International expansion: rapid change requires flexibility
In part 1 of this series we reviewed the challenges of international payroll and focused on how they can impact your cost. This blog explores how poor HR and payroll systems and processes make change very difficult – limiting the your flexibility.
Organisations across China and Hong Kong are operating in a more Volatile, Uncertain, Complex and Ambiguous (VUCA) world. Senior fellow at Harvard Business School, Bill George, says in an article in Forbes: “Business is not running as usual…CEOs have little idea what to expect in terms of health care policy, financial transactions, national security, and global trade – all of vital importance to themselves, their employees, and their stakeholders.” In this type of landscape, reactivity is your competitive edge – and business flexibility determines your speed.
Only the fittest survive to fight another day
Change is the one constant in business – though it can take many beguiling forms. Papyrus France (now Inapa), a merchant in paper, supplies and industrial packaging, is part of a declining industry. “The big challenge for Papyrus is to adapt our structure. We are starting to adapt our HR tasks and payroll to be more competitive, stronger, efficient, and to take the time to implement other HR tasks and not to use all our time on payroll. It will provide more flexibility and responsiveness to the business to help it adapt to market changes” says Karima Cherifi, HR Director.
In contrast, Yankee Candle, a manufacturer of scented candles, has been experiencing global growth of 30% per year with “HR systems that could not cope” according to Rachael Merrett, Financial Controller. “There was a very poor HR system, and the payroll system, didn’t give us any of the management information we needed – even things like holiday records, which were all kept manually. Nothing was linked up.”
Payroll and HR teams with poor tools and processes can crush business flexibility. Just keeping up with the demands of payroll data capture, processing, disbursements and reporting for every pay cycle can be hard enough – but add unexpected change and the burden quickly becomes overwhelming. Ultimately, there’s little or no time left for supporting your business and enabling the required transformation.
Legislative complexity and magnitude change stretches global payroll
The increasing complexity of legislation and frequency of changes can limit your flexibility – especially if local expertise is not available. For example, in one calendar year, there were over 20,000 changes in payroll regulation globally. Regulations may vary by region, by city, by business activity with collective agreements, or by company with company agreements. Brazil, for example, has more than 10,000 union agreements and Japan nearly 300 different minimum wages. Adding to this pressure, the time companies have to implement changes required by new tax, employment, and payroll related compliance regulations is shrinking.
Findings from a study conducted by CFO Research in collaboration with ADP show that more than 60% of CFOs surveyed agree that companies have experienced increased pressure to respond to tax, employment and payment-related regulations in increasingly shorter timeframes during the past two years.
Without the right guidance, compliance can limit your flexibility as resources are diverted to coping with compliance requirements – rather than providing strategic input to accelerate your agility.
Simplicity and standardisation is the key
The Jeitosa Group International report, ‘Driving Globally Strategic Payroll: The Paradoxical Journey to Efficiency and Innovation’, argues that, “A key characteristic of the International model is that it is especially adept at understanding the needs of its local business units and sharing best practices and innovations across the global organisation.”
Karima Cherifi understand that investments in HR and payroll is important, “We had to change our policy. It’s a cost saving policy but it’s to also share best practices between the countries.”
Standardisation of payroll and HR systems through global payroll outsourcing can significantly increase flexibility. Companies consolidate consistent processes for all the countries in which they operate and leverage this efficiency to respond quickly to change. New offices are relieved from acquiring local payroll knowledge as they settle in new countries. They simply ask their supplier to “open another country”.
In the next blog in this series, we’ll explore another challenge of global payroll: control.
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