With an Employer of Record (EOR), you can enter the South African market quickly, efficiently, and safely.
Technology is a wonderful thing. It has transformed the world of business and opened up new opportunities that previously would not have been there. The last decade or so has seen a surge in the number of small businesses looking to expand into new markets. Opportunities that were once only accessible to businesses of a certain size are now open to even small independent enterprises. Today, all you need is a website, and you can potentially access any market in the world. For those businesses making the move, an employer of record can be a valuable ally, empowering them to move quickly and gain swift market access without staking the future of a business.
South Africa’s exciting market
For European businesses, South Africa represents one of the most exciting market opportunities in the world. As the third largest market in Africa, it’s a lucrative proposition in its own right, but its real value lies in its strategic location at the tip of Africa. Its culture is similar to Europe, which means there’s a much better chance of products and services being successful, but it also helps pave the way to further expansion across the much larger, but difficult to access, African markets.
Plenty of recognised Western brands have sought to tap the South African market, but for every success, there have been high-profile failures. No matter how successful you are in your home market, each new territory comes with its challenges and risks.
Without knowledge of the market, you have no way of knowing if there is demand, a gap in the market, or if you can sell at a sufficient price point. Regulatory differences can also make some business models unsustainable. Some companies that rely on zero-hour contracts, for example, such as Uber, have discovered that stronger unions and public attitudes make market entry impossible. Others, such as Gap, simply struggled to find a market, forcing them to exit after only a few years.
To improve your chances of success, you can take steps such as building a local team with a full understanding of the market, conducting market research, establishing a base, running a marketing campaign, and taking time to plan your market entry. However, the long, short, and tall of this is that no matter how well you do your homework or how extensive your preparations are, any market entry comes with a high risk of failure. The question is – will the rewards of success outweigh the risks of failure?
Market entry for small businesses
For many small and medium-sized enterprises, the short answer to that will be no. Entering a new market involves costs such as setting up a foreign subsidiary, building a team, hiring support staff to build the team, and developing a marketing strategy. Costs can be high and
will inevitably be front-loaded. Any returns will only come some way down the line and are by no means guaranteed. The chances are that in the early years, the operation may well have to operate at a loss as you seek to get a foothold in the market.
For most businesses, those costs and risks make market entry prohibitively expensive and risky. However, there is a simpler and lower-cost way to enter the South African market – by using an employer of record.
Hiring with an EOR
An EOR is a third party that acts as the legal employer for all your workers in South Africa. That means it will pay their salary, manage PAYE, handle contracts, onboarding, contract termination, and provision of benefits – in other words, everything that a company has to do for its employees. Crucially, as the legal employer for these people, it will also have full legal liability, which means if anything does go wrong, it’s the EOR rather than the hiring company that will be held accountable.
The EOR approach is, first and foremost, much cheaper. You will pay the EOR a set fee per employee, which will cover wages, employer-side taxes, benefits, and a profit margin for the EOR. For each employee, therefore, there will probably be a premium of about 10 to 20% on top of the salary. However, for that, you’ll save on the costs of setting up a legal entity and employing support staff such as administrators and accountants to help manage the employment.
Better still, hiring with an EOR is much quicker. When employing directly, you have to spend time sourcing talent, recruiting, and onboarding. With an EOR, you can get started right away. As soon as the contract is signed, an EOR can potentially provide you with ready-made employees ready to work on your business. In some cases, the EOR may also be able to help with talent acquisition, giving you the chance to create a more tailored team with specialist skills suited to your company.
This approach means you can be agile and much quicker. It gives you the chance to test the waters with your product to determine if there is any appetite and to match the size of your team to the requirements.
If your offering proves to be more successful than anticipated, for example, you can scale up requirements, and if business is slower, you can also cut things back. It means you can optimise your costs to your needs and avoid wasting time and money on a larger team than needed.
Most of all, it reduces the risk of market entry. Without the need to set up a legal entity, you can reduce those upfront costs and take time to assess likely demand before you risk any money on the venture. It gives you the time to dip your toe in the market and limit your upfront exposure.
This is the real game-changing moment for small businesses. EORs level the playing field,
giving them a chance to compete on an international scale and achieve growth faster than ever before. Over time, if the expansion is successful, they may decide to move beyond an EOR and set up a foreign subsidiary to employ people directly. However, as EORs become more flexible in their offerings and adapt to customer demand, they are proving their value over the long term. An EOR is a vital partner that can enable smoother, faster and less risky entry into new markets such as South Africa.
