What is the best way to rapidly expand your workforce across Africa?

Launching and hiring employees in a new country can be both an exciting and worrying time for an organization. However, new opportunities and unfamiliar territory come with numerous challenges and hidden risks.

Additionally, the delays and upfront costs of incorporation, organizations must grapple with a number of different rules and ongoing running costs. When administrative errors occur, the fines and penalties can be significant, potentially undermining the ability to operate in that country.

Too often, companies think they have compliance covered, only to realize very late that they have missed something important, like benefits administration. Back-payments and audits often come as an unwelcome surprise, as does the HR time taken up by all these additional tasks. But all these issues and costs are far from unavoidable.

In this blog, we explore why the standard approach to cross-border expansion can be a disadvantage for many businesses. Instead, we highlight alternative ways for organizations to expand operations rapidly and compliantly across Africa.

What does it cost to expand operations into a new African country?

Any organization planning to expand its workforce into new African countries must have a reliable roadmap and business plan, and this requires a clear overview of both the financial costs, and the strategic ones.

While the fixed and ongoing financial costs can be easily enumerated, strategic costs are usually less apparent. Delays, missed opportunities, and reputational damage are all ‘hidden costs’ that can result from choosing one strategy over another. There are also added costs that come from the additional administration required. These must also be considered when you formulate your business plan.

So, what are the different ways an organization can start hiring in a new African country, and what are the cost implications of these?

3 models for cross-border growth in Africa

Many companies seek to reduce their risk exposure by relying on familiar paradigms for business growth. They measure success with a well-worn ‘progress bar’ of owned infrastructure: setting up an entity, hiring staff, renting offices, and eventually launching in a new country.

However, this approach fails to measure the most important indicators of success in a modern business context, such as speed, market fit, and agility.

For many organizations, a different approach can provide substantial benefits at a crucial phase in their journey.

The standard model: setting up an entity in each new country

Many still see this as a safe, ‘tried and tested’ method. However, most organizations are surprised by just how much time and resources are swallowed up when they manage HR across multiple countries:

• It takes a significant amount of time to become an expert in tax codes, rules, and regulations for every new country.
• Applying the right rules for different situations and countries is error-prone and takes careful attention to detail.
• Rules change frequently, so Tax and Payroll teams must constantly monitor these.
• Errors are expensive and result in lost confidence, fines, and other penalties.
• Time-to-market is much longer, resulting in a delayed launch.

To make this more concrete, organizations that choose to set up an entity and do everything themselves ‘in house’ can expect to spend up to 40% of their HR work-hours on these tasks when managing multiple countries themselves.

It is worth asking: is this the best use of your HR team, or should they be focusing on cultivating talent, company culture and organization?

The other question is one of cost. Setting up an entity in each new country will cost between $10 000 and $50 000, plus the ongoing costs of running your business. This route also takes a lot of time, and many organizations fail to count the cost of delays and lost business.

Incorporation and tax registration can take between 6 to 12 months, and until it is completed, you are unable to hire a new team, take revenue, or do anything else. For many companies, this model is too unwieldy, inefficient, and uncompetitive. They may only need to hire a small local team to get started, perhaps just 1 or 2 people, making the costs and delays of this model an unacceptable barrier to growth.

Incorporation with outsourced Payroll administration

This model involves setting up an entity, but outsourcing Payroll administration to local partners. While it does not solve the problem of a delayed time-to-market, this can resolve certain challenges.

For example, outsourcing Payroll reduces the need for your team to learn (and monitor) local legislation, and this can reduce the HR workload by 16 FTE-hours per week. A significant downside can emerge, however, when organizations select service providers on a per-country basis, because they soon end up with a large array of local providers.

When this happens, administration becomes scattered and you lose a complete overview of all staff, costs, and key HR metrics. This makes it harder to know when partners fail to meet expectations by missing filing deadlines, making errors, or offering sub-standard service.

Organizations may free themselves of focusing attention on compliance this way, but they are still responsible for non-compliance and they lose the ability to easily monitor or control this risk.

Using an Employer of Record (EOR) for all of Africa

Using an Employer of Record (EOR) is a valuable strategy that offers a high level of agility and the ability to launch in a new country overnight.

Organizations gain the greatest benefit of this strategy when they use a single EOR provider that covers all new countries, because you have a single source of truth for all your African employees. Compliance for HR and Payroll is easier to monitor, without it becoming a business focus for your organization.

As compliance is assured via a single provider, your own HR team can focus on their core expertise: talent acquisition, performance, building company culture, and taking your team to the next level.

The EOR model also gives certainty over costs, because it scales proportionally with your growing workforce instead of becoming an exponential drag on resources. This predictability makes it easier to create a business plan, and you can define a clear ‘cut-off point’ where it makes sense to take the next step and incorporate.

Pan-African expansion requires a mindset shift

The best companies in Africa own outcomes, not entities. If your goal is to start selling your services or products in a new country, then what you need is a sales team on the ground tomorrow. With the support of an EOR, you don’t need to wait a year to incorporate to make that outcome happen.

This can be a major mindset shift for organizations that are accustomed to measuring success in terms of owned infrastructure. However, you can quickly see the benefits when you measure success with outcome-driven KPIs like time-to-hire, time-to-revenue, ability to attract partners, and the ability to move into new markets quickly. In other words: speed matters more than ownership.

The other mindset shift is about compliance. Compliance should no longer be seen as a barrier to growth, but as something that supports your growth. This can only happen when you have assured compliance across all countries, from day one. When this can happen without having to worry about it, compliance becomes a strategic asset. Instead of being distracted by compliance, your organization can regain a sharper focus on its main mission.

When companies make the shift away from thinking ‘we must set up everything ourselves’, they are able to see other avenues for growth. Instead, they can take a different route that gives them speed, compliance, and focus. This way, you can hire a team immediately, test the market and adjust faster, and move forwards with confidence into new African markets.

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