Cross border eCommerce growth in BRIC — not for the faint hearted

It is apparent that cross-border eCommerce strategies is playing an increasingly important role in internationalisation. Cross-border shopping is becoming a trend, a study shows that 50% of the retailers serve their international customers through a separate country-level website and 20% of the retailers serve via their home country website as well as separate local country websites. UK being home of one of the leading online markets in 2015, saw that 43% of retailers earn 21 to 30 % of their income from international orders.

The potential for cross-border eCommerce is huge. The increasing maturity of online purchasing behaviour creates many opportunities for foreign retailers to draw in international consumers. Ambitious retailers will need to look beyond their own country and comfort zone, and investigate solutions to really capitalise on this growing trend! Retailers seeking to benefit from the potential of cross-border eCommerce should ensure they are well prepared and respond to regional preferences from the very beginning. This blogpost sets the scene by highlighting the cross-border eCommerce landscape and followed by a series of blogposts on identifying significant growth trends within each BRIC countries.

crossborder3

Why focusing on BRIC countries?

We have seen that clothing has been the most purchased physical product in recent years in China, India, Russia and the second most purchased in Brazil. A lot of talks has been about the growth in middle-income class, and their spending power is continuously on the rise. In addition, the cultures in these countries are in particular different to developed countries, namely America and the United Kingdom. Therefore, it is not without its challenges.

1. Localisation

We have seen how big online and offline retail giants have failed to enter some of the BRIC countries by using a “one model fits all” approach. Retailers need to understand consumer culture, buyer behaviour, product presentation, and even social interaction amongst shoppers in order to localise your product and services. It is beyond a simple language translation of websites, the tone of voice also makes a big difference when engaging with your local shoppers. It is important to note that some of the differences in cultural subtleties can only be understood and handled by hiring local managers, consultants or partnering up with local third party service providers.

International customer support can be extremely challenging, especially when faced with language, time-zone and cultural barriers. Retailers need to put in place processes that can gather and respond to customer feedback. It is difficult to win customers’ trust as a foreign and it is much easier to lose trust if after-sales service is handled badly.

2. Logistics and insurances

A cost effective logistics solution is paramount to providing pleasant customer experience and generating a healthy profit margin. End-to-end process begins from collection, to processing, to delivery, to end consumer and also returns.

The growth of innovative transport solutions is on the rise, consolidated freight services and “label at source” solutions are a couple that freight carriers are offering these days.

Fast delivery time is also a service that customers expect these days. If you are unable to deliver purchases on time or as fast as your local competitors, then it becomes much harder to increase customer retention going forward.

Even with the most reliable logistics provider, things can still go wrong. Retailers should consider insurance policies that cover business needs in accordance to local legal compliance.

3. Payments

Payment methods is one of the biggest hindrance in online shopping for some of the developing countries. The degree of consumer trust of online payment method, familiarity with payment technology and the use of credit cards are some areas that retailers need to consider before choosing the appropriate payment method(s). We have learnt that the attitudes toward online payment is radically different from China to India — China is more attune to online payments, whereas India still prefers cash-on-delivery. Online security continues to be a big concern, coupled of the availability and use of credit cards, also limits the options of payment method.

Retailers also have to be aware of online fraud. The current credit card payment systems cannot confirm all payments from all countries. Some third-party solution accepts the fraud risk by charging a percentage fee. Services like Paypal provides some sort of international payment verification. However, Paypal isn’t always the preferred vendor in developing countries, local payment providers often gain more trust in local markets. For example, Alipay is a preferred third party payment solution vendor over Paypal.

4. Technology (Desktop vs Mobile)

Mobile shopping is definitely the hottest topic in eCommerce right now. Interesting to see that some of the developing countries are adopting mobile shopping at a much faster rate than Europe and the U.S. For example, Myntra, the largest online shopping platform in India decided to shut down its desktop website in March 2015 and focus purely on its mobile app.

crossborder2

5. Custom regulation and Tax

Many retailers experienced that customs and duties are some of the biggest challenges they face when selling internationally. It is difficult to know as a retailer what extra fees your products will be subjected from each country, and how much margin you should put on top of your product to cover the costs.

VAT compliance is very important in cross-border trades. We recommend in depth research or consult with country specialists in this area to ensure prudent measures are put in place. Depending on the product, volume of sales and risk appetite, your VAT compliance needs are likely to vary across markets. Thorough research and planning will pay off in the long run, especially when you need to prepare for sales and tax reporting at year end.

6. Returns

Cross-border returns is unpleasant, both in terms of profitability and customer retention. This is particularly true for companies selling low margin goods. Because returns costs are only incurred after the sale, so many retailers often fail to factor them into their costs when looking to expand overseas. There are many reasons why customers would return their purchases; actual product quality, sizing and fitting being amongst the top reasons. Sizing guides and standards vary between countries, for example a size S in the U.S. could easily become a size L in China. So to avoid unnecessary returns, retailers should understand the sizing differences in their target local markets

Return shipments can be a long and expensive process for shoppers. If it is not handled well, or if returns happened one time too often, it is likely that the shopper will not return to the same retailer for future purchases.

7. Exchange Rates

International trade goes hand in hand with currency exchange rates. For companies that are selling a large quantity in overseas market, the inability to manage fluctuating currency exchange rates can turn a company from profit-making to loss-making.

We have seen that foreign currency remains one of the most overlooked challenges in cross-border trade. A typical example is that retailers need to convert currency whenever they buy stock overseas or receive international sales proceeds. We will cover a few simple steps that could help retailers to manage their risk exposure.

crossborder1

So, should you expand into unchartered territories?

If you are considering expanding your online presence into other countries, make sure that you have done enough research, including understanding the local competition.

The revenue generated needs to be sufficient to offset all the admin setup, localisation, ongoing support, potential hidden costs in the region and returns costs. If the numbers still stack up and you can still make a healthy profit then it is definitely a lucrative sales channel. However, don’t expand for the sake of expanding, sometimes it pays to stick to what you know and do best, defend and grow your local market shares steadily.

The expansion decision is often a difficult one, you will need to evaluate how well your product will sell in the local market and how price competitive you are against local providers. Online shoppers often trust their local players more than international retailers, until the international player has established trust locally.