The Rise of “Multinational HR”: The Challenges and Essentials for Success
Over the past decade, and with accelerated pace since the Covid pandemic, the term “multinational company” has evolved. Gone are the days when only corporate giants fit this mould. Today, small and medium-sized enterprises (SMEs) are joining the ranks of multinational companies. In this blog, I explain the factors behind this phenomena, the implications for HR, and identify 3 essentials for success.
The Traditional Meaning of a Multinational
The concept of the multinational company emerged during the late 19th and early 20th centuries, driven primarily by the industrial boom and the expansion of global trade routes. Traditionally, these corporations were characterized by extensive operations and large workforces spread across multiple countries, typically managed from central headquarters. Indeed, Human Resources Management emerged in the 20th century to address workforce management complexities, as multinational corporations expanded globally, requiring standardized practices to manage diverse, cross-border teams effectively.
The New, Broader Meaning of a Multinational
In recent years, technological advancements and shifting labour markets have led to a new phenomena of SMEs having employees dispersed across many countries. The relatively small size of these companies in terms of their workforces, revenues, and profiles is new (most of us have never heard of these companies). Another significant difference is that whilst their employees may be based in many countries, this may not be the case for their operations or customers. In essence, the human resources function may be more more multi-national than the company itself. I call this “Multinational HR”.
This phenomenon is one of the reasons why the Employer of Record (EoR) industry has grown so rapidly. The EoR model is a service where a third-party organisation legally employs workers on behalf of a client company, handling payroll, taxes, and compliance. It is forecast to more than double in size globally from 2022 to 2028 to USD $3.4 billion as businesses increasingly seek flexible, global workforce solutions.
The drivers of Multinational HR
There are a number of drivers for SMEs increasingly hiring internationally, whereas they previously hired only where they had offices. Interestingly, the following drivers are all interconnected:
- It is often hard to find the talent needed in local markets so companies have to look further afield;
- Many jobs can be done remotely now due to advances in technology, collaboration tools, and cultural acceptance;
- Relocating employees is expensive and involves adaptation risks (to the job, company and new country);
- Many people do not want to relocate for a new job because they are in a dual income household, meaning their partner will have to find a job;
- Tightening immigration rules may pose a mobility barrier, even for skilled candidates; and
- More stringent worker classification laws making it difficult and risky to engage contractors long term and full-time.
The challenges of Multinational HR
Managing a multi-country workforce involves many complexities, for example:
- Diverse employment laws and regulations that must be complied with;
- Different operational requirements, such as payroll, statutory deductions, internal reporting, and regulatory reporting;
- Managing processes, documents and communications with government agencies in different languages;
- Cross-border data protection considerations; and
- Managing cultural differences, fostering an organisational identity and teamwork.
Traditional multinationals typically have the resources – both locally and in headquarters – to manage these challenges. This is not the case for SMEs. For example, there may be only 1 or 2 people in an HR department that is managing a workforce of 100 employees in 7 or 8 countries. These HR teams often struggle to convince senior management that it is much more time consuming to manage an internationally dispersed workforce than employees in one or two countries. Even when senior management understand, they may be reluctant to give the HR team the resources (budget) they need to manage the complexity and ensure compliance with local requirements (and I have seen on numerous oocassions that, in the long run, non-compliance is more expensive than doing things properly).
Effective Multinational HR
The EoR model can be very useful short term to help a company rapidly employ talent in a new country. However, for some companies, it may not be sustainable longer term due to the costs, complexity and employment law, e.g., rules about temporary versus permanent employment. As such, small HR teams may find themselves facing the challenge of managing employees in several or many countries. Of course, for other companies the EoR approach may be a good long-term solution.
In my experience, for multinational HR teams to be effective, efficient, and compliant, they need these 3 essentials:
1. HR processes and systems that are both international and inclusive of different national requirements. PeopleWeek’s technology is designed to be one country or multi-country without the need for customised developments.
2. A reliable international payroll provider to ensure that HR’s most important responsibility – paying their employees on time and accurately – is seamless, including payroll accounting, statutory remittences, and audit compliance. PeopleWeek has built international payroll solutions and a partnership with Phileas80 B.V. to address this critical topic. Some organisations attempt to manage multi-country payroll in-house or using a local vendor in each country. I have never seen this be both efficient and compliant.
3. The bandwidth to work on organisational culture, employee engagement and performance initiatives. If 1 and 2 are in place, 3 should be achievable.
Here to Stay
Multinational HR is a reality and is here to stay. Companies that embrace this business model, which has many benefits, must provide HR with the tools they need to make it a success. The return on investment will be net positive. Reach out to PeopleWeek if you would like to learn more about how we can help you navigate the complexities of managing an international workforce so you are confident, effective, and compliant.
