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You want to grow your business by entering new markets. But how will you do it all if you don’t have any experience in the new country you’re aiming for? You have to get everything right — recruitment, legal compliance, payroll management, taxation, training and more. If you end up dropping the ball on any of these, the resulting penalties and delays can prove fatal for your future in any country.
Your company needs to count on rules and regulations being different from your home country. It’s imperative to prepare for the most common HR challenges that come with global expansion by investing time and resources to research laws and compliance. Here are the most common (and often overlooked) HR challenges with solutions to ease your entry into a foreign market.
1. Recruitment, onboarding and training
Before you can begin operations in a new country, you’ll need to arm yourself with the knowledge of its labor laws regarding hiring, compensation and anti-discrimination, to name a few. These laws can differ drastically from country to country.
For instance, in China, companies are prohibited from hiring women in physically demanding jobs like mining, logging timber and high-altitude work. In Portugal, you aren’t allowed to fire employees at all, because the country’s labor laws include no provision for termination, period. You can only offer generous resignation benefits and hope the employee agrees to them.
Companies also need to research the labor market to know if the compensation package they’re offering is compliant with local law. Other factors like permitted working hours, overtime compensation and severance also need to be airtight to avoid legal hassles down the road. In Germany, for example, the maximum working hours in a week are capped at 48 hours, including overtime. This is markedly different from the U.S., where there is no upper limit on the hours worked in a week.
To navigate unfamiliar and often seemingly strange hiring and termination laws in a new country, companies often choose to outsource talent recruitment to a Professional Employer Organization (PEO) like INS Global that’s well-versed with the laws of the land.
In addition to legal compliance, you also need to know the most appropriate recruitment channels in your target market — international or local job boards, social media platforms, print publications and others. For instance, many Western companies recruiting in China improve their chances at hiring the best talent when they partner with a local PEO.
Even after onboarding, several factors can govern the employer-employee relationship — national and local laws, industry-specific regulations, union regulations and Collective Bargaining Agreements (CBA).
Lastly, training employees in technical and soft skills is expected in many countries. For instance, many European companies in Belgium, France, Denmark, Luxembourg, the Netherlands and Sweden invest heavily in training their employees.
Related: Considering Global Expansion? Now Might Be Your Best Opportunity.
2. Compensation and benefits
You need a business entity in the target country to process payroll for international employees. Or you can outsource operations to a PEO to handle payroll legally for your organization.
You should do your due diligence to understand local laws regarding the classification of employees as independent contractors. This might not be a legal option in the target country. And penalties for violation can be stiff, especially in the U.S. and Canada.
The compensation and benefits you’re offering should be competitive and in accordance with the law. For example, the Philippines mandates paying all non-managerial employees a 13th-month pay or a one-month bonus salary. Belgium’s government mandates an optional career break for employees while still paying them an allowance and guaranteeing their job back after the hiatus.
Also stay abreast of vacation and sick leave allowances, health insurance, savings plans and cost-of-living compensation. Bulgarian law, for example, offers 410 days of paid maternity leave.
Other benefits not legally mandated but expected nonetheless can include components that you aren’t familiar with in your home country. For example, transportation credits, various allowances and more. In Belgium, companies often provide highly-subsidized company cars to employees.
3. Taxation
Tax laws determine the business, property and sales tax your organization is liable to pay in the target country.
Processing income tax on behalf of employees, remitting the correct amount to the local government and providing tax forms for employees is essential. Also, payroll tax might encompass unemployment insurance, workers’ compensation or other programs.
Keep track of changing tax regulations as they will affect double or triple taxation agreements, repatriated tax rules and more. South Korea introduced a robot tax in 2017 that reduced tax breaks for enterprises investing in automation.
4. Data compliance
The General Data Protection Regulation (GDPR) in Europe is likely to trigger similar data privacy laws in the rest of the world. In fact, California implemented the California Consumer Privacy Act (CCPA) in 2018. Your organization needs to comply with all the local laws when capturing, storing or transferring employee data like banking information, medical information and more.
The same applies to customer data, especially when the laws can differ from those in your home country. Penalties for failing to protect employee or customer data can be hefty and damage your company’s reputation for years to come. Google and Amazon had to pay over $160 million in fines for tracking cookies without consent in France in 2020.
Related: How to Tackle the 5 Challenges Every Expanding Business Faces
5. Communication and cultural adaptation
Having adequate insight into the linguistic and cultural makeup of the target country is essential if you intend to perform hiring, onboarding and training operations efficiently.
Collaboration and workplace engagement tends to go smoother if your HR department has provisions to facilitate communication between people speaking different languages. You can also partner with a local PEO experienced in similar services. Chinese, Spanish, Arabic, German and French are among the most spoken languages in the world and this naturally flows into the global business landscape as well.
Adapting to cultural differences present in the target market is also key to harmonious and productive international teams. Your HR department should be prepared to engage effectively with cross-cultural differences in etiquette, business relationships, work-life balance and religious beliefs. For instance, business transactions are more relationship-focused in Asia compared to those in the U.S. or Europe.
Global expansion with a local partnership
Expanding to a new country can be daunting with the never-ending legal, cultural and behavioral challenges companies can face. Without a local entity in your target market and no track record of operating in that region, it can seem near impossible to unlock sustainable growth.
But due diligence and partnering with an experienced PEO can help streamline your entry into new international markets. You don’t need to handle the legal and HR challenges yourself. You can instead focus on business development, customer acquisition, supply chain development and more.
Related: How to Take Your Company Global
