International expansion: How to avoid the top three pitfalls of global payroll and HR
International expansion and having a physical presence in a new country offers many Chinese/Hong Kong businesses the chance to reach a significant number of new customers and substantially boost profits. Inadequate payroll and HR processes can however quickly derail these growth plans – as they expose your business to escalating costs, inefficiency and risks. Focusing on correcting these processes is usually time consuming and worse still, it can take the attention of your team away from more strategic activities that are crucial during any global expansion. In this blog series we will review the top three challenges of global payroll and HR – sharing real-life examples of where organisations have gone wrong and how your business can avoid these pitfalls.
Challenge 1: The cost of global payroll
Multiple systems multiply costs
Organisations that expand internationally can choose to implement a local in-house, or outsourced payroll system, catered to the needs of that market. This approach however prevents any economies of scale that can be gained from a centralized global payroll solution, as your business grows. Often this is a bigger financial cost than leaders realize as a large proportion of payroll costs are hidden. It is not unusual for the less visible components of payroll to be over-looked as part of the due diligence scoping process – but these costs can add up and affect your company’s bottom-line. Examples of invisible costs could include IT components, system integration and time spent by staff working on payroll systems. The ADP white paper, ‘Payroll at the heart of HR Outsourcing’ finds that payroll combined with personnel and benefits administration account for 35% of total HR costs – and payroll costs represent nearly half of this. Multiply this cost by the number of countries you operate in and you get a sense for the large wastage that could be caused by maintaining multiple systems.
Fragmented systems splinter savings
Often a path to growth for companies is acquiring other established competitive businesses. Managing the consolidation of global payroll information and reporting can however create a substantial administrative burden. Philippe Mennrath, HR Director at KNAUF, a global supplier of building materials, explains, “Buying competitors gives us huge integration challenges – everything from getting new people to understand how we work, to getting them integrated into our HR and payroll systems.”
Fragmented payroll and HR systems multiply management costs – and impact your ability to gain clear insight make informed and timely business decisions.
The high price of using local payroll for multi-country operations
Running international payroll on a local payroll system can come at a high cost – both in terms of resources and time. Pepita Morales Saldana, Global Payroll Manager at TomTom, a provider of GPS navigation which has gone from having a few offices in The Netherlands in 2006 to being operational in 40 countries today, recalls, “We had one local Dutch system and in there we had to register all the information of all the employees worldwide. There is a lot of local information that you need to store but your system is not built for global information – it’s just built for the local Dutch information.”
Processes efficiency delivers savings
Jeitosa Group International’s Global Benchmarking Study (GBS) found that “High-performing organisations are far more likely to have a global payroll team that has both visibility to and accountability for the functioning of payroll at the country level across the entire enterprise.”
Dierk Russell, HRIS Manager EMEA at Covidien, a medical devices company that went from a fragmented payroll to a standardised outsourced model in EMEA, shares, “Before outsourcing we weren’t able to review or analyse the costs. Now it is very simple as its one contract.”
China is a country of 1.4 billion people in a global community of 7 billion, and a company that can successfully export itself can be a very attractive investment opportunity. As you foray into foreign markets having standardized and integrated payroll and HR processes can be a significant saving. A single vendor with a single contract can provide transparency on costs, making budgeting and financial planning easier, while relieving your team from the tedium of back-office functions. This enables your business to focus on maximizing the benefits of your expansion strategies.
Find out more about how you can support your international growth by choosing the white paper most relevant to your industry:
In the next blog in this series, we’ll explore another challenge of global payroll: flexibility.