Cross-border e-commerce has emerged as a dynamic avenue for businesses seeking unprecedented growth and international reach in an era where the global marketplace is more interconnected than ever. In 2023, total sales grossed US $1.63 trillion, and experts suggest the market will rise by 107% to hit US $3.37 trillion in 2028.
While the potential to reach customers beyond geographical borders seems promising, navigating the complexities of cross-border trade can be challenging and, therefore, requires strategic finesse and adaptability. In this guide, we will dive into the basics of cross-border e-commerce, exploring its market size, pros and cons, and tips to become successful in online overseas trade.
Table of Contents
What is cross-border e-commerce, and how large is the market?
Benefits of cross-border e-commerce
Challenges of cross-border e-commerce
6 steps to succeed in cross-border e-commerce
Conclusion
What is cross-border e-commerce, and how large is the market?
Cross-border e-commerce refers to the process of selling products and services to international customers via an e-commerce platform or online store. Although cross-border e-commerce is specific to online sales, the term refers to selling to international audiences without being specific to a platform. Furthermore, cross-border commerce can either be online or offline.
The cross-border e-commerce market is vast. According to Statista, market experts valued the market at US $785 billion in 2021 and expect it to grow and reach US $7.9 trillion by 2030. A surge in e-commerce websites and easy VAT registration procedures have made it simple to sell to cross-border clients. Furthermore, the emergence of booming international markets such as Brazil, Turkey, and India is encouraging entrepreneurs to take advantage of this opportunity to grow their businesses.
The most prominent players in cross-border e-commerce are Amazon, Alibaba, AliExpress, and eBay, which trade products internationally at impressive rates.
Benefits of cross-border e-commerce
Engaging in cross-border e-commerce is a big decision for any business. Therefore, it is essential to understand its benefits. Here are some of the advantages:
1. International expansion opportunities
A benefit of cross-border e-commerce is that it exposes businesses to new markets. Expanding your business beyond borders can increase your customer base, regardless of how your business performs on the homefront. Take Apple’s online store, apple.com, for example, where international customers can buy gadgets in their respective locations. This expanded market reach boosts their customer base, ultimately increasing their bottom line.
2. Brand visibility
Brand awareness is crucial for any business aiming to become an international entity. By expanding your business beyond borders, customers identify you as the global leader, thus making it possible to form a community of buyers who love your products.
For example, in 2021, Nike saw US $17.2 billion, or 39% of its global sales, come from North America, with 61% from other countries. Thanks to brand visibility, Europe, the Middle East, and Africa brought the US $11.5 billion, US $8.3 billion from Greater China, and $5.3 billion from Latin America and Asia-Pacific.
3. Demand all year round
Limiting your business to one region can be disadvantageous, especially in seasons with declining demand for items. Through cross-border commerce, fashion brands like Vetements in Switzerland sell winter garments to global audiences even during the summer in Switzerland and vice versa. Therefore, the company can focus its business activities in regions with high demand, even when the demand for products in other areas is falling.
4. Increased business sustainability
Today’s consumers are drawn to eco-friendly businesses. According to a survey from McKinsey & Company, 66% of all respondents and 75% of millennial respondents admit that sustainability influences their purchase decisions. To succeed across international borders, most brands are turning to sustainable commerce.
An example is Unilever, which uses sustainable raw materials like ethically sourced palm oil to tackle its environmental impact. The company has also pledged to minimize packaging waste by 2025 and establish multiple recycling programs to boost its recycling efforts.
5. Increased access to end customers
Diversifying your business into international markets grants you access to more end buyers. An example is Procter & Gamble, which sells its products to millions of customers in over 180 countries. Some of their brands include Pampers, Gillette, Tide, and Crest.
6. Competitive advantage
In business, competition leads companies to find opportunities that can work in their favor. Among the strategies that intelligent businesses leverage is the targeting of international buyers to beat local competitors. Becoming the first to move into new markets helps you gain a first-move advantage, allowing you to build an overseas client base before a competitor. Examples of companies with a competitive advantage include Alibaba, eBay, and Amazon.
