Setting a global expansion budget

Introduction

For companies exploring new markets, setting a global expansion budget is a crucial first step. Within a lean startup framework, the meaning of lean does not mean as little money as possible but rather, efficiently optimizing funds to reach measurable business outcomes. Planning the numbers is the most crucial yet most common mishap that companies expanding run into when planning a global expansion. Exact figures are opaque, market estimates are only just that and hidden costs can run rampant. Companies must equally balance operational costs, hiring a team, service providers and government tax regimes. A general rule of thumb is to always over budget and assume that expansion costs will be higher than expected. A few items to plan for include company incorporation, compliance, office and travel.

Company Incorporation

The act of incorporating a company through the government in many jurisdictions is not an enormous figure with a typical range being between $100-500 however the actual end setup costs can greatly vary and are typically significantly higher than a simple government registration. On the low side in competitive markets, such as Hong Kong, firms may waive incorporation costs in favor of annual secretarial fees while in those same markets more premium legal firms may charge upwards of $5,000 for the same act. In markets that are less friendly to international expansion the incorporation fees may start around $2,000 and go up to $10,000. Anything above $10,000 for the sole act of incorporating the company should be met with caution. As mentioned in the legal operations chapter a legal firm assisting with the incorporation will also guide you on the necessary documents to prepare and execute upon the incorporation of the company. It can vary as to whether firms will charge those as a separate line item or they often include those as part of the incorporation fees. Documentation will often include items such as a company constitution, certificate of shares, articles of incorporation, shareholder resolutions and other mandatory corporate records.

Compliance

Compliance directly ties into legal and can come in many shapes and sizes. For the purpose of this exercise to manage the case of 5 employees we will focus on the employment compliance management. Initial setup costs that may be managed in house or preferable by your legal and/or accounting vendors may include government social security setup, pension account setup and health insurance setup. For the accounts with government registrations a lawyer or accountant can usually assist whereas in countries where those accounts are private it will usually take more blocking and tackling with local agents to setup. Either a lawyer, accountant or consultant can usually assist with setup however they will quote you different prices and may prefer other vendors to manage so they specialize in certain setup areas. For example, a law firm may not prefer to assist with registering your company with the pension authorities. Do not assume that one vendor can assist with every mandatory setup.

Employment

Other employment related compliance items to gain a verified perspective or set of documents includes an expense policy, HR advisory overview, health and safety requirements and union requirements. This documents information may be researched online however it often pays to receive a report to ensure compliance. An average cost per document may be $500-$3000. Once the verified information is in hand it will require your internal team to operationalise the information into systems and processes. Ongoing advisory or compliance costs are common hidden costs that people do not know to budget for accurately.

Office

In the post Co-Vid world the decision of how to establish physical office operations has evolved. The strategy between a traditional space, downtown location, suburbs, co-working or working from home will be led by the HQ but may need to be tailored based on country necessities. In order to incorporate a company all countries will require a registered address on file. This order of operations can be a tricky balance as leaders will need to commit to a lease prior to the commitment of incorporation. Scouting trips prior to incorporation can often be required especially if you do not have a trusted source on the ground. A question to ask a legal service provider is if they are willing to utilize their office space as your registered address. This registered address as a service, which includes official mail handling, will come at a fee, typically between $100-$600 per month.

Travel

If you intend to hire staff in a new market at least 1-2 trips during year 1 will be required and even if you do not intend to hire staff immediately a trip will most often be mandatory. Leaders often decide to make an early scouting trip to understand the local business environment, learn the physical business areas, search for office space and ideally meet with prospective customers, partners and vendors. It can often be an opaque area to understand at what point during an incorporation and setup process the representative directors or shareholders are physically required to visit. During incorporation it is recommended to be physically present to execute documents however POA or notarized courier is also an option. However banks may not be as flexible and do often require directors to be physically present to execute initial documentation. Managers sometimes choose to make trips in order to interview candidates for all important initial hires in the market. Once a team is built it is further recommended for either functional line managers or company leadership to come for team building purposes. All can act as an opportunity to visit partners and learn more about the customers you are serving. Employees in the market should be prepared to set up rounds of meetings with relevant stakeholders they have recently established and present a “picture of our customer” presentation as part of lean iteration.