Offshoring can help a company to reduce overheads and minimize fixed costs. Whether you want to open a branch abroad or outsource to cross-border contractors, here’s what you need to keep in mind.
the economy, large and small companies are facing new challenges in the US and global market. Volatility, uncertainty, complexity and ambiguity have become the new normal in many industries, which is why it is imperative for companies to prioritize business resilience, especially when it comes to budgeting, cost savings and reducing operational leverage. Global expansion is one way to reduce costs in wealthier countries. By relocating support functions to inexpensive regions abroad, company managers can suprerior position their companies to deal with any uncertainties.
I run a financial consulting company in Tbilisi, Georgia, where I worked as a split CFO for companies based in my home country, as well as in the USA, Great Britain and totalpe. In my work with more than 50 foreign entrepreneurs in industries from it to manufacturing, I have noticed two emerging trends, both focused on global expansion: outsourcing of overseas support activities and opening of overseas branches.
Each solution offers a number of advantages. Outsourcing support operations, whether to individual entrepreneurs or other companies, can be an agile and cost-effective option that will allow your business to grow or shrink faster. By opening an overseas branch, you can also tap into global talent while spending less operating costs than at your company’s headquarters, giving your company the flexibility it needs to overcome the wave of uncertainty.
Ease of doing business.
When opening an offshore branch or subsidiary, keep in mind that in some countries it is easier and inexpensive to start and run a business than in others—a wise choice can make a big difference to your bottom line. Considerations about the ease of doing business, as these concerns are widely known, include the freedom to operate without excessive government restrictions and regulations that can interfere with normal business operations, property rights, commercial rights and bureaucracy. Many of these allocate have traditionally been measured in the World Bank’s annual Doing Business Report, which measures the business and investment climate in 180 economies around the world. (This report is currently being updated and revised as a B-READY project.)
For example, in this World Bank chart, the US and Georgian markets—ranked 6th and 7th, respectively—are compared in terms of their overall trading environment (a lower figure indicates a simpler environment).:
Starting a Business
Find out how long it takes to start a business in your target region and what fees and details are associated with it. The simpler and more streamlined the process, the less administrative, logistical and financial burden it will be.
In some countries, it can take several months and a significant total of money to go through the bureaucracy before you can actually start your business, but places like New Zealand, Singapore and Denmark are known for how easy it is to start a business there. And in Georgia, for example, the registration of a company takes only one day, as soon as you have done your due diligence, where all standard documents are available at a national registry office, and only a signature and payment of 35 are required.
There is also the logistics of finding a body location if necessary—perhaps even building it yourself—and equipping it. This includes renting or buying land, obtaining building permits, finding and paying contractors, setting up utilities, etc. regional fluctuations in these costs must also be taken into account.