When a company aims to expand internationally, it faces a critical decision: should it opt for creating a subsidiary or choose international Employer of Record (EOR) services? Both options offer distinct advantages and disadvantages, and the best choice depends on various factors. In this article, we will explore these two approaches to help you determine the best solution for your business.
1. What are international EOR Services?
International EOR services provide a flexible solution that allows a company to test a foreign market without establishing a local legal entity. The company partners with an EOR provider that recruits and manages employees on the ground.
Advantages of international EOR Services:
- Flexibility: No need to create a legal entity.
- Simplified management: The EOR handles all administrative tasks (employment contracts, salaries, etc.).
- Quick adaptability: Ideal for a swift entry into a foreign market.
Disadvantages:
- Less control: The company has less direct control over its employees and local operations.
- Additional costs: EOR fees can sometimes be higher than the costs associated with a subsidiary in the long term.
2. What is Subsidiary creation?
Creating a subsidiary involves establishing an independent legal entity in a foreign country, which can be either a wholly-owned company or partially shared with local partners.
Advantages of creating a subsidiary:
- Total control: The company retains full control over its operations, employees, and local assets.
- Brand image: A subsidiary often enhances the company's credibility and visibility in the local market.
- Tax optimization: In some countries, a subsidiary may benefit from tax reductions or other incentives.
Disadvantages:
- Administrative complexity: Setting up a subsidiary involves heavy administrative formalities and setup costs (share capital, legal obligations, etc.).
- Long-Term commitment: A subsidiary is a long-term investment, which can be risky if the market does not meet expectations.
3. What is the Best Choice for Your Company?
The choice between international EOR services and creating a subsidiary depends on several key factors, such as:
- Company size: For a small or medium-sized enterprise, EOR services are often the ideal solution for a first market test.
- Level of investment: If you anticipate a significant long-term commitment, creating a subsidiary may offer more advantages.
- Financial risks: EOR services help limit initial risks, while a subsidiary requires a higher financial commitment.
Depending on your objectives and situation, either international EOR services or creating a subsidiary could be suitable for your development strategy. If you are still unsure about the best option, feel free to contact Expandys, a specialist in international business support, for personalized advice.
Looking to hire an employee through EOR services or set up a subsidiary? We can assist you.