In today’s world of international trade and commerce, many businesses may see global expansion as inherently beneficial. Tech companies are no exception. Despite the current problems plaguing supply chains, tech companies — especially those outside of the hardware sector — have limited exposure to or concern for supply chain risk. This insulation can make a rapid global expansion all the more attractive to early and mid-stage technology companies that may not yet have a significant international presence.
But even with less exposure to supply chain woes than other industries, tech companies need to thoroughly assess the risks and opportunities global expansion presents for their business strategy and operational planning. Alongside legal, tax and regulatory considerations of expanding into new international markets, leadership teams should take stock of any cultural implications, infrastructure needs, cybersecurity threats and geopolitical factors.
Such assessments are especially crucial in the current labor market, with remote work allowing many employees to work from anywhere. Whether a tech company has a smattering of employees newly based in international locales or aims to ramp up its global presence more formally, the business needs to understand how to navigate such growth in a way that will minimize pitfalls in the future. For early and mid-stage tech companies in particular, planning is key, given that businesses in these earlier stages may have less capital to handle challenges that may come up in the process of expansion when compared to tech behemoths.
4 Points to Consider When Scaling to a Global Workforce
- The tech growth landscape: money and labor.
- Regulatory and legal risks of a global workforce.
- Cybersecurity and data protection.
- Cultural considerations.
The Tech Growth Landscape: Money and Labor
The sheer scale of the tech industry has been growing steadily for the past decade but was accelerated by the pandemic; technology now connects our personal and work lives more intimately and plays a more crucial role in economic activity than ever before. Technology companies have a huge opportunity to grow and expand their customer bases internationally, and many will try to chase customers without much consideration for strategy, risk or regulatory needs when expanding outside of the U.S.
Global spending on technology and related services is forecast to continue to grow and is on pace to exceed $5.3 trillion globally in 2022, according to research firm IDC. Nearly two-thirds of that spending is expected to occur outside the U.S. in 2022 alone. Telecom services, devices and infrastructure, and IT and business services all will account for more than 20 percent of the global spending, according to those same IDC estimates.
As technology companies seek talent to support market opportunities and demand for their services and products, finding, hiring and compensating highly skilled tech employees is becoming harder. The technology industry could face a global shortage of 2.1 million and 4.2 million workers by the years 2025 and 2030, respectively, according to a recent study from global consulting firm Korn Ferry. This shortage of qualified workers will encourage, if not force, tech companies to look globally for talent to fill essential roles. The only major global economy that is not projected to face a shortage of tech workers by the year 2030 is India.
In the U.S., the tech workforce has grown to an estimated 5.5 million employees at the end of 2020, up from 4 million in 2010 and about 3.75 million back in 2001, according to a CompTIA analysis of data from the Bureau of Labor Statistics. This growth from 2001 to 2020 was an average of 3.1 percent per year, far outpacing the overall workforce growth of 1.2 percent during the same period. The current unemployment rate in the tech industry is at a near-record low of less than 2 percent compared to the overall 3.5 percent national unemployment rate.
The global forecast for technology spending, combined with projected global shortages of qualified tech workers, will drive today’s technology companies to explore global expansion for the best chance of realizing their full market opportunity and attracting and retaining top talent. Any expansion should be thoughtfully planned in light of unique legal, regulatory, cultural and geographical considerations.
Regulatory and Legal Risks of a Global Workforce
Unique employment laws and labor norms in countries may vary dramatically from jurisdiction to jurisdiction. For companies embarking on a global expansion, having a clear picture of the compliance landscape before fully committing to an expansion into a new market will be exceedingly important, whether in terms of customers or employees.
Here are some questions leadership teams should be sure to answer on the regulatory front:
- What are the foreign in-country tax and audit considerations? New global revenue streams and workers in new locales could come with new tax implications both domestically and in the new jurisdiction. The company’s human resources and finance leaders should have a thorough understanding of requirements in any of the countries where the business is expanding. Entity structure and formation could have a significant impact on statutory audit requirements as well as tax filings both domestically and internationally.
- How do international operations affect the company’s intellectual property (IP) use? How a company structures its product development, sales and marketing efforts needs to be top of mind. Will the foreign expansion simply be to acquire top technical talent solely for research and development efforts or will a foreign expansion include a sales team who will be responsible for the execution of sales contracts? The specific activities of the foreign employees will determine the need for transfer pricing, IP licensure, royalties and a host of other foreign and domestic tax considerations. Leadership teams should have a high-level understanding of these considerations prior to the implementation of a global expansion effort.
- What are the unique labor and employment laws in the foreign jurisdiction? Many countries outside the U.S. have their own established laws regarding employment contracts, working conditions and social protections. The European Union, for example, has many laws protecting the rights of an employee that differ significantly from employment-at-will contracts common in the U.S.
Cybersecurity and Data Protection
Any expansion, whether domestic or international, should include a strategy for strong cybersecurity practices including deterrence, monitoring and detection. Given the elevated levels of geopolitical stress and the security fallout from the war in Ukraine, American companies continue to find themselves targets of cyberattacks from foreign adversaries and bad actors.
Additionally, when expanding globally, businesses must consider foreign regulations that may be in place for data protection, especially consumer data protections like those required in the EU as a part of the General Data Protection Regulation, more commonly referred to as GDPR. These regulations outline in detail the requirements and responsibilities for entities who collect data from European citizens as well as the rights and expectations for those who are the data subjects, i.e., customers.
Entities who have not found themselves subject to these data protection rules and who have not invested in and implemented stringent security protocols and data collection monitoring may find themselves running afoul of foreign regulations quickly when entering into new international locations. Companies can avoid such scenarios by planning ahead of time in accordance with cybersecurity regulations in the jurisdictions they intend to expand to.
Cultural Considerations
While the cultural aspect of global expansion may seem less rigid than compliance and infrastructure needs, it is just as important. Companies will need to be thoughtful about maintaining their values and a consistent cultural environment across multiple international offices. They will need to take into account the existing cultural differences in various jurisdictions, time zone implications for connectivity, and how best to ensure all teams feel heard and understood.
Here are a few of the cultural considerations tech companies may want to weigh before implementing a global expansion effort:
- What cultural norms of leadership or management are essential to understand to effectively build product and project teams or to consider in the design of the sales organization?
- What social norms or labor protections do local regulators provide? For instance, much of Europe requires paid leave minimums, in contrast to China’s “996” work culture, where people work 9 a.m. to 9 p.m., six days per week.
- How will your employees be equipped to connect with one another across jurisdictions and time zones? What sort of technology investments might your business need to make this connectivity more seamless?
The Takeaway
Planning is paramount for tech companies that want to take advantage of the current opportunities that lie in global expansion. Without a thorough understanding of the risks, logistical and compliance needs, and cultural considerations required to maintain a cohesive business structure in a variety of international markets, however, organizations will set themselves up for failure. Leadership teams should ask themselves the questions above early, and make sure all functions of the business are involved in such discussions to maximize their potential for success.
