An Employer of Record can help companies of all sizes expand into the lucrative market of South Africa.
South Africa is proving to be a highly lucrative market. Western companies of all sizes are moving forward with expansion plans drawn by their strategic location, growing economy, welcoming government, and familiar consumer culture. Working with an Employer of Record (EOR) provides an affordable, safe, and fast way to manage expansions legally. These companies are driving down the costs and risks of expansion and opening the door to smaller companies that would not previously have seen expansion as an opportunity. If you’re one of those companies considering making a move, here’s how to choose the best EOR to support your expansion.
South Africa’s market opportunity
South Africa has often been one of the more underappreciated markets. A history of political and economic upheaval has discouraged many companies from making a move. Quietly, though, over the last ten years, things have changed. South Africa’s government is highly growth-oriented and has opened the door to foreign investment. It has invested heavily in infrastructure and education as it seeks to transform South Africa into a thriving, 21st-century economy.
The results of these efforts can be seen in the data. After some struggles, post-pandemic South Africa’s economy is on the move once again. As of the beginning of 2025, South Africa had the third-largest economy in Africa, behind only Egypt and Nigeria. It remains a major power on the continent with a particularly thriving financial and retail sector. It has a diverse population with a growing middle class. Disposable income is on the rise, and consumers are eager to embrace products and services from overseas. However, it’s the country’s strategic location and culture that make it a prime target for ambitious companies.
South Africa is often regarded as the gateway to Africa. Its unique history means it creates a blend of European and African cultures. English is the main language in the country, and the profile of the market is similar in many ways to Western economies. Major brands such as Netflix, Starbucks, and Amazon have all made their way into the market. Cultural norms are similar, and consumers want many of the same things. At the same time, though, the market has plenty of cultural and economic connections with the rest of Africa.
It is part of the African Continental Free Trade Area, giving companies in South Africa preferential access to more than 50 other countries. Its market has plenty of similarities, giving foreign companies a chance to adapt their business to South Africa and, in doing so, pave the way for successful further expansion across the rest of the country.
The risks of expansion
Expanding into South Africa, of course, does not come without its risks. Even some of the
largest companies in the world have struggled to translate success in their home markets to South Africa. River Island lasted just three years before exiting the market. HSBC and BNP Paribas both withdrew from South Africa in 2024 as they struggled to find sufficient growth. PR group Bain & Co., meanwhile, had to shut down after becoming embroiled in a political and legal scandal.
Common causes of these failures include a failure to understand the market, a lack of demand, or legal compliance problems with South African laws. They all go to show that no matter how successful your company is, there is no way to guarantee success. Every new market comes with its uncertainties, and the less you know about a market, the greater those uncertainties will be.
Before you make a move, you need to know key information such as:
•What competitors are out there? If the market is already well served, you’ll struggle to make much of an impact. Likewise, if there are no competitors, you’ll have to ask yourself if you’ve spotted something nobody else has or if there’s just not much of a market there.
•Is there demand for your product? Market research is critical to understand if there is demand for your market. One of the biggest problems that streaming services such as Netflix and Britbox had when opening in South Africa was a lack of locally relevant content.
•Are there consumers out there with money to buy your product? A strong and growing economy with a thriving consumer class is critical. You’ll need to understand the financial capacity of your intended consumers to find out if they can afford to buy your product and what price they will be willing to pay.
•What local regulations are in place? Differences in local laws can cause immense problems for new brands. For example, ride-sharing companies that rely on lax labour laws, such as Uber, have struggled in Africa due to stronger unions and worker protections. Consumers have also been less than welcoming to companies that have what they consider to be unethical business models.
Building a local team with in-depth knowledge of the South African market is critical, but for many companies, this is where the biggest block comes. Hiring employees in South Africa means having a legal entity within the country to handle all the administrative and legal requirements of the employment process. You’ll need a support staff of HR professionals, administrators, and accountants who understand the local regulations and can ensure compliance.
Even then, a new entrant coming into a market can struggle to understand the nuances of local regulations, leaving it vulnerable to compliance issues.
Most of all, the cost of setting up a subsidiary makes expansion prohibitively expensive for
many smaller companies. Doing so comes with considerable costs, all of which will be front-loaded onto your company long before you receive any revenue from your new expansion. It will also take time, which may make it harder to respond to new market opportunities.
Working with an Employer of Record (EOR) is a way to overcome those hurdles. An EOR serves as the legal employer for all your South African-based staff and will handle legal compliance issues such as PAYE, provision of employee benefits, and much more. As the legal employer, the EOR will also have legal responsibility for your workers, which protects you from any unintentional compliance challenges.
It’s a low-cost and much faster way of expanding into South Africa and allows you to scale up your human resources as and when you need. You’ll have to pay the employment costs of each individual plus the fees of the EOR, but you will not have to shoulder the cost of hiring a full administrative support team or setting up a new foreign subsidiary.
The biggest drawback for an EOR is the question of flexibility and control. If you’re hiring through a third party, you may not always have full control over recruitment. Increasingly, though, EORs are responding to a desire for more personalised solutions by offering support with the hiring and onboarding process. They can help you with your talent search, interview process, and onboarding, giving you the chance to build a flexible, multifaceted team with the skills you need to manage a successful market expansion.
