Case Study : A UK technology company launches in Germany
Press Release - 29 Sep 2003
CASE STUDY : A UK TECHNOLOGY COMPANY LAUNCHES IN GERMANY
A UK Technology company wishes to launch its software solutions in International markets - initially in Germany.
In order to do the job properly, the company will hire a VP Business Development Germany. The selected candidate will be based exclusively in Germany and for the first 6 months, all German running costs (accommodation, office, travelling) will be reimbursed through his personal/general expenses. At the end of this trial period a decision will be taken as to whether to establish a formal German presence with corporate entity and local office.
The gross annual salary suggested for this position is £70K + £30K of bonus based on results.
Until such time as the German subsidiary is created, the manager will be paid in UK and subject to UK labour laws.
Prior to hiring this manager, the company's financial situation was :
- Revenue last 12 months: £1,3 M
- Monthly burn rate: £70 K
- Free cash flow: £1,1 M
- Potential German revenues (year 1): £550 K
Objective : to achieve breakeven in 9/12 months before the next round of funding in Q2 2004.
Option 1: Traditional Recruitment solution: Manager is hired and then starts working for the company.
Direct financial costs for the first 6 months (excluding bonus) : £90 K
- Recruitment company : £18 K (25 % of annual remuneration)
- Salary : £35 K (excluding bonus) plus social charges : £7 K (UK tax)
- Legal and administrative costs : £5 K
- Relocation costs to Germany : £25 K (Accomodation, office, travelling)
Indirect financial costs for the first 6 months(**) :
- 3 to 4 months of searching for the right candidate, direct contacts, interviews, contract negotiations: no revenues generated
- Cost of replacing the candidate during the mission : 0 (with most recruitment companies or head-hunters)
- 1 month notice during the trial period in the event that the recruitment was not successful: £10 K
- Beyond the initial 6 months, there are severance costs to consider in the event of a redundancy
(**) We consider that during the first 6 months of the contract (extendable trial period) no other cost such as Golden Parachute or outplacement fees are applicable.
Option 2: CEO Worldwide's solution: Engage an interim manager through a service contract for an initial period of 6 months
... with an option to either extend the contract for a further 3 months or to hire the interim manager at the end of the contract period.
Direct financial costs for the first 6 months (excluding bonus) : £52 K
- Recruitment costs : £1500
- Salary and social charges : £50 K (excluding bonus) (***)
- Legal and administrative charges : 0
- Relocation costs to Germany (selected candidates will be based in UK and will be able to use a home office for the first 6 months) : 0
(***) The candidate selected for this mission was invoiced at £8,4K/month excluding tax - or £50k for the entire 6 month mission (excluding bonus).CEO Worldwide's monthly invoices range from £7k to £14k depending on the profile of the candidate and the location of the mission. The CEO Worldwide client contract is a service contract and does not accrue social charges for the client.
Indirect financial costs for the first 6 months :
- 3 weeks spent between signing mandate and the beginning of the mission in Germany : Potential revenues generated more rapidly with consequential positive impact on monthly Burn rate
- Cost of replacing the candidate during the mission : 0
- Cost of renewing the CEO Worldwide service contract after 6 months : 0
- Severance costs at the end of the mission if a decision is made to end the German project : 0
Manager's Profile: VP Business Development UK
Annual Gross Salary (UK): £70 K + £30 K (Bonus)
UK company with no subsidiary or infrastructure in Germany
|1st solution :|
Executive Search company
|2nd solution :|
|Reactivity - time taken before manager is operational:||3 to 4 months||2 to 3 weeks, under a service contract in which the client dictates duration and location|
|Direct Financial costs for the first 6 months (excluding bonus):||£90 K||£52 K|
(42 % less than the conventional solution) if the candidate is hired at the end of the 6 month mission, the costs would increase by a further £14 K making a total of £66 K (26% less than the conventional solution)
|Length of trial period:||6 months in UK corresponding to the classic trial period on an open ended contract||Totally flexible with the possibility of extending the service contract by a further 3 months beyond the initial period|
|Severance costs:||up to £10 K (1 month notice during the trial period) with significantly higher redundancy costs once the trial period is over||0|
(*) The assumptions used in this case study were taken from reports and studies by the following organizations in the relevant countries: L'Expansion (salary indices), Liaisons Sociales April 2003 (quotations from Korn Ferry, Deloitte and Touche, Iri- Secodip, Russell Reynolds, Leroy Associates, Entreprise et Personnel, Coudert), Terms and conditions of sale CEO Worldwide.
CEO Worldwide (www.ceo-worldwide.com)
CEO Worldwide offers an innovative executive recruitment service to the Technology and Bio-Tech sectors. The Managers qualified by CEO Worldwide are all talented High-Tech or Bio-Tech entrepreneurs in Europe, Asia or in the US. CEO Worldwide provides in less than 3 weeks on an interim basis, the necessary general management resources (CEO, COO, CFO, VP Business Development, ...) to successfully drive or co-drive the business beside the CEO. An extranet access allows companies to find the profile they need.