Outsourcing is the most common business practice which provides several advantages to your enterprise, in this guide to startups, we look at what we should to outsource when expanding into China.
- What activities should be outsourced
- Reasons to outsource when expanding into China
- Overcoming barriers when expanding into China
- Identify your core and non-core busines
- Reasons to outsource when expanding into China
- How to overcome the main barriers of expanding into China?
- The China Example
Identify your core and non-core busines
Many startups will make the mistake of taking on too much work at the beginning, when they really should be invested in improving their product or service. Instead of focusing on these improvements they are good at doing, startups will have to tackle hiring employees, tax law, and benefits. More and more businesses specifically startups, are choosing to outsource their secondary activities to companies that specialize in these areas. But why?
For any new company on the block, it is important to identify what are the strengths and weaknesses of the organization. In this way we can quickly tell apart between core and non-core business
It is important to understand what is the core business of your startup, which is related to the main company activities as well as the competitive advantage your company has over others.
For example, a company that makes printers and focuses on expanding its research and development department may have difficulty creating an efficient accounting department. If your core business is to make printers, it is more cost-effective to improve and expand your printer technology and outsource any non-core business methods to the professionals.
Now the question arises, how do you identify your non-core business? The short answer is, your non-core business is anything outside of your essential business activities or operations that are the main revenue source of business. Therefore, non-core items are considered to be from peripheral or incidental activities.
What are the most commonly outsourced services
After having identified the disruptive non-main activities to be outsourced, startups will often encounter difficulties when addressing human resource activities, including administrative duties, employment and payroll duties. Making a mistake in any of these areas, specifically payroll and tax law, can mean serious fines and warnings for your company. That is why, in a survey by Deloite more than 50% of companies decided to outsource their non-core businesses to a company with expertise in human resources, legal and tax management. Survey’s respondents represent more than 25 different sectors.
Reasons to outsource when expanding into China
I have no idea about a market’s labor law in practice
Countries’ labor laws consist of a mediation where both parties try to discuss and find a solution. Generally, the mediations are between employees, trade unions, governments, and employing organizations.
When expanding your startup into new markets, there are many important matters to consider when managing your human capital.
- You should determine how you will proceed with the hiring process. Firstly, how many employees will you hire? Secondly, will these employees be dispatched from your home country’s headquarters or directly hired on-ground. You ought to consider if there is talented staff in the target country and if they have sufficient expertise in the field.
- Understanding local labor law is a must for every employer. For example, understanding how employee leaves should be managed such as annual leaves, sick leaves, maternity leaves, marriage leaves, etc… Or being aware how termination procedure and severance pay policies are applied. A wrong appliance of these may result as an economic and legal burden for employers.
- A different Individual income taxation scheme may not only cause changes in the net salary of your employees, but also affect their tax contributions in their home country. Therefore, receiving advice from a local partner is recommended in order to settle down your employees’ fiscal situation, as well as investigate on the existence of double taxation agreements between both countries.
As described above, adjusting to employment laws when expanding overseas can be a tough task, even more when dealing with high-regulated countries with tedious bureaucratic processes.
Cost effective market entry
Generally, startups which do not get to be highly financed by investors, they need to tightly fasten the belt in order to reduce costs and optimize their resources.
Although there are plenty of manners in which companies can enter new markets. A single market entry strategy cannot be applied for all international markets. Since each country has its own specificities and requirements for foreign direct investment.
Furthermore, it is important to consider what kind of legal entity would better fit in the target market.
They speak and think different from me
When doing business in a global economy usually we find multicultural difficulties that complicate communication. Nowadays, despite the assistance of technology to facilitate communication with others with a foreign language, there are many challenges in terms of frame of references, emotions and behavior displayed.
How are you going to hire a local employee who does not necessarily speak English? Will the communication with the state tax agency go smoothly? Are you familiarized with the labor law of the destination country?
All these questions arise when dealing with human resources when expanding a business. Are you able to handle everything on your own or will you keep in touch with related field professionals?
High Immigration Policies barriers
In the international business scene, the workforce inevitably will end up being multicultural. Wherever you need to send personnel to work, immigration policies still establish several requirements that put restrictions on labor movement.
Bureaucratic barriers that may arise when expanding overseas are the immigration requirements between countries. If you are planning to hire foreign workers, there might be the need to apply for work and resident permits for your employees. In that case, outsourcing the document collection and visa procedure is recommended to avoid future bureaucratic issues.
Find your transparent partner
Partnerships can be dimensioned into various shapes and sizes. You can opt for a support agreement where you can piggyback off another’s success and know-how or you could use a professional global agency to assist with company setup. Global vendors also can provide networking if the target is applying a local know-how and is contributing to the business value chain.
How long are you willing to spend finding your loved partner? Therefore, think on how your partner can help ease such a process.
How to overcome the main barriers of expanding into China?
Developing your business internationally can seem like a particularly daunting prospect. How will you be able to manage your company when you are not based in that country? How do you operate within the boundaries of local regulations that you have very limited experience of?
Decide your market entry strategy
A market entry strategy must embrace the sociopolitical and economical barriers, marketing costs, sales and delivery, and the expected outcome when expanding your business into new markets.
In low-barrier markets, difficulties could decrease, however, entering new ones in which things change frequently seems like a tough task. According to the Doing Business Annual Report, markets such as China, Indonesia, Vietnam, Philippines are the most difficult ones for foreign companies to establish commercial operations, recognized local consulting firms are requested to find the more acute strategy solution.
The China Example
The number of foreign companies expanding to China is increasingly rising in recent years. However, China’s business environment isn’t the friendliest for foreign investors. Meaning that it requires a lot of complex, lengthy and costly paperwork in order set-up an entity.
Foreign companies, specially trading and consulting companies, have realized that by using PEO solutions, they were able to develop a business activity at a highly cost-efficient price. Enabling them to have employees on-ground representing their company without actually setting-up an entity in China.
Outsourcing your employment to a PEO
Within the complex decision of entering a startup into a new market, gathering your workforce could be simplified by outsourcing your employment to a Professional Employment Organization (PEO). PEOs are used to outsource all HR, legal and administrative requirements when hiring employees overseas.
These services also known as Employer of Record services, employee leasing or PEO solutions; enable foreign companies to legally hire an unlimited number of employees on ground without the need to setup a legal entity or company. Furthermore, it is known as the most flexible method to increase or decrease a presence in a foreign market at initial stages.
As a company can easily increase their workforce by hiring outsourcing more employees to the PEO; as well as decrease their presence by terminating the employees.
Professionals employment organizations (PEO)are fully up to date with the latest regulations and laws. We can avoid personnel payroll administration headaches because it can simply vary due to its complexity. Employer of record agencies specialize in payroll and employees’ tax may help when planning employee’s salary packages and it may also reduce your expanding employment cost instead of configuring an internal HR team.
Employee leasing or (PEO) also provide Visas to the foreign employees which involves a cumbersome process and dealing with different types of visas and their respective requirements can take a lot of time that you could be using instead to generate profit for your startup.
Overall, it provides startups the solidity and flexibility to have a team on-ground which doesn’t require any administrative or HR tasks, as these are managed by the PEO.