Establishing a Cross-Border Location for your Business

Israel is globally known as a hi-tech hub, but it's too small a market for most of its home grown companies to develop, and regional expansion is not yet a viable option.  For the time being, therefore, Israeli companies remain focused on expanding their business primarily towards the United States and Europe, and in some industries also to Asia and elsewhere.

Expansion could take many forms, but in most cases should involve the establishment of a local presence at some point.  The decision, however, about where, how and when to establish a local presence is no simple task and requires in-depth analysis of factors surrounding the company, and the market.  The following are some questions that should be raised, and factors that should be considered:

First step – is it really necessary?  What purpose would a local presence serve?

The decision to establish a cross-border, local presence could significantly impact a company and therefore it should begin by asking some questions: Is there a need for local technical support, would this be faster or more efficient than remote support, is it a customer requirement, or would it be more cost-effective?  Is there a need for local sales activities, and would this address a time zone challenge, a cultural gap or a market perception?  Is there a logistical need that might streamline or expedite product delivery, or improve product quality? 

In some situations, a young company really has no choice – locally-based senior management, investors, partners or a significant customer might require a local presence irrespective of other factors.  Assuming this is not the case:

• Market Factors: Does it make sense to be close to a key customer or to a cluster of customers? Would this affect logistical costs or efficiencies, or deliver a message of dedication by the company?  Is there a key competitor or cluster of competitors in the area?
• Reputation, Brand Image: Some regions are associated with specific industries and others are just highly regarded for one reason or another.
• Cost: There are a variety of costs associated with a location including different forms of taxation at various levels of government, real estate, logistics, manufacturing, travel, employment salaries and benefits, and more.
• Incentives: Some entities provide incentives in order to attract business. These might include grants, special term loans, tax reduction, and more.  Incentives might come from country or state, regional or local level governments, or from private or non-profit entities.
• Human Capital: Some locations might be particularly blessed with a relevant labor pool either because of the type, level or quality of the education system or because of industry characteristics. The ability to attract relevant labor might also be worth considering and would likely depend on a whole set of factors such as community characteristics, education system, cost of living, market attributes, and more.
• Logistics: Depending on the type of local entity established, it might be important to be located near a major airport with significant geographic reach, near a sea port, or in a land transportation hub.
• Time Zone: The difference in time zones might prove important if the head office must frequently communicate with the local entity, or if the local entity's communication with vendors or customers might be affected.

A decision (by an Israeli company, or by any other) to establish a cross-border, local presence, or how and where to do so, could have significant long-term impact on the company's survivability, its competitiveness and growth.  It should not be taken lightly, and should be holistic in nature, accounting for the different factors, ranked by level of importance.

Ilan Friedman
ilan@ncompas.net

Originally posted on LinkedIn on May 19. 2015