We Zoom, We MS Team chat, we connect with co-workers in Santa Fe and Seoul, we have clients in Tennessee and Tokyo, and have partnerships from Dallas to Dublin. We collaborate more, we are remote, we are GLOBAL. Remote work isn’t new, but with a pandemic and a combination of determination and technology, it’s the new reality for employees and employers; and it’s never going to be the same. There have been a lot of changes in international expansion, including tactics and strategy over the last 10 years, but what has happened over the course of the last 10 months is revolutionary.
I have lived and worked in Hong Kong (3 years), Tokyo (6 years), and London (3 years), where I’ve worked with and managed many fantastic and talented people. I’ve made mistakes, encountered unexpected challenges, and discovered even routine tasks can be difficult due simply to geography. Since returning to the US, I have been primarily focused on helping others expand internationally and avoid some of the hassles, headaches, and expenses along the way.
Companies have recently discovered through technology and a new reliance on remote workers that their employees aren’t confined to their corporation’s physical address — that they are in fact anywhere in the world. Prospects are now more willing to engage in a Zoom call than an in-person meeting and so finding new business anywhere in the world has never been easier. While borders are less relevant when it comes to communication, they are still a pesky reality when doing business overseas. The good news is — when you want to do business outside your borders or make your global collaborators your co-workers — you have many options.
International PEO (Professional Employment Organization), often referred to as EOR providers (Employer of Record) have become a widely accepted vehicle to operate and employ staff overseas. I have often been asked — what is the criteria for using a PEO vs. setting up our own entity? Here is a quick look at some of the advantages and disadvantages of both:
|International PEO||Setting up a legal entity|
When it comes to PEO, there isn’t a magic headcount number that makes the solution a fit or more compliant. It’s a matter of cost, convenience, and flexibility. PEOs usually have a price per head, and though some economies of scale can be created — there is likely a limit to what your provider can discount. Therefore, large headcounts in a single country through a PEO model typically don’t make economic sense, but they may still be a matter of convenience.
BPO models will also get more expensive with more employees too. Payroll costs will surely go up with more people, but so likely will your accounting costs as most BPO providers charge for monthly transaction volumes (journal entries and or payments) and the more employees you have the more likely you will have more journal entries and accounting transactions per month.
I worked for BPO companies for many years, and I am not suggesting by any means that PEO should replace the BPO model for all circumstances. When I was a part of the BPO industry, I regularly suggested exploring PEO as an alternative to setting up an entity for low headcounts with no immediate plans to grow headcount substantially. Conversely, I now regularly share alternatives to our PEO solutions, especially in circumstances where a potential customer will need to contract with customers locally, or they need their employees empowered to sign contracts on behalf of the organization.
Operating via a PEO under these circumstances creates a permanent establishment risk. In some circumstances, a combination of the two models may be most appropriate. If you’re setting up in a country like China, it may take six months or more before your entity is operational and can run payroll — or you may find once you’ve set up that you want to hire in Beijing instead of Shanghai where your entity was setup, which is difficult to do even with your own entity. A PEO solution may, therefore, be an interim solution or a complement to your legal entity solution.
There are other options when it comes to international expansion. Companies can try and manage the work from their own country, or they can work through distributors and partners. You may even explore hiring contractors instead of employees (pros and cons, including risks, should be examined for this option). You know your options, feel free to hire anywhere in the world.
If you’re not sure what model will work best for you — speak with different providers, partners and peers to gather key information to make an informed decision. Ask questions like how long will it take, how much will it cost to set up and maintain, what happens if you decide it isn’t working, and with a couple hours of diligence — the right solution will probably be obvious.
About GoGlobal: We provide employment solutions in over 30 countries for as little as $500 per month. Hire quickly, compliantly and cost effectively without the headaches of setting up and maintaining your own entity. We help you Expand Globally, by supporting you Locally.
About the author: Andrew recently joined the GoGlobal team, heading our international efforts and has since launched GoGlobal USA. Now based in San Francisco, USA, Andrew has over 20 years of experience helping companies expand, operate and grow compliantly in over 100 countries, with 13 years working overseas in Hong Kong, Tokyo, & London. Before joining GoGlobal, he was the Managing Director of Tricor (USA) and former Director at KPMG.