Why Cross Border Ecommerce is the Future of Ecommerce

Cross border ecommerce is a phenomenon that has quietly gained huge momentum as customers purchase products from outside their borders. The last 2 years ecommerce has seen distributed ecommerce (buy buttons  on certain social networks – Twitter and Pinterest) and more recently conversational ecommerce has emerged as a contender for the future. Conversational ecommerce is seen as a potential use case for customer service which involves the usage of technology to help with communication. I personally view these as fads where as cross border ecommerce has potential to be the future of ecommerce.

What is cross border ecommerce

Cross-border ecommerce can refer to online trade between a business (retailer or brand) and a consumer (B2C), between two businesses, often brands or wholesalers (B2B), or between two private persons (C2C), e.g. via marketplace platforms such as Amazon or eBay.

What are the risks for cross border ecommerce

There are 3 main risks that influences cross border ecommerce:

  • Fraud is arguably the biggest challenge faced by merchants who allow customer to purchase from them outside the borders of their country. Thus picking a good payment service that is aware of local customer behavior is critical.
  • Logistics and reverse logistics is also just as important and can negatively impact the perception of your business by local customers. Consistent and predictable logistics is a requirement for a business that is wanting to capitalise on cross border ecommerce.
  • Regulations – local government and taxation needs thorough examination and could potentially negatively impact your business.

How big is the size of the opportunity?

By 2020, over 2 billion e-shoppers, or 60 percent of target global population1, would be transacting 13.5 percent of their overall retail consumptions online, equivalent to a market value of US$3.4 trillion (Global B2C GMV, growing at CAGR of 13.5 percent from 2014 to 2020) according to Accenture.

 

Where are the opportunities for cross border ecommerce?

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  1. China – Chinese cross border ecommerce is worth $60 billion but legislation might impact it. The reason for the potential government interference is due to brands using cross border ecommerce as a way to circumvent the regulations of their products with local agencies. Known as cross-border e-commerce, the booming backdoor avenue allows Chinese consumers to buy overseas-manufactured goods online and effectively circumvent the regulatory issues that have stymied access to consumer products from cosmetics to Cognac. Faced with pressure from conventional retailers at home, and the loss of tax revenue, the government is now looking at overhauling the legal loophole.
  2. South East Asia – Singapore, Indonesia. Reports state that the e-commerce market in Southeast Asia will reach US $200B by 2025 with online sales growth at a CAGR of 32%. With 600 million consumers and 260 million people online, it is the largest market of Internet users in the world. It thus makes complete sense that both Amazon and Alibaba have increased their interested in this area.
  3. Australia – Australians like buying clothes from online businesses from outside their borders. Since March 2016, the Chinese authorities have published a series of regulations aimed at extending normal import tariffs and regulatory requirements to goods imported into China via cross-border e-commerce channels. The new regime caused a backlash among the cross-border e-commerce sellers both in China and abroad and was put on hold indefinitely just a few days before Premier Li ‘s visit to Australia and New Zealand in March 2017. It is hoped that goods imported into China via cross-border e-commerce can continue benefiting from the low tariffs and regulatory exemption.
  4. France – The fastest growing e-commerce segment in France is cross-border purchases. Nearly half of all French consumers regularly buy from cross-border merchants and 19% of all online sales in 2016 were made on non-domestic websites, four point higher than the European average of 15%, most frequently Germany, the UK, Belgium, the US, and China. The major problem with French customers is that their transactions are relatively small in comparison to the countries mentioned before it.
  5. Mexico – is a long term market due to the staggering rate at which the market for ecommerce is growing at (21%). The growth is hampered by security concerns over payment. Amazon has partnered with a local retailer to ensure that customers can pay for their purchases with cash. The market has low competition and with the rate of growth, Mexico could long term become the most important market in Latin American ecommerce.

As mentioned earlier cross border payments is difficult and should be managed to ensure that customers are not surprised by additional government levies when items arrive at their final destination. Understanding local taxation and ensuring that the customer pays accordingly is crucial otherwise the purchase will be returned and create an aggravated customer that will harm your business and brand.

In summary – cross border ecommerce is here to stay and needs to be considered accordingly as a growth strategy for an ecommerce business. It needs investment (payment processing, staff and logistics) and should be done in a staged manner for maximum impact.

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Hendrik Laubscher

Hendrik Laubscher has a decade's worth experience in ecommerce. He contributes to a variety of publications and is fascinated by all things ecommerce (marketplaces, emerging markets and cross border global ecommerce). He lives in South Africa but travels globally to experience ecommerce in locations worldwide.

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