Scaleup Success: How can startups tackle the challenges of international expansion?

Through VCs, portfolio companies can access the right partners to help them make the right moves

There is a great case to be made for globalisation that goes beyond today’s precarious market. As many countries focus on nationalisation coupled with protectionist policies, there is a growing culture of risk-aversion among businesses that keep companies from building and expanding to foreign markets.

This shouldn’t be the case. With roadblocks becoming increasingly unpredictable, companies simply need to be more agile and strategic when it comes to pursuing their goals of expansion. The reason for this is that with globalisation, the potential for business growth is limitless. We’ve seen this manifest in today’s trends: Digital technology adoption has surged, with a large spike in areas like e-commerce, videoconferencing, and robots — all of which provide us with a glimpse of how interconnected the world can be.(Scaleup Success)

Cross-border e-commerce and remote work, when successful, have a huge potential to spur new opportunities for many economies around the world. Videoconferencing has been utilised for cross-border partnerships. AI and robotics offer us insights into the potential of tech. The only way forward is to look at all available tools and see how far they can take us.

Globalization 4.0 as a springboard for business growth

Globalization 4.0 is the future in which the global economy will be shaped mainly by the use of technology. With the opening of service sectors in rich countries to competition from developing countries, companies will look to alternate cross-border strategies and the use of emerging technologies to manage the risks of scaling up internationally.

For startups, operating through virtual borderless teams is very much a feasible and highly attractive strategy given the current environment. Globalization 4.0 will see these trends accelerate and also see new approaches to scaled expansion — via a hyper-local approach to market growth, recruitment, and compliance.

Also Read: 6 Common Design Mistakes and How To Avoid Them

How do startups decide when they are ready to scale outside their home country? Reading the signals that your product will work in other regions is important, but often it is the stakeholders like clients, investors, or competitors that compel a startup to scale beyond their borders. In the e27 Scaleup Success webinar, Jeffrey Paine of Golden Gate Ventures, an early-stage technology fund investing in Southeast Asia, says it often comes down to the founder’s DNA.

Founders who have the ambition to establish a global company from day one are often better prepared for regional expansion since it manifests in their leadership. Management needs to be convinced of the value of expansion, and they need to hire and convince the right team of what needs to be done to succeed.(Scaleup Success)

International expansion is fraught with challenges

For startups looking to expand into new countries, the number one source of fear and doubt is the speed and complexity of setting up an entity. Recruitment is also top of mind for most startups looking to start operations in a new country. Significant risks inherent in setting up international subsidiaries are related to legal, HR, and Tax compliance.

Tackling the pain points like entity formation, legal compliance, hiring the right team, and dealing with localisation are significant hurdles to regional scaling. Cash Flow is another major factor — not controlling the balance sheet is a perennial reason for failure to expand.

Ken Chen, Co-Founder of iCHEF, says finding the right partners is extremely crucial. iCHEF sought partnerships in countries like Malaysia and Singapore that yielded success. The partners helped them figure out many of the solutions to many common frustrations like entity setup and employee work permits.(Scaleup Success)

Also Read: 10 mistakes that new entrepreneurs tend to make and should avoid in 2020

Some of the rudimentary aspects that need to be addressed early on include connecting with the right partners and right services, setting up the right team who understands how to hyper localise the product there, and understanding the local regulations. The same is true for portfolio companies under VC firms.

Finding the right partner is about talking to potential partners to understand their abilities, motivations, and commitment to partner with you. Acquiring startups with a passion for the industry is a great option to expand, says Chen. Design an incentive matrix to understand the level of commitment of your partner and to figure out how you will share the success.(Scaleup Success)

Research and due diligence hold the key to success

Due diligence and in-depth local research are the mantra startups need to double down on when they consider regional expansion. Lack of research is the number one reason startups run into trouble when they move into a new market. The more data and insights you have regarding the market, the better you will do, says Paine.

Every business has its own playbook but it is tailored to your home market. Usually, the 70-30 rule applies where 70 per cent of the original playbook will work, but certain cultural factors can only be understood when you have strong local talent that really understands how to build trust in the local culture.

The research aspect should not neglect the details such as how you will ensure compliance with local tax and accounting laws. Setting up to navigate the complexity of local HR policies, regulations and while managing cash flow properly, is where the right VC interventions can truly guide expanding startups.(Scaleup Success)

Building the right team

The route to success is based on putting the people at the centre of your expansion strategy. Founders need to decide if they will lead the expansion themselves or hire a launch expert in that country. VCs point out that usually one of the founders needs to be there for 3-6 months to really make it work.

Key Success Factors in building international teams:

  • Make sure the team you hire has all the support and resources they need to succeed.
  • Empower them to take important decisions based on their local knowledge.
  • Simplify the process of onboarding newly acquired international team members.

The first one or two hires startups make in a new country will probably turn out to be wrong, says Paine. Startups should plan for these situations by having a plan B in place until they better understand what they need to succeed. Getting people on board who are in sync with the HQ culture is a vital factor in recruitment.

Better globalisation strategies and remote collaboration technology can help startups assemble the right talent in teams with local intelligence, local knowledge and networks.

Also Read: The Top 20 Reasons Startups Fail

The big decision founders will need to consider is whether to set up a subsidiary or to assemble a team without setting up a branch office overseas. Setting up a new entity involves getting licenses for trade, accounting, payroll, tax, HR etc, as well as finding the talent and onboarding them with payroll, benefits, and resources.

Startups can manage this risk by recruiting a team through an Employee of Record (EOR) platform or by setting up a PEO organisation. These solutions allow startups to assemble a team rapidly and get started while they understand what type of team setup is eventually going to be required.

VC intervention plays a prominent role in helping their portfolio companies to access international recruiting experts like Globalization Partners. Professional service providers like Globalization Partners help companies compliantly hire and onboard new talent in days, without having to get involved with entity formation in the country where the human resources are located.

Their AI-driven Employer of Record platform helps startups build a remote global without the hassle of setting up new entities. From payroll and benefits to tax filings and country-specific laws, they take all the responsibility and can even help you transfer the team into your entity when you are ready.(Scaleup Success)

Even for startups who simply want to capture global talent in a post-COVID remote working world, deploying a PEO/EOR firm lets you capture this unique opportunity. Thanks to the pandemic, a lot of exceptional talent is available around the world. Startups can easily build a world-class remote team in days, with all the regulatory work done for you.

Alfonso Manalastas

Alfonso Manalastas

Alfonso is a Manila-based creative who has previously worked as a content creator and curator for STORM Technologies, a copywriter for NuWorks Interactive Labs, and now as a full-time writer for e27.

He is also a published op-ed contributing writer, a poet, and a touring spoken word artist who has performed in over 15 cities around the Philippines.

He has been invited to perform and speak for two TEDx events in Cebu (2017) and Davao (2018). He was also accepted as a poetry fellow for two National Writers’ Workshops in 2018 and 2019. His op-ed articles can be found in Rappler, Scout, ANCX, and Inquirer, while his poems are available in Cha Asian Journal (Hong Kong), LIKHAAN (Philippines), Quarterly Literary Review Singapore, and Cordite Poetry Review (Australia).

By day, he writes news and feature articles for e27, and by night, he performs original poems at spoken word events.

Follow him on Twitter at @not_alfonso