How to set up a foreign subsidiary

Key issues when moving into overseas territories

As more firms go global, expansion into new countries is increasingly common. So what steps do you need to take if you are setting up a start up company in, for example, a small economy like Austria?

Katie Marques is a senior manager with the Pathfinder project management group at PricewaterhouseCoopers, which advises companies on setting up operations overseas. She says, "My first question to an HR manager would be a very candid one: are you sure that the corporate structure is the right one? Does it fit in with the role and responsibility of the organisation? For instance, if you are sending three salesmen off to an office which isn’t trading, what are they going to be doing?"

Marques says it’s essential for HR staff to be sure that the whole project has been carefully considered and thought through at senior management level. "It won’t work if it’s just a management dictum," she says.

Consultancies like PricewaterhouseCoopers and Anderson Consulting offer a broad range of advice to companies and Marques says this is such a complex field that HR staff should definitely take advice of some sort, either from an organisation like hers or from an employment law firm. "The areas we look at vary, depending on the needs of the client, but typically we would look at the number of people the company wants to appoint, the office accommodation and any contractual arrangements that are needed," she says. For instance, setting up a payroll system in another country means making sure it’s in accordance with local compliance. "There’s no one organisation which can organise a payroll system across the globe," says Marques.

Deciding on a location is also a potential minefield, she warns. "Often companies have already decided where they are locating before they come to us – but we could offer advice about that." While Austria presents no specific problems in relation to recruitment, Marques points out there are areas which are likely to cause headaches for HR staff. "In Dublin, for instance, there is a very high rate of employment, housing is expensive and office accommodation is limited," she says. "All these are factors we would look at if we were asked to look at any overseas location."

Taking into account the nationality of any staff employed in the new office is also vital. Marques points out that while moving existing staff who aren’t UK nationals to another country is relatively straightforward, if you are bringing in foreign staff who are currently working for another employer on board, life could get complicated. This is because work permits given to employees are underwritten by their existing employer. A change of employer may render the work permit invalid.

Stock options and incentive plans are another potential problem. While regulations on these vary widely, particularly in Mediterranean countries, employers who offer stock options to staff in some locations clearly have to have a consistent approach to staff employed throughout the organisation. "This is an area in which you definitely need specialist advice," warns Marques

Her overall message is that setting up an overseas operation will work as long as HR departments insist on clarity and forward planning. "For instance, what is your policy on introducing an employee handbook for that office?" she asks. "Are you going to wait till it has been established for a certain length of time, or are you going to wait until there are 10 people in post?" That’s necessary so that people know where they are going – otherwise you have three salesmen sitting in Austria wondering what they are meant to be doing.

Other potential pitfalls she highlights are employment contracts, which are so different in the US and continental Europe that completely new versions need to be written to comply with local legislation, and methods of payment. Some countries have extra pay periods, with employees getting pay packets 13 or 14 times a year rather than 12.

"Often, when a company makes the decision to expand, the HR manager is the last person to know," she says. "Then they are under pressure to react and that can create problems. Ideally, the HR department should have a say in the strategy which lies behind that process, rather than just being involved in moving staff from A to B and picking up the pieces."

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