How can PEO Enhance Risk Management Capacity?
Expanding business internationally comes with risks attached. If you jump into international markets without proper planning, the risk involved might cripple you. From the 5 ways of expanding your business internationally, PEO can sustain maximum risks. In this blog, we take you through the types of risks in an international market, the basics of PEO, and how PEO can enhance risk management capacity. This will help you assess your business expansion strategies, especially in India.
Risks Involved in International Business Expansion
- Risks related to marketplace
1. Customer acceptance
Your product or service may not be suitable for the marketplace you are trying to break into, and will therefore be rejected by your target consumers.
When you want to expand your business internationally, you will naturally have to adjust your pricing model for the target markets. Considering your costs, the price you want to set for profits may be too steep for your target audience. You’ll have no choice but to lower your costs, and there go your profits.
2. Risks related to employees
1. Employee retention
Being in another country, how can you ensure your remote employees stay with you long-term?
2. Employee performance
You don’t have as much control over your employee performance, work motivation, and work ethics as you would in your own branch. Being hands-off comes with an inherent loss of complete control that can prevent you from getting the most out of your business expansion strategy.
3. Employee health and possible injuries
As an employer, you will need to look after the health and wellness of your employees, the lack of which will tank work morale and productivity.
3. Risks related to business operations
The time zone differences can mean your employees may not be available in the shifts you want to rely on them the most. This is especially impactful if you provide support and customer care and want to be on the clock 24 X 7.
2. Infrastructure and resources
With freelancing or outsourcing, you are not in charge of providing infrastructure support for your remote employees. You surrender to the quality of resources your employees will get either for themselves as freelancers or through the parent outsourcing company. You are at the mercy of the machines your remote employees are using, the internet they have available, and the workplace environment they are used to.
4. Risks related to compliance
1. Triggering a PE
A Permanent Establish (PE) clause forces your non-resident foreign company to be treated as a local, domestic business establishment, which can quickly turn into a tax nightmare. If you hire dedicated remote employees, you risk triggering a PE clause.
2. Confidentiality clauses
Your remote employees in India may work for competitors (if freelancers), or if you are outsourcing, be answerable to their own company rather than yours. Also, like previously discussed, they are working with their own infrastructure so you cannot guarantee audit compliance (for example, storage of email trails or secure logins) or maintain the confidentiality clause.
Risk Management Capacity and PEO
- What is risk management?
Risk management is about proactively anticipating risks and hurdles rather than reacting to the challenges that crop up. It involves meticulously developing strategies for avoiding risks or having contingencies in place if unavoidable risks impact your business.
Risk management saves you from monetary losses, prevents loss of customer trust, and protects your brand.
2. What is PEO?
A Professional Employer Organization (PEO) is a conducive method of international business expansion in a new country. A PEO agency is an intermediary that acts as a legal employer for your remote employees, a role which you cannot assume yourself as you don’t have an established business registration in the foreign country.
The PEO agency takes care of cost-effective services for HR, payroll, insurance, benefits, and risk management.
3. PEO and Risk Management
A PEO can become an extremely useful ally for your business and can greatly enhance your risk management capacity.
PEOs understand all the types of risks we’ve elaborated above and have expertise in risk prevention and mitigation. As a co-employer, your PEO shares a certain amount of your risk burden.
In that capacity, a PEO aids in risk management the following ways:
1. Being from the target locality, your remote employees can help in market research and competition studies, allowing you to fine-tune your offerings.
2. A PEO gives you the complete flexibility to implement team-building exercises, morale boosting activities and incentive programmes for employee retention and high throughput.
3. As the legal employer, the PEO is responsible for employee health and injury compensation.
4. A PEO is just a middle-man, and you govern all aspects of your business, including working hours and shifts, allowing you the 24 X 7 availability you need.
5. You provide the infrastructure to your remote employees, thus allowing you control over quality of work and also helps you adhere to compliance standards.
6. Because you are not the legal employer, you do not trigger a Permanent Establishment (PE) clause with PEO.
PEO subverts all the major risks of international business expansion, helping you focus on what you do best: running your business. If you are looking to expand your business in India, take a look at the PEO services we offer.