Expanding your company abroad offers all sorts of benefits. Besides how sexy it sounds to talk about 'our Paris office,' there are real benefits to expanding internationally. You get access to new markets for your product and access to a new labor pool. But here's the thing, expanding internationally is a minefield.
Denver-based Velocity Global has come up with an innovative way for companies to expand overseas faster, cheaper and with more flexibility. They say they are like the Airbnb of international expansion, and it's a pretty good comparison.
Traditionally, if you wanted to expand into another country, you would have to set up a local subsidiary, and hire through that. But, to set up a subsidiary in many countries is a bureaucratic nightmare costing big bucks and take months to complete.
Velocity Global hires your employees for you, and takes care of all the administrative stuff so you don’t have to. Your employees would technically work for a local company in the country you want to operate in, although those employees would remain under your direction. Velocity Global is, if you’re familiar with the term, an international professional employer organization (PEO).
So, what are the things you need to think about before expanding overseas? We caught up with Ben Wright, the CEO of Velocity Global to see what he had to say. We asked him if he had 5 pieces of advice for Colorado startups that wanted to expand abroad, and he came up with 10:
- Employment laws in other counties are different than those in the US. Even if you use a US template employment contract, local law will prevail, so use a local contract.
- Once you give an employee certain rights and benefits overseas, it’s hard to take them away.
- Many countries require annual bonuses (often called a “13th month salary,” and in some cases there is even a 14th month). Factor that in to total compensation so you aren’t surprised by an extra 17 percent in salary costs.
- Most countries have nationalized health programs which the employer is required to contribute to. Those are as low as $22 in Thailand and as high as 20% of total compensation in Brazil.
- If the person is working for you full time, they are no longer considered a contractor, and penalties can be stiff. If someone is not on a contractor agreement they must be employed by a local company — so either set up your own subsidiary or use an International PEO.
- Expect that at the end of the contract you will have 'required notice' periods and termination pay. For example, an employee in Mexico with just over three years of service will be entitled to 6 months of severance.
- Stock options are taxed very differently country-by-country. Be sure to consult with a global equity compensation attorney to ensure you and your employees don’t get surprised come tax time.
- Own your intellectual property just like you would here in the US, but seek counsel on the language on a country-by-country basis. Unless it’s China where you basically don’t own your IP.
- Setting up a subsidiary in a country will typically take 1-6 months and cost you between $5K-$30K depending on the country, and expect to pay $30K-$100K to maintain it each year.
- Utilize an International PEO if you want to hire quickly, keep costs down, and keep your flexibility high.
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