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South East Asia: the new hotspot for international expansion

Ben Wright, CEO at global expansion solutions provider Velocity Global, explains why South East Asia is a promising location for growing businesses, the challenges they face moving into the region, and how firms can adapt their approach at a time of global economic uncertainty.

South East Asia: the new hotspot for international expansion
The tech market in South East Asia (SEA) boomed in recent years, following a surge in funding for new businesses. A recent study by Google estimates the region’s internet economy will reach a value of $300 billion by 2025, at which point Asia alone will contribute an estimated 60 percent of annual global GDP growth.

That same study found that South East Asians are the most engaged web users in the world. Many SEA countries are investing in STEM education and much of the region’s predominantly young population know how to use and build technology as a result. Investors and businesses from across the world, particularly those in tech, are attracted by the region’s potential.

Placing first in the 2020 Global Expansion Tech Index, Singapore is the perfect entry point into Asia with excellent internet connectivity and one of the best public transport infrastructures in the world.

The primarily English-speaking nation’s government recently started to court tech companies by allowing its financial sector more freedom to invest in the industry. This friendly business environment, coupled with a brimming talent pool, make it a suitable operational base for extending growth in Asia.

Vietnam emerged as an increasingly popular global expansion destination for businesses in a range of industries. Velocity Global’s index shows the country made significant improvements to internet connectivity in recent years which plays a vital role in the country’s ambitions to grow its IT services sector.

This continued digital transformation and an increasingly productive economy – an area of significant improvement in this year’s Global Expansion Tech Index – leads to intense interest in the nation from private equity investors. This productivity fuelled further GDP growth and made Vietnam a go-to location for new tech businesses.

2019 was officially “Investment Year” in Thailand and new policies designed to help the country’s domestic businesses prosper contributed to a strong uplift in inward investment, according to Velocity Global’s index.

A friendly regulatory environment was Thailand’s highest ranked attribute in the index, recognising the government’s efforts to streamline procedures and eliminate red tape. This greatly improved how accessible the country is to investors and businesses alike.

Compliance considerations
Pursuing opportunities offered by these countries presents challenges exacerbated by the new normal of uncertainty during pandemic recovery.

SEA is a complex region with substantially different economies, regulatory environments and cultures, all of which complicate business expansion.

Singapore has unique, specific requirements for how employers define their relationships with employees. All companies in the country must provide Key Employment Terms (KETs) to their workers, which include personal information for the employee, job title, main duties, responsibilities, and working agreements.

Vietnam, on the other hand, has strict laws relating to foreign companies’ employment of domestic workers. Businesses must first submit a request to a local recruitment agency, which then has 15 days to source local applicants. The foreign firm only has the right to hire Vietnamese staff directly if the agency fails to provide candidates in the stipulated time frame.

Nuances in culture and environment are often just as important to understand as laws and regulations. For example, Vietnam’s Ho Chi Minh City is known as the country’s technology hub with an entrepreneurial business culture. Conversely, Hanoi focuses on professional services and has a substantial government presence which attracts very different types of business.

Taking the leap
Successful expansion projects require necessary due diligence, including revealing the choices available to make the move.

The traditional route is to set up a full-fledged foreign legal entity, but this has become nearly impossible in some places as many governments focus on their nation’s recovery from Covid-19. Entity applications are delayed and some countries have temporarily banned businesses from applying altogether.

Establishing a legal entity is a big commitment even when they are practically possible. They take a long time to process and come with a significant price tag which makes it difficult to dip one’s toe in a new market to see if it is viable before taking a long-term plunge.

An alternative that is gaining momentum in the UK is to use an Employer of Record, sometimes called an International Professional Employer Organisation (PEO). An Employer of Record uses an established infrastructure around the world to compliantly hire people on a company’s behalf in its desired location.

Legally, the workers are employed by the Employer of Record so the company looking to expand doesn’t have to set up new entities overseas. In practice, the expanding business has the same relationship with those workers as it does with its domestic employees.

An Employer of Record adds the benefit of relieving the business of much of the administrative burden of hiring abroad from – local compliance, contract creation, and other legal headaches.

Putting a new workforce into the field utilising an Employer of Record takes a matter of days, rather than the months required to establish a full legal entity, and it’s possible to exit a new market with greater ease if needed.

This more flexible approach to expansion enables businesses to be agile in the way they seek opportunities overseas – responding to market changes quickly by spinning up resources in new locations and winding down just as fast if that country stops delivering desired returns.

SEA is quickly becoming an international business hotspot, particularly for the tech industry. But the fluctuating economic climate caused by Covid-19 highlights how a nimbler approach to global growth is needed to make firms better able to weather choppy conditions.

An Employer of Record offers one way to tap into the opportunities offered by SEA right now, without having to make a long-term bet on the region, particularly as Covid-19 recovery continues.

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