Why Tech Companies Need to Master Cross-border Operations - with Jacobo Ortega
Why Tech Companies Need to Master Cross-border Operations - with Jacobo Ortega
With remote work proliferating, cross-border operations are more critical than ever, especially for tech companies.
The question is, which cross-border capabilities are most vital for tech companies, and are they obtainable without risking agility or resilience?
I work with Alchemist Accelerator as a mentor, and I’m on the advisory boards of several enterprise software companies. I’ve led companies with cross-border operations in North America that have been targeted in M&A deals and occasionally join as an advisor for companies looking to expand into Latin America.
In my experience, tech companies often treat cross-border capabilities as a one-time thing, which is always a mistake. By approaching cross-border operations as temporary solutions, tech companies actively let go of the valuable new expertise they’ve gained, relying on staff augmentation services or partnering with foreign competitors.
My professional recommendation is to master cross-border operations and embrace them as a vital part of your business. Here’s why.
Huge Benefits and Lower Barrier to Entry
Even before the pandemic, the benefits of cross-border operations were clear. Tech startups in the United States have always had access to a highly-skilled, cost-competitive talent pool in Canada and Mexico that could extend the runway and offer an alternative to the H-1B visa.
Now that the remote workforce trend is booming, tech companies are extending their hiring radius to cities located a short flight away from their HQ and customer sites. Where? You’ve guessed it, Canada and Mexico.
As this trend becomes the norm, organizations are finding that barriers to cross-border expansion are a thing of the past. Today, companies can first pilot the region before incorporating a new subsidiary. There are also new options that avoid setup costs, models that protect you from local liabilities and risks, and industry-specific agencies that help you avoid the traditionally expensive and time-consuming learning curve.
So how can tech companies start to look at cross-border operations as a long-term advantage?
Where to Start
First thing’s first: identify an organizational capability or business practice that would benefit from becoming cross-border, then identify the end-to-end processes involved.
Once identified, make a list of which processes will require support from international partners that can help you grow your foreign capabilities. When selecting a firm, you should validate the following:
1. Expertise in your Industry. Cross-border operation firms specialize by industry. “Shelter model” for manufacturing, “virtual captive center” for BPO’s, and “Subsidiary as a Service” for Enterprise software are some examples. You can sign contracts in your home country with IP protection and other industry-specific benefits.
2. End-to-end coverage. Even though you can start small and maybe with only one requirement, be sure that the provider can grow with you. You shouldn’t be changing providers while you scale, as chances are you will be scaling up & down while you work on getting the partnership right.
3. Region experience. Their expertise is the sum of the years they have accumulated in the region you are targeting, so be sure that you are not partnering with a new entrant. Also, you should expect to benefit from their pre-built economy of scale.
Fortunately, certain ecosystems have a head-start, like Microsoft with its Geo Expansion Services that has local agencies to help Partners scale operations in other countries intelligently.
Which Capabilities to Prioritize?
Be sure that you are targeting the complete process of the capabilities that you select to optimize. Assigning a new role of Head of Remote, for example, will not work if the organization does not have other capabilities in place.
For a tech company in the B2B space, the top three cross-border capabilities in 2020 were:
1. HR & Recruiting: running payroll in another country doesn’t help much when you don’t know who you should recruit locally. A bad hire can have a significant impact when delivering business-critical solutions in the enterprise software space.
2. New delivery practice: time to market matters, so there are options available to avoid building a delivery practice from zero. Acqui-hiring can be used to buy a small company or a specialized team, to add it as a pre-built delivery practice (not a product). Also, a Subsidiary as a Service may offer ready-to-use delivery practices that can become part of your organization overnight.
3. Sales support: If your organization already has a temporary or permanent team in another country, you should take a hard look to check potential customers there. With digital sales and delivery, customers are now ok with a primarily remote approach, as long as you can show local presence. Tech companies have found that it is easier to expand today, as you don’t need an entire team in the new country to start selling. Don’t leave money on the table. You may have expertise that is uncommon in that country, giving you a first-mover advantage.
BENEFITS TO BE EXPECTED
In summary, you can count on that leveraging the Subsidiary as a Service model will help the organization on multiple fronts:
- Start benefiting from the foreign operation in days instead of months, with faster scaling capabilities.
- Avoiding high setup and unnecessary costs.
- Minimize greatly the risk, while still owning the operation by a USA contract.
- Because of the built-in industry local best practices from the SUBaaS, additional savings can be expected and a higher success rate of local strategies.
- No need to start big. If needed, being able to pilot the region before a full deployment. Confirm potential customers that the organization can support them in the new country if required, with the SUBaaS ready to be turned on.
Each is a great benefit, but all of them together, is what makes a SUBaaS approach the logical choice.
WHAT CAPABILITIES VENDORS NEED TO HAVE
When doing Market Research when evaluating SUBaaS vendors, several items need to be checked so they can offer end-to-end capabilities in the industry they specialize.
Local end-to-end infrastructure and resources
The as-a-Service model relies on benefiting from economies of scale, having the assets. Having a customer portal with a great interface is just that, a nice interface. Being able to run Payroll is just one feature of multiple roles a local operation has. Be careful with companies that promote how they have multiple partnerships to be able to deliver locally.
Plenty of Years in the Market
The foreign customer benefits from avoiding the learning curve, so the SUBaaS should have checked already this item on their own.
While achieving savings and minimizing risks are undoubtedly crucial factors, the ultimate determinant of the move’s success lies in effectively establishing a thriving presence in the new region. The vendor’s ability to provide expert industry-specific local know-how will play a pivotal role in accomplishing this objective.
Tech Companies Should Act Quickly and Purposefully
Recently a Harvard Business School Panel discussed why talent platforms and other solutions are still being approached on an ad-hoc basis but not as a systematic organizational capability to benefit from it truly.
I believe that one of the reasons is that companies think it’s simply a matter of adding fixed costs, which goes against the idea of maintaining a resilient and agile organization. But it doesn’t take much time to research today’s almost plug-and-play options. Other industries may take their time, but tech companies already have disrupted operations models with hybrid workforces, so the time is now.
About Jacobo Ortega
Jacobo is the Co-Founder and CEO of Everscale Group, which helps foreign companies in the enterprise software ecosystem start new operations in the nearshore region. Everscale Group is backed by the largest international operation group in the region, founded in 1986.
Prior to this, Jacobo was the CEO and part-owner of a regional system integrator, leading its growth and internationalization and securing a win for SAP Partner of the Year, among other accolades.
About the Alchemist Accelerator
Alchemist is a venture-backed initiative focused on accelerating the development of seed-stage ventures that monetize from enterprises (not consumers). The accelerator’s primary screening criteria is on teams, with primacy placed on having distinctive technical co-founders. We give companies around $36K, and run them through a structured 6-month program heavily focused on sales, customer development, and fundraising. Our backers include many of the top corporate and VC funds in the Valley — including Khosla Ventures, DFJ, Cisco, and Salesforce, among others. CB Insights has rated Alchemist the top program based on median funding rates of its grads (YC was #2), and Alchemist is perennially in the top of various Accelerator rankings. The accelerator seeds around 75 enterprise-monetizing ventures / year. Learn more about applying today.