International Expansion: How to conquer global payroll & HR challenges
International expansion and having a physical presence in a new country offers many Australian 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 plans – by increasing your costs, limiting your flexibility and reducing your control. Trying to solve all these problems could become very complicated. Ultimately your team may be robbed of the time and resources they need for other critical activities that support your growth.
In this blog series we will review the three key 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 international payroll costs
Organisations that expand internationally usually choose to implement either a local in-house, or outsourced payroll system, catered to the needs of that particular market. Therefore, the economies of scale that can be gained from having a shared, centralised global payroll solution is lost. Often this is a bigger financial cost than leaders realise as a large proportion of payroll costs are hidden.
The less visible components of payroll can be easily 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 acquiring and maintaining multiple systems.
Split operations splinter global payroll savings
One way for an organisation to enter a new country is to acquire other established, competitive businesses in the new location. Consolidating different payroll information and reporting systems can however create an expensive 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 and make timely business decisions.
The high price of retrofitting a local payroll solution
Running international payroll on a local payroll system can come at a high cost – both in terms of resources and time. Often a system built for one specific country’s taxation and employment legislation will not able to accommodate the unique requirements of other nations. 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.”
Process efficiency drives cost efficiency
Cost is a key driver for most multi-country payroll business cases – and where “organisations automate manual systems or streamline processes, there will be a potential for direct cost savings”, according to the Webster Buchanan Research report, ‘Multi-country Payroll: Analysing the Business Benefits and Challenges’.
Jeitosa Group International’s Global Benchmarking Study 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.”
Australia is a country of just over 24 million people – but the global community is approximately 7.5 billion. Companies that successfully go global can enjoy a significant growth trajectory . With HR and payroll typically considered a company’s backbone, having standardised and integrated processes can accelerate your international expansion. A single vendor with a single contract can provide transparency on costs, making budgeting and financial planning easier, while relieving your team from the expense of an expanding back-office function. This leaves you free to divert more budget and resources towards successful expansion.
Learn how you can better support the international growth of your business by choosing the white paper most relevant to your industry:
- Professional services industry brief
- Retail industry brief
- Manufacturing industry brief
- Healthcare and pharmaceutical industry brief.
In the next blog in this series, we’ll explore another challenge of global payroll: flexibility.
Contact us if you would like to discuss your specific needs or to arrange an obligation free demonstration of how ADP can accelerate your organisation’s strategic expansion.
Written by: The ADP Team