Magazine Article | March 12, 2011

Virtual Offices Cost-Effective When Entering New Markets

Source: Life Science Leader

By Guillermo Roman

With economic performance variable in mature markets, the world’s emerging economies are increasingly becoming the engine of corporate growth. It’s no surprise that businesses are seeking opportunities in new markets.

The worldwide recession forced many global businesses to stall their expansion for a while, but signs of renewed movement of people illustrate that the rate of globalization is once again rising: Almost 2/5 (39%) of companies plan to increase their expatriate staff over the next five years, according to research from the Economist Intelligence Unit.

There is also evidence that businesses plan to increase head count over the shorter term as well. The latest edition of the bi-annual Regus Business Tracker survey showed that 40% of businesses globally plan to take on more staff in 2011. While the United States overall came in a bit under the global average at 36%, individual cities show even greater optimism, with Boston (52%), Atlanta (42%), and Washington, D.C. (40%) all intending to increase head count in 2011 at or above this global level. All of these findings are solid indicators that the mindset of business has shifted back toward investment in growth and expansion.

What Regus has also seen, however, is that work-related stress among executives, especially at small or midsize businesses, has risen both globally (46%) and within the United States (54%). Any strategy that can help mitigate stress is therefore advisable, if not critical to the success of an enterprise.

The Hurdles To Expansion
In the past, cultural, administrative, and logistical challenges have made international expansion a strategy that was mainly pursued by large corporations. After all, every market has its own rules and practices. Neighboring countries — even when they all belong to an organization like the EU or ASEAN (Association of Southeast Asian Nations) — may have different rules on aspects such as corporate taxation and registration or different HR practices and consumer tastes. Nowadays, however, the rise of mobile technology, Internet access, and cross-border trade has led companies, both large and small, to explore opportunities in international markets.

For any organization, moving into a new country requires a more flexible approach to doing business. Each new market must be approached individually, and each new market entry brings uncertainty. It also requires additional investment — for travel, legal, and registration costs; for hiring staff and office space; and for marketing. The biggest problem posed by this investment is that much of this expense must be incurred before the new market starts to deliver income; it must be funded from capital, rather than new cash flow. For most businesses, it is therefore imperative, or at least desirable, to keep these costs as low as possible.

Counting The Costs
Many of the costs of entering a new market are unavoidable. Securing business licenses and regulatory or governmental costs may be mandatory, while skimping on staff or marketing costs won’t help grow your business. One area where there is an opportunity for reducing the up-front expense, however, is property. When entering a new international market, companies tend to go in one of two directions. Either they overinvest by leasing a physical office from the outset, or they underinvest by using ad hoc arrangements like rooms and facilities at hotels to meet clients and run their businesses. The first route risks wasting capital, while the second risks alienating potential customers, suppliers, and/or partners.

In addition to being an up-front capital requirement, fixed property costs can act as dead weight on a business, restricting growth if things go well or forcing wasted money on unwanted workspace if things don’t go according to plan. It is therefore highly advisable for a company to maintain the most flexible workplace arrangement possible — one that enables space to be added or reduced as and when appropriate.

Beyond Bricks And Mortar
Indeed, some businesses may not need any physical workspace at all. For example, if you are a company exporting products or services to a new market, you will definitely need certain elements:

  • a legal presence and business address, preferably one that will impress potential clients
  • a way for people to contact your business — probably a local telephone number that is answered by someone fluent in the language of your callers
  • somewhere to meet contacts
  • access to facilities with high-speed Internet, photocopying and printing, and videoconferencing.

But, you do not necessarily need to rent an office to arrange those elements. What many businesses overlook is another possibility: using a virtual office. Rather than lease physical space, they can pay a (much lower) set price each month for a prestigious office address; a dedicated business phone number, which is answered by a local receptionist; and post-and-call management. When they need meeting rooms or office facilities, they can reserve them at the same office address for an hour, a day, or more. Take for example, CAPCO Health Group, a provider of healthcare services in the North American medical insurance community. Toronto-based CAPCO has been using virtual offices since 2000 to pursue new business opportunities.

“For as little as a few hundred dollars per month, virtual offices allow us to move into additional markets such as Mexico and Central America,” said Ernie Gershon, president and COO of CAPCO. “The services, along with the office and meeting space we use, vary depending on the market and our ever-changing needs. Establishing a presence with virtual offices allows us to avoid costly up-front capital expenditures and to minimize our risk. If a market is not as successful as we had initially planned, our investment and risk exposure are minimal. The local phone number, the recognizable business address, and in-country phone answering services that virtual offices provide also are very important to our expansion into these new markets,” added Gershon.

A virtual office allows a company to project a presence in a new market without the expense of setting up a physical presence, while enabling access to physical space or fully equipped offices and meeting rooms if needed. Some businesses use virtual offices as a permanent solution; others use them as a starting point, upgrading to a fully equipped full-time office at the same address once they have tested the new market and are ready to expand their presence and workforce.

Decisions about real estate aren’t the only challenge facing companies moving abroad, but they are certainly important. Get them wrong, and you risk your new revenues being eaten up by an inflexible lease on the wrong property. A virtual office won’t supply all the answers to how to succeed in a new market, but it will certainly make it easier.

About The Author
Guillermo Rotman is president of The Regus Group Americas. He oversees all aspects of Regus in the United States, Canada, and Latin America. He joined Regus in 2001 as VP of Latin America. Prior to Regus, Rotman held senior management positions with international retail giants such as Blockbuster and PepsiCo/Pizza Hut.