New Horizons Global Partners discusses international expansion amidst the pandemic
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.
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.
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: