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Maximizing Efficiency: The Pros and Cons of Divestment and Employer of Reco

In a rapidly changing market where competition is at a fever pitch, businesses seek game-changing ideas that can give them an edge. One such insight is the powerful mix of divestment and Employer of Record (EOR) services for global companies.

This piece will explore how these two strategies work together, highlighting their strengths and discussing potential challenges. Discover how the combination of divestment and EOR services can elevate businesses, enabling them to adapt and thrive.

Understanding Divestment

Divestiture, or divestment, is when a company sells off its assets, subsidiaries, or business units. Different types of divestments include:

• Spin-Offs: The company sells a part to make a new separate company. People who own the main company’s shares get shares in the new one.

• Sell-Offs: The primary company trades a business part with another company that wants it.

• Split-Ups: Like a spin-off, they make a new company. Shareholders can keep their shares in the leading company or move them to the new one.

• Carve-Out: The principal company sells some parts through an IPO. This makes new owners, but the main company still keeps some ownership.

• Liquidation: After a company goes bankrupt, it sells its parts in pieces.

Benefits of Divestment

• Cash Generation: Divestment can quickly provide a business with substantial cash by selling off assets or business units.

• Focus on Core Competencies: It allows a business to concentrate on its core strengths and strategic areas, improving overall efficiency.

• Reduced Risk: A company can reduce its risk and potential losses by shedding underperforming assets.

• Flexibility and Agility: A leaner business structure resulting from divestment can make the company more adaptable to changing market conditions.

• Debt Reduction: Divestment proceeds can pay off debts, improving the company’s financial health and creditworthiness.

• Attractiveness to Investors: A streamlined business portfolio can make the company more attractive to potential investors.

What Is an Employer of Record?

An Employer of Record (EOR) supports companies in expanding globally by allowing them to employ foreign workers within a country without needing to establish a legal entity. In practice, the EOR acts as the official employer for a company’s international workforce. An EOR manages visas, work permits, and tax processes related to immigration, as well as many other non-immigration-related services.

Divestment and EOR Services: A Unique Synergy

At first glance, a corporate divestment and an EOR appear unrelated, but there’s a point of overlap where a company can experience benefits from both.

The collaboration develops when divesting subsidiaries or business units involves foreign employees. EORs become invaluable as they can seamlessly manage these employees, ensuring compliance, proper payroll, legal documentation, and tax matters, even after divestment.

This allows businesses to offload non-core assets while ensuring continued efficient and compliant management of its workforce. Divestment optimizes the business structure, while EOR services optimize the international workforce, collectively contributing to a successful global expansion strategy.

Key Strategic Advantages

Let’s look at the key strategic advantages of divestiture and EORs.

•Adaptability

Business strategies and directions can change. By divesting non-core entities and having the flexibility that an EOR provides, businesses can adapt more quickly to changing market conditions, strategies, or business models.

• Cost Efficiency

Maintaining multiple entities means duplicated administrative functions, higher overhead costs, and increased compliance and legal fees. By divesting certain entities and using an EOR’s services, companies can have a centralized administration, leading to significant cost savings.

• Enhanced Employee Experience

With the administrative burden shifted to the EOR, businesses can focus on improving the employee experience, fostering a positive work environment, and boosting employee retention rates.

• Ease of Exit

Closing a legal entity can be complicated and expensive if a company decides to exit a particular market. With an EOR, this process is simple. Since the EOR is the legal employer, businesses can scale down or exit a market with fewer complications.

Challenges to Avoid

While partnering with an EOR can provide benefits for a company during a divesture, there are risks to be aware of. For example, not all EORs are the same. It’s crucial to understand if the Employer of Record meets the company-specific requirements.

Another factor to consider is letting a third party take control of an organization’s HR and day-to-day employee relations. Management can feel disconnected from their employees as a result of a lack of interaction.

Finally, the overall cost of partnering with an EOR may be disproportionate to the services a company requires during divesture. Again, companies need to do their homework in regard to what each EOR provides and charges.

By thoroughly researching these factors, companies can avoid common issues that can arise from partnering with an unsuitable EOR.

Gain a Competitive Edge

The usual business practices fall short in today’s market. Combining divestment and EOR services is one way to shake things up in your pursuit of success. It’s not just a trend — it’s a way for businesses to change and grow. While companies face challenges in the global market, using divestment to focus and EOR services to work smoothly can make an impactful difference.

The Newsweek Expert Forum is an invitation-only network of influential leaders, experts, executives, and entrepreneurs who share their insights with our audience.What’s this?Content labeled as the Expert Forum is produced and managed by Newsweek Expert Forum, a fee based, invitation only membership community. The opinions expressed in this content do not necessarily reflect the opinion of Newsweek or the Newsweek Expert Forum.

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