Mastering the Art of Cross-Border E-commerce
Becoming a cross-border e-commerce trader and succeeding in international online trade requires mastering a wide range of topics, from the development of a suitable commercial concept for internationalisation to knowing how to maximise the performance of your online business in international electronic markets.
When expanding overseas, you could implement a business plan that follows the same phases of analysis, options, models and tactics as those of a classic plan. However, analytical methods, activities, models and marketing tactics that help to reach the decision of whether to enter or not to enter differ substantially. But before making that decision, it is first helpful to better understand what cross border e-commerce involves.
We can look at cross border e-commerce from the point of view of the consumer. For example, a French consumer who buys online on a UK site with .co.uk domain is making a cross-border purchase. If that same consumer makes the purchase through the French version of the UK store in France, that would also be a cross-border purchase.
If a UK online entrepreneur gets a lot of cross-border sales, sooner or later the time may come to manage their online business from a local legal entity in the country of sale and cease to be an online cross border seller. From entry into the new market to the conversion into being a local vendor, a very extensive process of localisation and adaptation to the local market is inevitably involved.
Using the term “cross border e-commerce” is accepting the current borders as they are, and accepting that the online seller is required to deal with the many barriers and differences between multiple electronic markets in Europe.
Using the term “cross border e-commerce” is implicitly accepting the existence of an e-commerce ecosystem that encourages us to understand the rules of the game and even more to overcome cross-border and cross-cultural barriers to enhance and maximize the online business.
So understanding how the cross border e-commerce ecosystem works in Europe is the first step in preparing for an internationalization project. The ecosystem consists of different layers but we can distinguish a first layer of six aspects:
- · The political
- · The economic and financial
- · The cultural
- · The linguistic
- · The legal
- · The geographical
We have reviewed these aspects and outlined the elements belonging to each one.
It is the state that works whether or not to generate a favourable climate towards investors and entrepreneurs in the field of e-commerce. Both at the European level and at the level of member states we see programs to promote the startup of new initiatives. Here in the UK, for example, online entrepreneurs are offered subsidy programs, coaching and a package of measures to accelerate the set up of new companies. Another big influence is the level of bureaucracy that the state puts in front of an entrepreneur who may be able to create jobs in the sector with most growth potential.
The economic and financial
When it comes to internationalising, the online entrepreneur must overcome a fair few barriers and should consider the possibility of seeking a qualified partner to ensure you cover all aspects, such as the different methods of payment and collection, or the different levels of VAT in the European community.
Distance sellers can begin to sell abroad charging VAT at the rate that applies in their own country, but only up to a certain threshold. If the value of distance sales goes over that limit then the seller must register for VAT in the country of sale. It is not unusual for a company that sells in Europe to have five or more different numbers and different systems of VAT declaration dates. It’s nothing too complicated but may be best left to a specialist.
If you want to know more about VAT rates in Europe, check out our blog.
The pricing policy is another issue to consider. Pricing tactics must be defined: will you employ a tactical approach focused on the local market, or set one unified price for all countries? You also have to take into account new dynamic pricing tactics that requires a business to react in real time to changes detected in the competition.
What is the importance of managing cultural differences? We know there are differences between countries, but differences at the regional level must be considered. Through globalisation we also have an increasingly unified approach. It could be assumed, with some exceptions, that global brands usually offer a unique product for all markets. Smaller brands, however, need to anticipate potential issues of rejection and/or restrictions on their products in a foreign market.
Due to the non-physical nature of e-commerce transactions, work is required to build a level of trust in the country of sale. However, that trust won’t be the same in all societies, and will be affected by the evolution of e-commerce in the country.
It seems that the subject of a language barrier is somewhat underrated, which is surprising, considering the very clear relationship between trust, conversion and language. The topic of languages is very complex and this complexity presents itself right at the beginning of e-commerce projects: do you choose an online multi-country and multi-language site or a combination of both, and how do we make it fit into the local market? The figures speak for themselves: an online buyer is three times more likely to buy from a site in their own language.
Another important issue to consider linguistically are the costs. It is very important to analyse the country to understand the relationship between the market volume and the obligation to continuously update content in a minority language.
Last but not least is the customer service, which in many cases is the only point of human contact between customer and supplier. To maintain good conversion in an online business it is essential to have a localised customer service in situ.
While Europe is certainly making an effort to minimise restrictions, the online entrepreneur does have to take stock of all possible restrictions in the target market and be aware that the place of litigation will always be in the country where the transaction is carried out. Legislation regarding online transactions is nearly uniform across Europe, however, many companies then introduce their own conditions that are incompatible with the law.
Is there a carrier that is truly Europe-wide? Is there a logistics operator with its own network covering all of Europe? Unfortunately, not. The European logistics companies form a labyrinth with multiple pricing systems, locations and methods.
Up to what volume can you realistically send packages internationally and at what point should you seek your own temporary storage warehouse or one managed by an outsourced e-commerce services company? And this isn’t just for shipping but also for returns, which in several cases are over 15% of orders.
Cross border e-commerce: a threat or an opportunity?
It is not difficult to perceive cross border e-commerce as a threat to the growth of e-commerce in Europe and it partly is. The unification of the market is slowing and may be delayed further by the growing anti-European attitude in several countries of the Community. Our basic description of the ecosystem paints a picture of a complexity that might scare and cripple good business ideas.
On the other hand, we have an opportunity. In the first place, e-commerce has greatly matured in Europe, perhaps even more so than in the United States. In some ways we are well prepared to expand into Europe, being more aware of the cultural differences. Because of this, we understand better than anyone that the motto "one size fits all" does not apply to Europe and this attitude works in our favour.
The process is slow but still there has been progress in unifying the market. For example, alongside national trust marks, European trust marks are being created, and in just over a year’s time, roaming charges will no longer result in expensive and confusing bills. Many mobile network operators are on their way to becoming "European players" and the same will be true for several logistics companies.
Methods of internationalisation and market entry tactics are being refined and are becoming increasingly in line with international online marketing requirements.
The question of whether or not to internationalize is the wrong question; it should be how to do it, not whether you should. For many companies, internationalisation can end up being a matter of survival, in other words, hunt or be hunted. International competition will surely come into your home market and begin to take some of the market share and it is therefore essential to take the international step and become part of a new market at the European level.
The number of European players on the board continues to grow. It’s the companies that in recent years have been backed by strong investments that are 100% prepared to conquer new markets and, as such, obtain high market shares by positioning themselves early. Companies need to enter this game in order to access these areas and get their respective shares in other countries. This is not easy, and requires the support of investors on the one hand and substantial state support.
We hope that European companies are able to connect as soon as possible with European customers and benefit from some of the advantages that American and Asian companies do not have. Cross border e-commerce also includes transcontinental e-commerce but the differences between continents are far greater, and therefore the entry barrier is higher.
We have a great opportunity but must be well prepared, and this means meeting very basic criteria for the three phases of the online sale: knowing how to sell, taking orders and delivering the products, and thus building customer loyalty. In the process of selling you should calculate the budget needed to be visible, to be noticed and not just with a unique product but also a unique campaign, and a highly localised business.
During the order process, the online business must be fully aligned with common processes in the target market and ultimately have an economic and effective model of order processing, logistics and delivery, providing a superior customer experience.
Cross border e-commerce will be a great opportunity in the coming years for many companies if they are willing to prepare well, choose well and execute the internationalisation project based on proven methodology.