Globalization and technology have introduced many worldwide business opportunities. One of these is the potential to establish a global workforce – an essential component of corporate success and growth. However, expansion of business activity via offshoring must be accompanied with the correct legal entity, the establishment of which is not an easy process.

Small and medium-sized companies will encounter many challenges on their way to establishing the optimal offshore subsidiary structure as this requires not only not only a substantial investment of money, time and effort, but also an in-depth knowledge of local rules and regulations.

These days, outsourcing is a strategic initiative initiated by senior management in order to simplify the offshoring process and reduce costs.

“Outsourcing is a business practice used by companies to reduce costs or improve efficiency by shifting tasks, operations, jobs or processes to an external contracted third party for a significant period of time.” It is a growing trend in the business world that provides the benefit of entering new markets without having to invest time and money to establish a local subsidiary.  

Outsourcing is usually implemented in the fields of sales and marketing, manufacturing, programming, developing, engineering, customer service, etc. Companies may have full, partial or temporary outsourced management to deliver some operational tasks such as employment and payroll.

Outsourcing – the Optimal Solution for Companies Without a Foreign Legal Entity

Outsourcing is considered the perfect solution for companies without a foreign legal entity for the following reasons:

• Value added service – in order to establish, manage and maintain a legal entity in another country, you must acquire knowledge and be proficient in every aspect of management. When you outsource with a local third party, there is no need to worry about that country’s regulations and rules, finance, HR, etc. Outsourcing saves you time, money and aggravation.
  
  

• Cost advantages – outsourcing is profitable not only because companies do not need to invest scarce resources in establishing a foreign operation, but it also frees up time, personnel and local resources; thereby enabling companies to expand their global footprint without exhausting their limited resources.
  
  

• Flexible and agile – in an increasingly competitive global marketplace, business is transacted at lightning speed. Timely execution of business strategy is a critical element for your product or project’s success. By outsourcing, companies can begin their global activities almost immediately.
  
  
• Improved service and efficiency – outsourcing saves valuable time and resources that can be dedicated to core business activities and focusing on operational efficiencies.

When outsourcing, it is important to take into consideration the following:

• Information Security – every business invests considerable resources in order to prevent internal information leakage to external parties. When sharing important and private business information, you must make sure that the third-party contractor is 100% trustworthy.
  
  
• Cultural differences and misunderstandings – in multinational businesses, understanding the local culture is an important key to success. Communicating with different nationalities requires tolerance, acceptance of others, and a deep understanding of the local norms, religion, habits and customs. There is always a risk that innocent misunderstandings may cause operational failure. Consequently, it is advisable to send an active management representative to work alongside the third party.
   
• Productivity slowdowns – the information transference process takes time; that’s why, at least initially, companies should expect a decrease in productivity during the transition process. In addition, the specific working habits of the relevant culture should be taken into consideration when choosing the outsourcing destination.
  
  

To summarize, outsourcing is an effective and profitable solution for companies without a foreign legal entity aim to expand their activity worldwide. However, it is important to select a loyal and reliable third party.

Our personal recommendation is to choose a vendor with a presence both in your home country and the country where you intend outsourcing, so that you will be have uninterrupted access with representatives of the outsourcing party.