While international growth can be a daunting task, there is no reason for portfolio companies to go at it alone — they should take advantage of local experts and partnerships.
Before even starting to think about attracting clients in that market or using international hires to build new product features, companies would have to set up a local entity. This takes significant amounts of time and money; months of hard work go into consolidating a local footprint. Compliance around laws, contracts, and taxes needs to be secured as well. Plus, if the market entry is imperfect, they then would have to leave that market and reevaluate what went wrong. In the meantime, if they’re not careful, they can end up sinking significant resources into manpower, losing valuable time, and risking their global reputation.
Over the past year, several companies across the world were in reactive mode, either pivoting operations or moving to a fully remote, digital environment. Now, they have switched gears to proactive mode, where 63 percent of Ernst & Young’s Global Capital Confidence Barometer 2021 participants planned to increase investments in technology and digital capabilities, while 49 percent of respondents planned acquisitions throughout 2021. International assets took the lion’s share of acquisition interest, as 65 percent of surveyed companies planned to acquire international over domestic assets. In such a landscape, standing still is akin to falling behind.
Portfolio companies are called to move fast in this new environment while being nimble enough for an exit should market testing results prove underwhelming. Case in point, we recently worked with a portfolio company in the fashion industry. It was eager to test the U.S. market while concerned about the risk of having to back track. They found a great candidate based on the East coast. Working through our services, we had the person contracted, compliant and fully operationally within five days. Added to that, the portfolio company had peace of mind in knowing that if the worst-case scenario of an exit loomed, they could so with only 30 days’ notice. We are very pleased to share that they continue having success in the U.S. market and have added three professionals to their local team through our platform.
The prevalent low interest rates and soaring stock prices at a global scale provided the ideal landscape for record-breaking mergers and acquisitions (M&A) activity last year. In the third quarter of 2021, a total of 35,128 deals were inked, representing a 24 percent hike compared to the third quarter of 2020. Aggregate deal value reached USD 3.6 trillion year to date, surpassing 2020’s total USD 3.59 trillion. Clearly, opportunities abound and their window remains large. The same optimism was reflected in CFO Research of Industry Drive and Globalization Partners’ 2021 survey, where 80 percent of the surveyed executives expressed great interest in international growth as part of their long-term growth strategy.
On the flip side, M&As can prove to be lengthy, extenuating processes. When they drag out, portfolio companies risk bleeding funds, as well as valued employees, as they go through the motions of concluding the acquisition process. Employee transfers can be time-consuming and portfolio companies often face the challenge of matching the employee benefits of the acquiree. These issues can cause an even bigger headache when the portfolio company is dealing outside of their local market. Sadly, not every operating partner knows there is help and guidance out there, nor do they seek out the best way to balance compliance and speed.
While speed is essential when growing internationally, speedy execution will benefit from having compliance in check, wherever they go. I’ve seen portfolio companies try to handle their international growth on their own, hoping to get to the sought-after markets as quickly as they can, but if they neglect compliance, they increase the likelihood of eventually having to leave that country.
An example of what can happen when compliance best practices are lacking is failing to have the right contracts or not paying the right taxes. Either can cut international aspirations short. That’s why my company helps secure both speed and compliance, as we can get portfolio companies operational within other markets in a matter of days with 100 percent local compliance — payroll, contracts, taxes, you name it.
While international growth can be a daunting task, there is no reason for portfolio companies to go at it alone — they should take advantage of local experts and partnerships. In fact, the World Economic Forum considers collaboration as a strategic imperative as industries become increasingly digital, as well as a new core competency for leading businesses across industries. In that sense, another common practice for fast-paced international footprint consolidation is relying on local expertise. Joint ventures and strategic alliances or acquisitions have a longstanding stature as the traditional go-to international growth strategies.
The disruptive option is relying on local HR and legal experts to hire skilled talent across markets and build up international task forces for growth. CFO Research and Globalization Partners’ 2021 CFO Survey found 46 percent of the 166 surveyed executives planned to engage a global Employer of Record to support their international business strategies — 32 percent were already engaging one. Nine out of 10 respondents considered a trusted global Employer of Record to more successfully overcome potential barriers to operating in a new country.
Due to dramatic changes in the employment landscape with the prevalence of remote work, failing to understand and capitalize on the opportunities presented by a global employment platform would significantly hinder the hiring process for portfolio companies looking to be nimble and secure talent in a highly competitive environment.
