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CFOs sit at the sharp end of business decision-making, working with other senior leaders to evaluate financial performance and determine short and long-term data strategies. Their varied responsibilities include assessing the viability of overseas expansion — an important decision that can involve significant investment. They must balance opportunity with risk to make prudent decisions, and their level of confidence is a valuable indication of wider economic health.
This is particularly informative in times of uncertainty, such as the current situation created around the world by COVID-19. To understand its impact, Globalization Partners and CFO Research recently carried out research with CFOs in organizations with international expansion plans and revenues of more than $100 million to assess their approach.
The headline data is encouraging: Most businesses with existing expansion plans are moving forward, undeterred by the current pandemic. Nearly half (45 percent) of respondents are either currently expanding globally or are only slightly delaying their expansion and will move forward within one year. Another 9 percent maintain intent to expand internationally but are currently in a year-long holding pattern.
So, where is this expansion happening, and what are businesses aiming to achieve? After North America with 71 percent, the Asia-Pacific region (excluding China) is the region most often identified as the place for new or expanded operations, targeted by 65 percent of respondents. Capturing market share was the most cited reason for expansion into these specific regions, followed by the desire to expand sales, diversify investments, and acquire top talent.
There are a range of obstacles to successful growth. For example, 83 percent of executives expressed concern about managing multiple third parties and stakeholders in a foreign environment during business expansion. And 74 percent of CFOs are concerned about working with foreign banks and managing international employee payroll.
Looking at the challenges associated with international payroll more specifically illustrates the point. International payroll management is no easy task — it requires dedicated staff, established processes, and clear expectations from companies and their employees, and these requirements get more complicated as companies expand internationally.
For instance, there are time zone differences and exchange rates to consider. Each country has its own tax laws and may have additional legal requirements for compensation, benefits, and pensions. As a result, any international payroll function must make sure a variety of legal and logistical benchmarks are met while ensuring payroll is delivered on time. This is where local knowledge, experience, and a clear understanding of regulations become key, as in certain countries, if international payroll is missed or late, the consequences can be severe, including a suspension or permanent loss of a business license.
Cultural norms and nuance are also very important. Different countries not only have different holidays, but international employees often have different values, expectations for compensation, and communication styles. All of these factors are relevant to the smooth and effective management of international payroll — organizations that fail to apply them to their operational norms face, at best, disruption and inconvenience, and at worst, regulatory sanctions and existential risk.
Effective international payroll, therefore, should include the mandatory processes necessary for paying employees, underpinned by a set of strategies for monitoring and responding to changing international business requirements. To meet these needs, companies often rely on a variety of payroll providers to fulfill the unique needs of each region. But working with these vendors — and entrusting them to execute global payroll within regulations on a monthly, semi-monthly, or possibly weekly basis — can itself be challenging for any HR administration, no matter the size. In addition, administering payroll across time zones, while also dealing with language barriers, adds another element of complexity.
The ability to effectively execute payroll should act as a barometer for every business with international ambition. Indeed, the overhead costs that accompany establishing legal entities or subsidiaries and ensuring compliance with international laws and agreements add to the significant challenges of embarking on international growth. The operational issues, if not effectively addressed, can take months to navigate.
That’s backed up by the research, which revealed that 86 percent of CFOs said their global expansion took or is anticipated to take at least five months. That includes 42 percent who put the time required at more than one year. That’s a long time and puts those businesses at serious risk of losing the competitive advantage they might have gained with more early momentum. Removing these barriers to success is key to helping businesses establish new international teams and kick-starting revenue generation.
It’s perhaps not surprising, therefore, that dedicating resources to global operations was the top concern for executives planning international expansion.
Impact on Working Culture
The current situation will most definitely have an impact on hiring and workplace culture. In particular, remote work is rapidly becoming more of a reality, with businesses realizing that it is a viable, long-term business strategy.
The research data underlines the point: 83 percent of respondents are now looking to the remote, global workforce model as a solution to the changes brought about by the pandemic. Outside of this study, major brands, including Twitter, Facebook, and Fujitsu, have also made long-term home working commitments. Others like Amazon, Google, and Salesforce are allowing employees to work from home for several more months, and even into 2021.
HR leaders will also begin to realize, if they haven’t already, that there are also bottom-line and people management advantages to remote, global teams. Specifically, remote teams are inherently more efficient, and when they’re global, they bring valuable insights into local markets, which can greatly increase the overall performance of a business. And finally, when businesses embrace remote work, it means the pool of talent just got a lot bigger.
This also translates into a broader concern among CFOs around employee health and safety, which is a top concern for businesses focused on global expansion. It is cited nearly twice as much as the other leading issues, such as new business strategies, increasing sales pipeline and revenue, and reducing organizational costs.
With nearly half of CFOs still continuing their expansion plans combined with some of the challenges they face, a lot of companies are turning to a global employer of record to help easily navigate international legal rules, recruitment, and compliance that would normally take months to work through in just a few business days. As a result, companies can avoid these complexities and establish new international teams and revenue generation quickly and easily.
By signaling their confidence in international growth and expansion, CFOs are offering an important reminder to every business that looking beyond national boundaries remains a key driver of long-term ambition and success.