Expanding to overseas markets comes in many shapes and sizes. Every market brings its own set of regulations and compliances that must be assessed before choosing how to put boots on the ground. Understanding an organization’s key motivators and objectives for a new market – be it project deployment, fundraising, or consulting – helps in assessing the route an organization should consider.
No matter the jurisdiction, there are typically five options an organization can consider when expanding into a foreign market. This blog aims to provide the reader with a basic understanding of these options, some of the pros and cons, and the key considerations that help guide decision makers.
While these lists are not exhaustive, they should provide a basic guide to organizations that are assessing their options for overseas expansion. Given regulatory and reputational risks, all organizations should consult local experts before making the decision to go down any route. One solution might be good for one market and another might be more suitable for the next. Market entry consultants can help guide your organization and avoid the common pitfalls, delays, and potential risks.
The five options include:
- Independent Consultants – Take action on the client’s behalf, typically on a less than full time basis, and are hired or retained with a fee rather than a salary. Independent consultants have their own practice and equipment, so it is possible (and likely) that they will work with more than one client at a time. They work toward the client organization’s goals but have the freedom to take whichever actions they deem suitable to do so.
- Joint Ventures and In-Country Partnerships – Allow two or more separate organizations to combine resources and expertise and work toward a common goal. The brand recognition that arises from partnering with an organization in the market you are seeking to enter can be very beneficial, but also a consideration if expanding your own brand in the market is a priority.
- Professional Employer Organizations (PEOs), Staffing Agencies and Employers of Record – Provide an employer-employee framework, managing all payroll, benefits and other local compliances. The client organization pays a fee in addition to the cost of retaining the employees, but otherwise has no legal status, employment or otherwise, in the market. How PEOs are used varies depending on as assessment of permanent establishment (PE) risk and other local regulatory considerations, including the type of roles hired under this model.
- Foreign Offices – Vary depending on the area, but can include “branch offices”, “liaison offices”, or “project offices”. These offices allow a local presence while under the direct management of the main organization headquartered in another country. Foreign offices maintain a legal presence and local bank account.
- Subsidiary Entities – Create a separate company owned by the organization. Though controlled by the parent company, subsidiary entities are legally and financially separate. Both foreign offices and subsidiary entities have reoccurring compliance and operational costs that must be budgeted.
While this list is not exhaustive, these three considerations will be critical when assessing which of the five options is optimal.
- Accounting for all short, medium and long terms objectives of your organization is very important for “backing into” the most appropriate operational framework. Too often, organizations will structure for their immediate needs and find themselves restructuring more often than they would like as activity grows and objectives evolve. The objectives can include but are not limited to professional development and training, fundraising, consulting, and research. Understanding these and the practical implications that achieving those objectives triggers, is key to the analysis.
- Organizations must consider where the funding for the activity is sourced. Many jurisdictions have complex regulatory requirements around bringing funds from outside the country so assessing not just current funding flows but future funding flows, whether they are foreign or domestically sourced is another critical factor.
- Developing a global footprint requires analysis into the tax implications of different structures as well as the impact of international cashflows. Each of the five options will have different tax considerations whether it be local goods and services tax (GST) applicability to a consultant or PEO contract to the various for profit and nonprofit structures within specific jurisdictions. Analyzing each of the options through the tax lens gives a realistic picture of costs, which tends to be very important information for donors.
Each market has its own complexities and nuances. This very basic guide should point you in the right direction and help you ask the right questions. Do consult local expertise to ensure your organization is structured appropriately to comply with regulations and meet your organization’s key objectives.
About the Authors
Michael Green is the Director for Government and Strategic Development based out of the Sannam S4’s Washington DC office. A lawyer by training, Michael advises leading nonprofits on global compliance and operations. Abhinav Sood is the Head of Client Relations and International Projects based out of Sannam S4’s New Delhi Office. Abhinav is a Certified Accountant in India and handles complex, sensitive governance and structuring matters across the APAC region.
Sannam S4 is a boutique global market entry firm providing integrated professional services solutions, including advisory and implementation support related to structuring, finance, accounting, tax, payroll, HR and local company and labor compliance. Sannam S4 is an Industry Member of Humentum and supports leading international nonprofits with their market entry and ongoing operations and compliance needs. For more information, please contact michael.green@sannams4.com.