Obstacles for International Business Expansion

four colleagues discussing the obstacles of expanding into international markets

Expanding into international markets presents numerous opportunities for business growth and revenue generation. However, it also comes with various challenges that businesses must assess, depending on target markets and customers.

In addition to these challenges, businesses must consider legal entity setup, bank accounts, global talent recruitment and compliance.

In this blog post, we uncover some of the key obstacles businesses face when embarking on global expansion.

Setting up an entity

One of the initial hurdles in global expansion is setting up a legal entity in a foreign country. This process is often fraught with delays and challenges due to varying legal and regulatory frameworks.

Each country has its own requirements regarding business structures, such as limited liability companies (LLCs), corporations or partnerships. Navigating these requirements can be complex and time-consuming, as businesses must comply with local laws and regulations. This may entail obtaining licenses and permits.

It is also essential to understand local tax obligations. In some cases, restrictions on foreign ownership or the need for local partners can further complicate the process.

Opening a local bank account

Opening a local bank account is another significant pain point, especially when a business needs to do this across multiple countries.

This process is critical for conducting transactions and managing finances but can be slow and cumbersome. The requirements for opening an account may vary, typically requiring proof of business registration.

You may also need identification documents for company directors, detailed business plans, and a minimum bank balance. Notably, the latter may tie up much needed cash flow for business operations.

Know Your Customer regulations

Know Your Customer (KYC) regulations are designed to prevent money laundering and fraud. However, they also present a challenge for businesses expanding internationally.

KYC requires businesses to qualify their clients, which can be particularly burdensome in countries with stringent or unique frameworks. While the KYC process can be lengthy and arduous, businesses have limited control over it. KYC rejections can occur for a variety of reasons, further delaying business operations.

Recruiting local talent

Hiring local talent is crucial for successfully entering a new market, but people management goes beyond ensuring monthly salaries are paid. Understanding and complying with local employment laws, cultural differences and labor market conditions can be daunting. However, gaining insight into the talent pool within the market is essential to identify and attract the right candidates.

Additionally, businesses need to offer competitive salaries and benefits to attract and retain the best talent. The total compensation benchmarking process requires data and an understanding of expectations of local salary standards. Employers must account for taxation, supplemental benefits and other statutory practices.

Global payroll and employee benefits

Managing global payroll is another critical aspect that can pose significant challenges.

Each country has its own payroll regulations, tax laws and social security requirements. This can make it difficult to safeguard your compliance footprint across different jurisdictions.

The complexity extends to employee benefits, which can vary widely from one country to another. However, providing appropriate benefits that meet local standards and expectations is essential for maintaining employee satisfaction and retention.

Compliance and regulatory challenges

Compliance is a major concern for businesses operating in international markets. This includes filing tax returns, managing foreign exchange (FX) fees and handling conflict resolution procedures. Each country has its own tax filing requirements and deadlines, and failure to comply can result in penalties.

FX fees can also add to the cost of doing business internationally and businesses need to find ways to manage these expenses effectively. In case of disputes, businesses must navigate the local legal system, which can be complex and unfamiliar.

Visa management and obtaining the right to work is another critical area of compliance, particularly for businesses that need to transfer employees across borders. Applying for the necessary visas and work permits can be time-consuming and requires careful planning.

Apostille and other documentation

The apostille process, which involves certifying documents for use in foreign countries, can be another bureaucratic hurdle. Each country has its own requirements for documentation.

Ensuring that all necessary documents are properly certified can be a meticulous, costly and time-consuming task.

Language barriers and other cross-cultural challenges

Language barriers can impede communication and lead to misunderstandings, both within the business and with clients or partners. Cross-cultural challenges – such as differences in business etiquette, negotiation styles and consumer preferences – can also affect business operations.

Understanding and respecting cultural differences is fundamental for building successful relationships and achieving business objectives in a new market.

Cross-border HR solutions: the passport for global success

From setting up legal entities and managing compliance to recruiting local talent, international companies face a myriad of obstacles. Effective planning, local expertise and adaptability are key to overcoming these and achieving sustainable growth.

Cross-border solutions, managed by local experts who know the target market, can provide essential support in this endeavor. For example, an Employer of Record (EOR) can facilitate international hiring by managing payroll, taxes and compliance. The EOR model essentially allows businesses to hire talent anywhere in the world without establishing a local entity.

Some EOR providers also combine their services with expert recruitment, offering an end-to-end solution that streamlines the entire hiring process. This can help international companies attract, retain and engage the best local talent in target markets.

By understanding and addressing market challenges proactively, businesses can position themselves for success on the international stage.

Contact us to talk with an international expansion consultant about how our cross-border solutions can support your business goals.