An employer of record offers a fast, convenient, and affordable way to expand into South Africa, and SMEs are quick to take advantage.
Despite an uncertain economic environment, SMEs are more ambitious than ever, with the vast majority of companies saying they plan to expand overseas. One of the most popular targets is South Africa. It’s the third-largest economy in Africa and is often seen as a gateway to the African continent. With a market that offers an attractive blend of European and African cultural influences, it represents a good first step for any overseas adventure.
Expanding SMEs
According to recent data, more SMEs are looking to expand than ever before. A 2024 Kreston Global survey across 14 countries among entrepreneurs with revenue of up to £300million found that 96% felt global expansion had benefited their business via increased sales and profitability. Remarkably, 87% expected more businesses to expand overseas over the coming 12 months, with only 1% having no plans at all to do so. This trend is driven by a number of factors, including a desire to grow the business, increase revenue, and diversify risks by building revenue in new markets.
However, a key factor has been the lowering of traditional barriers to expansion. Digital technology, such as the rise of e-commerce, makes it possible for small businesses to sell anywhere in the world with a comparatively small investment. Increasing regulatory alignment across the world also reduces the compliance risks of operating in small businesses. However, a much underappreciated development has been the growing support on offer from third-party support companies such as employers of record.
EORs remove one of the key barriers that hindered expansion for SMEs. In order to successfully move into a new market, companies typically need a good quality locally based team in place. These locally based professionals can provide expert insights into market conditions and consumer profiles. They can help you assess levels of demand, set an optimal price point, and spot gaps in the market. Without this local support, businesses will be flying blind, and as some of the biggest brands in the world have discovered to their cost, no matter how successful you are at home, there’s no guaranteeing success in a new market.
For example, ride-sharing apps such as Uber have struggled in Africa due to stronger unions and employee protections. Netflix also struggled in South Africa due to a lack of locally appropriate content. Other popular brands have discovered that, for all the cultural similarities of South Africa, subtle differences in consumer profiles and spending patterns mean there simply isn’t the same demand for their products that they found back home.
Reducing the risk of expansion
All of this means that any market expansion represents a gamble – one in which all the costs are front-loaded with uncertain returns only coming further down the line. In order to expand successfully, businesses need substantial resources to put all the groundwork in place and cover the gap between initial investment and the generation of profits. For many SME’s expanding into a new market is a risk they can not afford.
The key to unlocking new opportunities – and levelling the playing field – comes from employers of record (EORs). These third-party support organisations take on legal liability and assume administrative responsibility for all your South African-based workers. The EOR serves as the legal employer for these workers, which means it is responsible for managing PAYE, filing reports with the
tax authorities, and providing all employee-related benefits and entitlements.
For an SME looking to expand into South Africa, EORs provide the following benefits:
•Lower costs: With the EOR being the legal employer, you won’t have to set up a legal entity in the country with all the costs, logistics, and risks that come with it. The EOR pays the wages directly, while you pay a service fee. All costs will be passed on to you as a client, together with a service fee. There is, therefore, a premium to pay on each employee. However, you will save money on setting up a subsidiary and hiring various support staff, such as accountants or HR professionals.
•Agility: Working through an EOR is a fast way to hire staff. EORs will often have staff in place who can be assigned to your business. That means as soon as you sign a contract, you can have a screened professional ready to get to work. This is a fast and effective way to access skills, such as marketing professionals or customer service agents, to help grow your business in its new market. Some EORs can also provide support in hiring, giving you more of a say in the people you recruit. At the other end of the scale, you can easily scale back employees as and when you need. For example, if your recruitment needs turn out to be lower than expected, you can quickly reduce your headcount without having to go through redundancy processes. If business picks up, you can bring those people back on board as soon as you need them. This means you only pay for as much support as you need at any one time.
•Risk mitigation: EORs have full legal liability for your employees, which shields you from any compliance risks. South Africa has its own set of employment laws and regulatory expectations. As a foreign company, it’s easy to make mistakes that can put you in line for expensive penalties. EORs provide expert assistance to ensure you stay on the right side of the law, as well as full legal protection in case anything does go wrong.
Overall, therefore and EOR reduces the barrier to market entry. In those early days when the outcome of an expansion is at its most uncertain, EORs help you to optimise your costs and minimise your risk exposure. It allows you to move quickly to counter any market movements and scale up your team quickly to take advantage of any unexpected business opportunities. In the short term, at least EORs as seen as a great way to ease entry into the South African market.
However, EORs are developing their services and responding to demand for more personalised and highly involved services. They can provide more tailored support and a range of tiered services to help you get the most from your team. This market is constantly evolving, which means EORs can be long-term partners to support a successful long-term expansion into South Africa. And once you’ve secured success here, who knows what further opportunities you might find across the rest of the continent.
