Significance of Quick and Compliant Market Entry with EOR

I’m going to start this blog with a very plain, flat question. Why do businesses rush to plant their flag on foreign soil anyway? Okay, it sounds fancy to say, “Look, we’re global now!” But is that the real motive? Obviously, the answer is a big fat NO! The drive behind any new market entry often boils down to two things: cost reduction and access to “diverse as a buffet” resources. 

Companies are constantly hunting for opportunities that help them gain access to top-notch global talent within an optimized budget. The right market can open up doors to unexplored and exceptionally skilled candidate repositories.

Take India, for example. With a GDP growth of 8.1% in FY 23-24 and booming tech, healthcare, and finance sectors, the country is an attractive destination for those businesses that are expanding into the market. Additionally, the staffing costs are substantially less in India than those of Western economies. This intrusive research will be more useful for you with the numbers. Now, if that doesn’t get the CFOs to swoon, I don’t know what will. After all, what company doesn’t love a good bargain when it comes to hiring costs?

However, setting foot in a new market without compliance monsters lurking in dark corners? Now, that’s a whole different ballpark. Don’t worry though! It’s our job to make your international team expansion easier. Hence, we’ll be discussing at length about the challenges faced by businesses while making a new market entry. We’ll analyze concepts like how to make the market entry process smooth as butter, and which employment model is the best option to do so. 

Now, we’ve already given you a glimpse of the bustling talent market of India. Through this blog, we’ll invade into that idea more. So, let’s start with those challenges, shall we?

Challenges of New Market Entry for Businesses

As we talked about, international team expansion and a new market entry are not all rainbows and sunshine. Businesses face big, ugly challenges related to compliance, costs, resources, and many more during the expansion process. Let’s understand the major ones.

Legal and Regulatory Compliance

Every country has rules. Some make sense; others feel like they were written just to confuse outsiders. Tax laws, labor laws, and “Oh, you didn’t file Form XYZ-123?” issues can derail you faster than you can say “litigation.” Want to catch a glance?

1. Tax laws: Each country has its own set of rules for how businesses are taxed. In some countries, the tax rate for foreign companies differs from domestic companies. There might also be specific tax breaks available for new businesses. What does this mean? If you fail to comply, you could face hefty penalties or even shut down operations.
2. Employee benefits: Different countries have different expectations when it comes to employee benefits. In India, for instance, employees are entitled to Provident Fund (PF), Gratuity, and health insurance. Failure to provide these mandatory benefits could expose your company to lawsuits and non-compliance penalties.
3. Hiring practices and employee contracts: Every country has its own employment laws, and misclassifying employees (more on that soon). Failing to include mandatory terms in contracts can have serious consequences like legal battles, damaged reputation, operational delays, etc.

Cost of Setting Up Operations

Next up is the cost involved in hefty investment and time-consuming paperwork. If you wish to carry out the process all on your own, you’ll need to:

• Register with local tax authorities
• Set up payroll systems that comply with local labor laws
• Hire legal and HR teams to guide you through the process
• Secure business licenses and permits

It’s a complex process, and depending on the country, it could take anywhere from a few months to over a year. And we are not even getting into the costs here.

Cultural and Operational Differences

Wait, there’s more. You might know how to operate in your home country, but will that work in a different cultural setting? Understanding labor expectations, communication styles, and even how meetings are conducted in new markets is crucial to success. Fail here, and your team’s going to have more miscommunication than a badly translated app.

So, what’s the solution? Fear not. We’re at it!

How to Make Market Entry Easy?

So, how about simplifying the process before it drives you nuts? The key is to pick the right employment model. Let’s take a look at the available options that make market entry strategy more efficient.

Setting Up a Local Entity   

You know, the traditional route, the no-brainer. If you want a fully owned operation in a foreign country, you’ll need to set up an office, hire employees, and follow the legal process. This route looks solid, but remember, it’s slow, it’s expensive, and it’s a compliance nightmare. 

For example, in India, the process of setting up a company involves registering with the Ministry of Corporate Affairs, obtaining a Permanent Account Number (PAN), dealing with GST registration, and adhering to labor laws that change by the day. So, unless you enjoy bureaucratic processes as much as I enjoy being stuck in traffic, this one’s a bit of a drag.

Oh, there is one more twist to this story. Here’s a new character introduction: permanent establishment or PE risks as we call it. A Permanent Establishment (PE) is like a business’s “taxable footprint” in a foreign country. If you’re a foreign company, it means your operations in that country could trigger tax obligations. 

Essentially, it’s when you’re caught in a foreign country with a physical presence like an office or workshop, or a dependent agent. The criteria for PE in a country like India are straightforward: is your business there for more than 183 days? Or, do your activities in India cross the line into “real business” territory?

Once a PE is set, you’re in for a tax ride. That’s right! Your income generated in India gets hit with local corporate tax rates. These can often be higher than those back home, making you do a double-take on your finances. Worse yet, if there’s no Double Tax Avoidance Agreement (DTAA), you might face the dreaded double taxation; taxed both in India and in your home country.

