Get set for the challenges of post-Brexit international growth
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UK tech firms that want to hit the ground running as they expand outside the EU will find themselves facing complexities they may not have anticipated.
The UK Government’s recent confirmation that there will be no extension to the Brexit transition period is a timely reminder to tech businesses that they need to prepare for life after the EU. The EU trading bloc has traditionally been the priority destination for growth; unfettered access to its many top-tier economies made it the obvious choice.
This was certainly the case prior to the Covid-19 lockdown. Velocity Global’s 2020 State of Global Expansion Report, launched in February, revealed that more than three-quarters of UK tech firms plan to expand into a new foreign market in 2020, with Europe the most desired location by far.
These businesses still want to reach countries in the EU post-Brexit, but the uncertainty surrounding the UK’s future relationship with the bloc serves as an opportunity to consider other global growth markets should they lose access to the free market.
The Global Expansion Tech Index, part of the State of Global Expansion Report, is a league table of the best expansion destinations around the world for tech firms. It scores countries on a range of factors including skills, regulations, the quality of connectivity and infrastructure, GDP growth, and the level of inward investment.
Several non-EU countries placed in the top 10 of the 2020 index, including Singapore, the US, Australia and Hong Kong. The two Asian countries performed particularly well on connectivity and infrastructure. Singapore, which topped this year’s rankings, has one of best public transport systems in the world and along with Hong Kong offers some of the fastest internet connection speeds globally.
The US ranked fourth, scoring highly across the board but particularly for infrastructure, knowledge and GDP growth. It’s home to more than 40 per cent of the world’s largest tech companies and despite China, India and Japan gaining ground, the country’s tech hubs – San Francisco, San Jose and Boston to name a few – are still considered the places to be for aspiring digital businesses.
Australia was eighth in the table. Its robust economy and new Global Talent Independent programme – a recently launched campaign to attract the world’s tech professionals – make it an enticing prospect for businesses on the hunt for talent. Accessing skills was central to the expansion plans of 41 per cent of US and UK tech businesses, according to the report.
Multiple markets hold potential for growth and skills beyond the EU. But location isn’t the only consideration; how to get there is just as important.
The traditional method of global expansion is to establish a legal business entity in a chosen market. That can be complex, expensive and time-consuming for a UK business, particularly when moving into a country that isn’t part of the EU. This is especially true for tech companies growing quickly to capitalise on demand for their products in a crucial time when tech enables businesses more than ever.
Firms looking to set up in the United Arab Emirates, for example, must know that certain legal entities need to be at least part-owned by an Emirati citizen. Companies entering Vietnam, on the other hand, run into very strict recruitment regulations. Foreign-owned businesses cannot approach prospective employees directly but must instead enlist a local recruitment agency to hire on their behalf.
Companies can compliantly navigate these global complications without having to register a fully-fledged entity. An option that a growing number of UK tech firms are using is an Employer of Record, sometimes called an International Professional Employer Organisation.
The International PEO utilises its existing global infrastructure in the desired country to employ workers on a company’s behalf so the business doesn’t have to set up a foreign legal entity itself. It acts as these workers’ Employer of Record, managing administrative aspects such as payroll and benefits and ensuring compliance with local labour laws.
This approach enables a business to hit the ground running and be fully operational in a new country in a matter of days. In times such as these, it also makes it easy to test the water in a new market and pull out quickly if required.
Despite the uncertainty surrounding Brexit, UK tech firms do not put growth plans on hold. Looking beyond the EU for new markets is part of the new analysis as the separation is finalised and businesses increasingly rely on flexible and agile methods of global expansion.
Rob Wellner is chief revenue officer at international expansion solutions provider Velocity Global.
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