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Becoming a global competitor and expanding into international markets is a worthwhile goal for any growing company, but such expansions can present daunting challenges for human resource executives, says today’s guest columnist, consultant Stuart Buglass.
Here is Buglass’s helpful advice for how to avoid the costliest mistakes when growing your company in foreign countries. (Buglass, Vice President of Human Capital Consulting for Radius, is an expert on global employment law compensation and benefits, stock options, expatriate tax, and immigration-related issues.)
Getting HR Right in a Global Expansion
There is no single “out of the box” HR solution for a global expansion, because each country enforces its own distinct employment rules and tax codes. That’s why HR managers should do their homework before moving offshore in order to understand the overall costs and benefits involved.
Getting HR right in a global expansion can make all the difference between earning a profit and incurring a loss.
Avoiding the High Price Tag of Low-Cost Countries
Over the past decade, the so-called BRIC countries of Brazil, Russia, India, and China have become popular centers for manufacturing and software development, based on their low-cost pools of skilled labor. More recently, the MINT countries of Mexico, Indonesia, Nigeria, and Turkey have also come into vogue.
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But beware: The actual employment costs in such countries, although low on paper, can far exceed forecasts due to spikes in wage inflation or volatility stemming from shortages of skilled labor. For example, companies that recently expanded into South America found that their expected labor cost savings were offset when wage inflation topped 25% in Venezuela and Argentina. Elsewhere in South America, nearly 70% of employers in Brazil had a hard time filling jobs last year due to a lack of English proficiency and other talent shortfalls, according to research from Manpower Group.
However, less predictable still are social and political developments, such as in the People’s Republic of China, where the state media has stigmatized the “leftover woman” into shunning the workplace in pursuit of a husband and domestic servitude, further diluting the talent pool available to employers. Or, take the case of northern Mexico, where rising crime rates have recently caused much of the local talent to flee to the southern part of the country.
Managing Benefits and Insurance Plans for Remote Employees
HR managers should understand that the costs of employee benefits may fluctuate widely, depending on the local staff head count and the amount of time a company has been based in a country.
In cases where the local head count falls below 20 employees, some companies are blocked from purchasing group health plans. As a result, providing insurance on an individual basis can drive up costs due to preexisting health conditions.
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Companies that lack a local bank account or trading history may also be prevented from leasing company cars or securing mobile phone contracts. For this reason, be careful not to provide any employment offers that commit to providing a company car and health benefits to local employees because, in the absence of securing local contracts and policies, you may have to cover the cost of purchasing a car and medical benefits outright.
In tomorrow’s Advisor, more global advice from Buglass, plus an introduction to BLR’s practical guide to FMLA compliance.
Find out more about Stuart Buglass and international consultancy Radius here: