Global expansion remains a core theme for businesses of all sizes, as it opens up various avenues and opportunities for business growth. At a certain point, all businesses, irrespective of industry and business domain, need to explore new market opportunities. Also, expanding into global markets can provide a haven for small businesses facing intense competition from large companies.
However, navigating global expansion is usually associated with unfolding challenges and can be highly difficult, especially for small businesses. Even large companies often face different types of challenges when expanding globally. To effectively navigate market expansion internationally, you’ve got two primary options, which shine prominently in cross-border business expansion—employer of record (EOR) services and subsidiary company.
Through this blog, you’ll learn the key advantages of both options and understand which option will be more suitable depending on your business needs and size. Also, you’ll know the key beneficiaries of both business expansion options. Before we dive into further details, let’s understand the meaning and difference between EOR services and subsidiary companies.
What is an employer of record (EOR)?
An employer of record (EOR) is a legal guardian of employees who work for a company with different legal compliance systems. It means that an EOR takes care of the legal responsibilities of professionals who work for a company based in another country. For the record, EORs are the legal employers of your overseas workforce and handle administrative support services for your employees, such as payroll, taxes, benefits, and compliance. With EOR assistance, you can hire full-time employees and expedite your global expansion without investing in a new entity in the target country.
In short, EOR services offer major support systems that facilitate seamless business expansion in another country without forming a subsidiary company.
What is a subsidiary company?
A subsidiary company is an entity partially or fully owned by a larger organization, also known as a parent or holding company. To be eligible for a subsidiary, the parent company must own more than 50% of the subsidiary’s stock. In another case, the parent company can own 100% of the foreign subsidiary company’s shares, which makes it a “fully owned subsidiary.”
In a foreign subsidiary, the subsidiary operates outside the home country of its parent company. As a result, subsidiaries have separate legal entities, facing different laws and regulations from the parent company. Thus, foreign subsidiaries operate independently even though the parent company has the upper hand in the selection of its board of directors.
By setting up a foreign subsidiary, you can establish a strong presence in the local market of the target country. You can directly hire full-time employees and navigate global expansion under your direct control.