Independent Contractors

These guys are flexible and easy to hire. No need for a full-time commitment, and they usually work on a project basis. Also, they handle their own taxes and benefits. So that’s a relief! But…yes there’s always a “But”! What happens when you misclassify them as independent contractors when their roles and responsibilities are more in line with full-time employees? That’s a lawsuit waiting to happen. Not a good look. 

In most countries, the line between contractors and employees is very thin. Worker’s misclassification could expose your company to tax liabilities, social security obligations, and more. 

Outsourcing

Outsourcing allows bypassing legal complexity by hiring a third party to manage your operations in a new market. These third parties can hire, manage, and pay employees on your behalf, thus reducing your administrative load. Still, outsourcing is usually a short-term solution. While it’s a viable alternative and lets you expand quickly, you lose a bit of control over your international team.

Also as there is no as such employee engagement and team bonding among outsourced employees, it impacts their productivity levels as well. Next comes the brand image. Since they are not your company’s direct employees, it’s not possible for them to know the company in and out. Hence, they are not in a position to display the right brand image before their customers.

Employer of Record (EOR)

Let me introduce you to the Holy Grail of employment models you’ve been searching for. A true employer of record: they legally employ your staff, handle compliance, and manage all HR responsibilities on your behalf. With a true employer of record, you get access to local benefits, much better tax management, and an employment structure without ever needing to set up a local entity.

Feeling curious to know more about this model? Good news! That’s what we are going to discuss in the next section.

Why EOR Is the Most Suitable Model for Quick and Compliant Market Entry?

I have already mentioned that employer of records manage everything from employment contracts and payroll to taxes and employee benefits. However, what makes EORs so attractive is speed and ease. You don’t have to spend months setting up a business entity. With the right employer of record partner, you can start hiring full-time employees and expanding your operations in as little as a few weeks.  Let’s see how.

1. No entity set-up required: You already know by now where to go if you don’t want to set up a whole new company. Of course an employer of record. They will take on all the legal responsibilities of your new international team while you concentrate on revenue generation.
2. Risk-free compliance: You don’t want to be the one answering questions when the local tax authorities come knocking. With an employer of record, that’s one less thing to worry about. For instance, an employer of record based out of India will take care of everything starting from the filing of TDS returns to the issuance of Form 16. The EOR also looks after Employees’ Provident Fund (EPF) contributions, Employee State Insurance (ESI), and gratuity calculation, among others.
3. Connection with  local talent pool: The EOR providers are experts and experienced in maintaining databases of local candidates who are in high demand in the job market. When you partner with an employer of record, this treasure is all yours. You automatically get this unmatched talent pool onboarded to your team without a hunt.
4. Seamless onboarding: When an employer of record onboards new candidates, they don’t just follow an onboarding rulebook. They engage with the candidates on a personal level and present your company as a brand before them. Also, as they are familiar with the local cultural nuances, they bond with the employees better. This in turn builds a sense of trust among the employees.
5. Flexibility: Need to scale your workforce up or down according to your business needs? Your EOR partner is right there with you to cater to your needs. It adapts faster than a chameleon in a paint store.
6. Cost-effective: Wouldn’t it be good if you tick all the pointers I‘m jotting down without emptying your cash reserve? Okay, you don’t have to sit and wonder because that is the case with an employer of record. It offers you a crisp and transparent pricing structure which I promise is quite affordable. It comes without any hidden fees or commissions.
   
   If you wish to know the costs of an employer of record upfront, here’s a suitable article for you. Or you may also speak to one of our experts directly if that’s what you need!  

To cut a long story short, employer of record is the easy button for international expansion. You know the Walmart founder, Sam Walton once said— “High expectations are the key to everything.”

Now I say, your EOR partner exists to meet those high expectations of yours!   

Why India Is the New Goldmine for Business Expansion?

India. The land of diverse geography, unique culture, and a vibrant youth population. No wonder it’s the world’s largest democracy! With a current economic growth rate of 8.2% in FY 2023-24, it is the breeding ground of businesses from different industries. Around 600 million people here are under the age of 25 which is half of the country’s population. 

This young population is also a tech-savvy workforce and going by Nasscom’s estimation, the IT sector of the country alone will generate USD 350 billion annually by 2025. And I am not just stacking up numbers here. With such a market brimming with potential, businesses are flocking to India to build the best possible remote team out there. 

Businesses are looking for the easiest and most affordable employment model to cut through the crowd in such a high-demand market like India. This brings us to the very last section of our blog. The section where we talk about how employer of records are not only coping but also flourishing as an optimized employment model in India.                        

Read this article to learn more about expansion in India 

The EOR Boom in India  

Now visualize the best employment model (employer of record) and the best country for business expansion coming together. Isn’t it spine-chilling? EOR services in India are becoming more and more popular in India market entry because they offer businesses an easy, low-risk solution to managing local employment without the need for a full-fledged entity. Thanks to EOR services in India, businesses can employ staff quickly, securely, and, most importantly compliantly.

With India’s growing demand for talent, EOR services in India help businesses onboard top freshers and experienced professionals. They handle recruitment while ensuring employee engagement and satisfaction throughout their journey. This approach helps companies retain top talent while employees passionately represent global brands in India. Wondering why EORs are the go-to choice for team building and international expansion? With EOR support, entering new markets becomes quicker than saying “global expansion.”