Portfolio companies won’t necessarily have the capacity to identify their much-needed talent. In some instances, they require assistance with where to look and how to find top talent. We want to make it easy for portfolio companies to hire whoever they want, in any location, quickly and easily, from their computer. This is made possible by our unique, worldwide partner network, so we can provide access to global recruitment expertise that supports value creation and growth. G-P Recruit provides a single point of contact to identify, hire, and manage portfolio companies’ international and remote workforce, including their new hires and replacements.
The role of the value creation team is to be aware of all services and solutions available to support their portfolio. Due to dramatic changes in the employment landscape with the prevalence of remote work, failing to understand and capitalize on the opportunities presented by a global employment platform would significantly hinder the hiring process for portfolio companies looking to be nimble and secure talent in a highly competitive environment.
One of the critical factors in every carve-out acquisition is time. Buyers are operating on quick turnaround times, working to get all legal and financial frameworks in place so deals can unfold smoothly. On an international scale, the complications only mount. A private equity firm came to Globalization Partners while in the process of a carve-out transaction with a multinational hardware manufacturer. In total, the firm was responsible for acquiring and onboarding 3,000 international employees. While they were able to handle 98 percent of the employee population in-house, there was a small segment that presented a challenge: 47 of the new employees were in 14 different countries spanning three regions: Asia Pacific, Europe, the Middle East and Africa and Latin America.
Without entities already established and a deadline looming, we stepped in to assist. We started by assessing all contracts and benefits for this group of international employees. Next, we recommended a country-by-country strategy to keep all employees whole in terms of benefits and compensation, including those under Transfer of Undertakings Protection of Employment (TUPE) legislation. Finally, we helped the client develop clear, thoughtful messaging explaining the new contract and transition plan for all the international employees they wished to retain. Ultimately, our client was able to seamlessly retain talent during this transaction, but most importantly, they were able to focus on the big picture, knowing their new employee population was in capable hands.
I expect the borderless approach to building teams and a customer base will also result in businesses developing their go-to-market strategies around a network of partners to expand their reach, capability, and capacity.
Businesses that have embraced remote or hybrid working, including new companies established during the pandemic, can position themselves as global or borderless. A borderless approach has significant benefits. Firstly, it provides companies with a competitive advantage over more traditional businesses regarding team retention. This is because the ability to work remotely is one of today’s most sought-after employee perks. Secondly, a global mindset unlocks the ability to support a remote, dispersed workforce will broaden opportunities for businesses in terms of who they sell to, and for customers—both B2B and B2C—who they buy from. This is especially the case in markets where customers showcase an increased acceptance of being supported by service providers and vendors lacking an in-country footprint.Using 2020-2022 as a foundation for business evolution, in 5-10 years’ time, many of the traditional barriers to business expansion – real and perceived – will have been eliminated. Portfolio companies will expand by seeking the best talent for their teams, as well as the ideal customer profile based on their product/market fit and competitive advantage, regardless of location.
People, systems, and processes will be trained and designed to support customers or team members anywhere. I expect the borderless approach to building teams and a customer base will also result in businesses developing their go-to-market strategies around a network of partners to expand their reach, capability, and capacity. This network strategy will help accelerate business expansion, provide access to new markets and expertise, and enable companies to build and maintain deeper customer relationships that can expand seamlessly across traditional geographic borders.
The key international expansion challenges will include navigating regulatory and legal constraints, particularly taxation, transfer pricing, financial transactions, and foreign exchange risks, as well as employment legislation. Having geographically dispersed teams and customers will bring complexity, as smaller businesses can now operate in an exponentially larger number of locations. It seems probable that companies that support remote working and business advisory firms will continue to expand in response to these challenges, allowing even smaller businesses to navigate complexity.
By 2032, I anticipate global expansion will be easier for portfolio companies of all sizes, facilitated by the new borderless way of working. Less regard for headquarters location, combined with an increased number of locations to access funding and the ability to attract and retain the best talent to drive businesses forward will level the playing field.
Is your portfolio company about to go international? Let us help you reduce the risk and drive value for them. Join the global talent pool revolution today!
About Globalization Partners
Hire anyone, anytime, anywhere.
If you see an opportunity that requires international talent, your competitors probably do, too. It’s a race. Who can hire that person or team the fastest? If it’s not you, you may be stuck where you are. Or worse, fall behind. We have our own business entities set up in nearly every country in the world meaning the legwork required for you to hire and manage international talent is already done. We’re your competitive edge. Whenever you have to get somewhere fast. Read more at: https://www.globalization-partners.com/