The cross-border e-commerce segment is growing by leaps and bounds around the world. In 2017, we saw how major marketplaces closed business while putting their chips on their expansion beyond borders.
Amazon, for example, purchased two giants in the Middle East, o Souq.com. Another e-commerce titan, Chinese group Alibaba, also continues to invest in strengthening its well-known brand at global level, while competing neck-and-neck with Amazon in the western world.
In Brazil, practically 25% of the population engages in cross-border purchases, which represents 48% of the country’s entire online consumers. This also positions the country ahead of the other markets of Latin America in this respect, not forgetting its undisputed leadership, with 42% of the entire revenue from B2C e-commerce in Latin America.
In spite of its smaller share in the region, Mexico is one of the countries that businessmen should be watching if they are planning to sell beyond their borders, primarily when one takes into account the fact that the e-commerce market of that country is growing at over 21% in annual terms, practically the double of the global average.
According to data from Accenture, by 2020 more than two billion online consumers will spend 3.4 trillion dollars on e-commerce. Although domestic purchases still account for the lion’s share of B2C e-commerce transactions, cross-border business with its annual growth rate of almost 30% is essential for leveraging the online commerce market.
Bearing in mind the magnitude that cross-border e-commerce represents, it is worth going over the challenges that a cross-border operation can present for businesses looking to start selling in other markets.
#Challenges for selling across borders
There are also lots of problems to be overcome in this type of operation. For example, unexpected costs arising from dispatch account for the main source of shopping cart abandonment, reaching 28%. Non-localized sites, descriptions without a local touch and prices in different currencies can all have an impact. The challenges can basically be grouped into two fronts: external and internal.
External challenges
1. Regulatory environment
Inconsistencies exist in the regulatory environment from one country to another and, in some cases, from one state/province to another. Even in the most developed markets such as the United States, there is a debate about the applicability of state tariffs for e-commerce transactions, even when the store is located in a different state.
Likewise, there may be legal restrictions on sales of certain products or services. Merchants also need to be aware of any legal obligations they may have in the country they are selling into. Depending on the market where the sale is being made, it may be, for example, that the merchant has to adapt his exchange and return policies to comply with the prevailing consumer protection code.
2. Payment methods and processing
Currency rates applied to credit card payments in international e-commerce can have a significant impact on the final purchase price. In Brazil, for example, the exchange rate spread can be as high as 7%. Add to this the financial transactions tax of 6.38%, and the Brazilian consumer is paying almost 14% more for the product just for using their credit card to purchase on an international site.
In addition, one has to take into account the payment methods preferred by users. In Brazil, installment payments and bank payment slips are fundamental for reaching a larger portion of the population. In Mexico and India, on the other hand, cash on delivery is still very relevant, representing 47% and 50%, respectively.
That is why, to have a successful cross-border operation it is essential to accept the preferred payment method of the consumer in the country. On this point, working closely with local payment processers, rather than an international gateway that doesn’t offer the native options of each market, can be the best solution.
To facilitate integration and management at the back-end, many processors enter into partnerships with international platforms, and in this way the merchants can have everything on a single platform. If you are expanding into other markets, be sure to investigate these options.
3. Logistics and reverse logistics
Merchants selling physical products will have to factor in the challenges of logistics and reverse logistics. The costs and timeframes of logistics in cross-border e-commerce can have an adverse impact on the operation in certain countries. If we add to this the fact of selling to countries with poor infrastructure, like emerging countries, the situation can be even worse. In a survey by Payvision, 43% of interviewees mentioned this point as critical in cross-border expansion.
Moreover, given the attendant costs, customs processes and the necessary documentation, in many cases it is likely to be impossible to offer reverse logistics in the case of cross-border sales.
As in the previous point, local partnerships play an important role in overcoming logistic challenges. For example, by working with a partner in the correspondent country, merchants can import on a large scale, reducing importation costs for their buyers and speeding up the delivery and return process in the country, thanks to a local distribution center.
4. Importation duties
In many cases governments impose import duties on goods acquired on international sites. Here, each country has its own regulations, but the merchant must be aware of this to be able to inform his buyers.
In some countries, for example, all international purchases are subject to taxation, although in practice this isn’t always the case. Nevertheless, many buyers are still not aware of this and are surprised to find their packages taxed This ends up resulting in a refusal to accept the package, and high chargeback rates for the merchant.
5. Fraud
Fraud, primarily that known as friendly fraud, is another major challenge for merchants, since this can result in loss of the product, the money from the sale and the fees that have to be paid for reversing the processing. That is why using fraud prevention services optimized for each market is a great help in overcoming this challenge.
6. Local culture and consumption habits
Speaking the local language, offering the customer a personalized service in each market, understanding the consumer’s profile and their purchasing preferences are essential points for being successful in cross-border e-commerce.
In spite of this, the same Payvision survey mentioned earlier shows that there is still a considerable number of merchants who pay scant attention to this point.
Internal challenges
1. Adaptation of products and e-commerce to other markets
Each campaign of offers or new launches will require the updating of the information and features of the products for all markets where the store is present.
Besides speaking the local language, it is important to be aware of specific expressions and even slang. In addition, each segment of industry has its specific jargon, and merchants need to be familiar with these to compete with domestic players.
Finally, it is worth remembering the multilingual management of the site, definitions, maintenance and updating of prices in different currencies, which is especially important in markets with extremely volatile exchange rates, in addition to analyzing the results in each market.
2. Marketing and communication
Drawing up marketing and communication strategies for each market requires in-depth knowledge of the latter and an understanding of the consumers. Here, it is worth investing in partnerships with local marketing agencies that can bring all their market knowledge to bear in helping define the best and most efficient strategies.
Besides local partners, whenever possible it is important to take members of your own team to get a better understanding of the consumption culture of the country to which your company intends to expand its operations. After all, studies and surveys can form a good base for understanding that market in advance, but only boots on the ground will afford a clearer vision of the market possibilities for your business.
Not to mention that fact that there are some countries that are more closed, such as China itself, for example, where publicly available data is more likely to be imprecise, fueling the need to look for other ways, such as a local immersion to become more familiar with that market.
After this study phase, your company will be in a position to define the most interesting path to follow: replicate or operate with a different approach to that where your operation is based.
3. Organizational structure
Operating in different markets implies having to rely on a team that can coordinate actions in different countries, whether inside the company itself, through a network of freelancers or one-off actions of local partners. This will all depend, for example, on the budget each business has for expanding its operations in cross-border e-commerce.
Except that, besides the resources, it is also important to think about the divisions of the areas to be deployed to other countries. The marketing and communication study itself may provide insights into now the company should operate in other regions.
Evidently there are many challenges still to be overcome in the day-to-day operations of cross-border e-commerce. However, the cross-border electronic commerce segment is looked upon with optimism by merchants around the globe.
Lastly, there is a growing impression that physical borders are being eroded by the internet, leading people to place greater trust on transactions that connect different points of the planet.
