We know the web is giving a world without border and all flat world wholesomeness.
There exist success stories of companies based in third world countries that made it big in the West (Zoho comes to mind, but feel free to name your favorites).
But is that the rule or the exception? Does not having a physical presence in my target market serious impede my potential?
Does not having a physical presence in my target market serious impede my potential?It can, if your business needs any of the following:
Having said that, I know of several SaaS companies in Scandinavia who sell globally, and have a large share of their customers in the US. The "credibility" of their country of origin has never been something they've complained about. Their complaints are more practical -- less access to venture capital, hiring people is relatively expensive, limited supply of skilled software developers, that kind of stuff.
You could do a survey in your target market. If hard facts show that they care about this, and consider it negative, then setting up a shelf company to handle sales is not that hard. If on the other hand your customers don't really care, then don't complicate matters.
Off the top of my head, I think that ABBYY, JetBrains and Kaspersky Lab (all Russian companies) do pretty well. If you're selling software on the Internet, it probably doesn't matter that much where you are physically located. Marketing and the quality of your product is more important I'd say.