Forbes India 15th Anniversary Special

Why does overseas expansion continue, despite Covid-19?

New Horizons Global Partners discusses international expansion amidst the pandemic

BRAND CONNECT
Published: Aug 14, 2020 12:28:54 PM IST
Updated: Aug 14, 2020 03:05:11 PM IST

Why does overseas expansion continue, despite Covid-19?
The rise of the global marketplace has seemed unstoppable in recent decades. Most ambitious businesses plan an international expansion at some point. At least, they did until Covid-19. Tales of the death of globalization, however, have been greatly exaggerated. For example, Hyundai Capital recently announced that it is forging ahead with major expansion plans, with CEO Ted Chung stating “We’re just taking coronavirus as part of our life. We’ll keep marching”.

While saying anything conclusive in the middle of a global pandemic is probably unwise, there are several reasons why we can expect to see continued overseas expansion. We list some of these reasons below.

Workforce based overseas

When border closures were initiated all over the world, many employees were stuck overseas, often for extended periods of time. But work has continued remotely. This means a de facto international expansion has been forced upon many companies.  In many cases it seems that these arrangements are working well, and enterprises may not feel the need to ‘bring the workers’ home, as it were.

Businesses should be aware, however, that if they continue to operate in this way, something called ‘permanent establishment’ risk arises: This means that, according to the tax laws of most countries, the presence of that employee could be classed as a ‘permanent establishment’ of the enterprise:  This would make the business liable for corporate tax and a range of other compliance obligations in that country.

Businesses with workers based overseas, whether employees or independent contractors, need to ensure that they have an excellent understanding of the tax and compliance obligations that attach to that situation. While it may not feel like it, you may effectively have a ‘new branch’ in that country.   

Reduced Labor Costs Overseas

Businesses focused on survival are looking to cut costs wherever they can, and overseas expansion can be an important part of this. It is no secret that in Asia, for example, labor costs for highly-qualified staff are much lower than they are in North America or most of Europe. Businesses that already had expansion plans in the pipeline, or businesses that have never thought about it before, are looking at how much they can save through expansion or outsourcing. Possible business models for the international expansion include:

  • Outsourcing specific functions such as customer service, payroll, human resources, and accounting to another country;
  • Opening up a new branch (such as a subsidiary company) in another country. This means businesses can be fully operational and pursue customers in the new market;
  • Engaging Professional Employer Organizations (‘PEOs’) in the overseas market. These organizations directly employ workers and take on employer obligations. This means workers can be assigned to a company’s projects, but the company does not need to take on the full obligations of an employer.

Geographical Diversification

Pierre Pradier, co-founder of New Horizons Global Partners, Asia-Pacific expansion specialists, has seen sustained interest in businesses looking to diversify geographically: “Some countries have been less interrupted by coronavirus than others. For example, border issues aside, Australia, New Zealand and Vietnam are open for business. There is an opportunity for enterprises and individuals to mitigate risk by moving into new overseas markets.”

Smart enterprises, particularly those in countries hit hard by the pandemic, are looking to overseas markets to determine where their money might be better safeguarded. With countries like Germany showing a consistently strong governmental response to the pandemic, many investors will feel like their assets may be protected from future pandemic-related events if transferred to another market.

Investment in Overseas Property Markets

It’s almost a cliché now that many businesses invest and grow during a recession. One obvious opportunity is real estate. While property prices have remained reasonably stable in some countries, there is clearly an opportunity to pick up property at a price cheaper than would otherwise be the case.

Antoine Boquen, Managing Director at New Horizons Global Partners comments: “Smart investors are taking advantage of lower prices in stable economies. Just last week, South Korea’s National Pension fund announced $2.3 billion worth of real estate investment in Australia, Singapore, Japan, and China. There is just as good a reason for small investors to get involved.”

Conclusion

The pandemic has not meant an end to global expansion. Smart companies are seeing an expansion opportunity and seizing it. As always, what is essential is that the business considers both the financial and compliance risks of expansion.

 

Disclaimer: The views, suggestions and opinions expressed here are the sole responsibility of the experts. No Forbes India journalist was involved in the writing and production of this article.

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