s objectives are and how you’re defining success. Everyone needs to be clear about why you’re entering that new market before you address the how. Those are the two most critical things, first the why and secondly the how.
After assessing the why, then you need to understand how your company will interact with the new market?
Considerations will vary depending on the kind of organization you have and include sales, operations, treasury, legal and HR. The regulatory and compliance requirements in the new market may also vary materially from your current market. It’s critical that you are aware of how to remain free of any compliance risk of any employment or business law violations.
What are the top considerations for companies when determining whether to start by investing in in-country entities or initially work with a global employee of record?
When first exploring expansion into new global markets, CFOs must ask themselves the right questions to determine if they’re better off investing in in-country entities or initially working with a global EOR. CFOs need to consider:
- Are your timelines and budget realistic for setting up an in-country entity—enabling you to achieve the company’s why and your strategic objectives?
- What additional resources will you need to manage the statutory and regulatory requirements and reporting in the new market?
- How will compensation and benefits packages affect the organization’s ability to scale the team needed in the new market?
- How will you maintain ongoing monitoring of your presence in-country to ensure it maintains relevancy to achieving your strategic plans?
What would need to be in place for you, as CFO, to advocate for entering a new market by investing in an in-country entity?
Based on my knowledge of global expansion, my default would be to use a global EOR to quickly enter a new market and start the work. There are a couple reasons an in-country entity solution may be required though, and they include knowing that your team is going to need to engage in activities that would lead to permanent establishment.
If you know this up front, it makes sense to commit to setting up an in-country entity. In this case, you still may explore using an EOR to expedite entering the market—and then monitor and plan for transitioning to an in-country entity. There may also be intellectual property or commercial needs that require creating a regional presence for licensing or contracting purposes.
In almost all other circumstances, I would leverage a global EOR service—I have decided to use a global EOR service in the past. Your EOR partner acts as the point of contact for key issues related to understanding the in-country requirements regarding an individual’s employment, giving the company the freedom to focus on managing the employee’s responsibilities and achieving the company’s strategic objectives.
Additionally, it reduces risk and administrative workload, thereby improving your ability to hire quickly and move in-country more quickly. A global EOR can be a great alternative to the expensive and complex process of in-country entity establishment before the new market proves to be a success.
Once a company has entered a new international market, what is the key indicator that a CFO should be looking at to determine if the expansion has been a success?
This is the reason establishing your why at the beginning is so critical. Begin the project with an idea of how and when you’ll measure your progress and define your success criteria. For example, if your objective was to open new territory in Europe, your measurements of success may be:
- Achieving quarterly in-country meetings or qualified lead targets
- Closing deals with new regional or in-country clients
- Successfully onboarding new local or regional clients
- Increased satisfaction scores with pre-existing clients in the region
You will know your expansion into a new market has been a success if you’re accomplishing these goals quickly and you can scale and sustain the momentum.
In this case, you need to ask yourself: If I could reduce complexity and accelerate entering a new market down to a two-week period, will that benefit the business? In this scenario, I would use a global EOR to help you achieve your goals more quickly and create a foundation for further in-country investment.