Challenges of cross-border e-commerce
While growing your business across borders has benefits, there are downsides, like any other business. By understanding these challenges, companies can develop strategies to overcome them. Here is a look at the main challenges you may encounter with cross-border e-commerce.
1. Regulatory and legal complexities
Regulatory and legal technicalities are challenges when trading your products overseas. In any country where you wish to conduct business activities, you have to deal with different tax laws and regulations, licenses, and lots of paperwork that can be daunting and confusing.
If you lack expertise in legal matters, outsourcing the services to a third-party company can relieve the stress of handling everything independently, especially concerning a foreign nation. You can also do your research to determine things such as importation and exportation rules, customs and duties, and invoice requirements.
Legal partnerships through collaborations with other businesses operating in your target country can also help you conquer legal problems abroad. In addition, working with compliance management experts or international business lawyers can ensure your business is consistent regarding legal matters.
2. Cultural and language barrier
Transacting in a foreign country often poses cultural and language challenges between you and your buyers. You can tackle these challenges using language tools or localizing your e-commerce website.
Tools such as translation software for creating translated content or communication tailored for customers in a foreign country, as well as browser plugins that auto-translate, can help address language barrier issues.
On the other hand, localizing your website to target audiences with linguistic differences creates more profound and impactful connections with customers in the respective country.
3. Payment fraud
Payment fraud is common with cross-border transactions, a challenge more than half of businesses face. Stripe describes it as a type of financial fraud where a person intentionally uses false or stolen information to make a purchase. Credit cards are commonly used to make online payments, and that’s where most fraud occurs.
You can tackle this issue as an online seller by implementing address verification systems, or AVS, that authorize customers to use credit cards. You can also develop anti-fraud measures like strong authentication or secure payment methods like mobile payments.
4. Foreign exchange issues
Managing foreign currencies can hurt cross-border e-commerce efforts. This is primarily because one of the reasons why customers prematurely leave an e-commerce website is due to the inability to convert the store currency into their local currency.
Businesses can tackle this issue by installing programs or plugins to calculate and convert currencies on e-commerce websites.
5. Logistics and shipping hurdles
Any business operating in international commerce is likely to encounter logistics and shipping problems. These problems can be human error, improper handling of items, delays in customs clearance, and technical issues.
To reduce these problems, businesses need to consider the shipping times, duties, and taxes, as well as the resources and tools required for a smooth shipping process.
6 steps to succeed in cross-border e-commerce
Succeeding in cross-border e-commerce requires a strategic approach to navigate its complexities. Here are six steps that delve into how to prosper in cross-border e-commerce.
1. Find ideal markets for your products
Before expanding your online business beyond domestic borders, identify markets that align with the products you intend to sell. You will need to conduct thorough research to understand the demand, culture, and regulatory laws of potential markets. In addition, factors such as the country’s GDP, population, consumer behavior, and purchasing power are essential when looking for countries to target.
Other ways to help you pinpoint potential markets where your product will likely thrive include utilizing research tools like the Country Commercial Guides to analyze online trends. Remember to assess the competition in each market to help you effectively tailor your approach and differentiate your offerings.
2. Check if your products fall under restricted trade items
After narrowing down a potential target market, you need to understand what items are allowed or not in that region. Different jurisdictions have different laws and regulations, and certain products may be subject to import bans, licensing requirements, or quality standards. While there may be a big market for your products outside, you may not want to be on the wrong side of the law.
You can also ensure that you comply with local laws by engaging legal practitioners or consulting the relevant regulatory bodies. Understanding and adhering to import regulations prevents potential legal issues and builds a trustworthy reputation in the global market.
3. Determine pricing strategies for these new markets
Pricing is an essential aspect of cross-border e-commerce. As an entrepreneur, you want to ensure that you have a well-thought-out pricing strategy. This will involve adequately considering factors such as currency exchange rates, local pricing norms, and the cost of doing business in each target market.
Other things you need to be aware of include import taxes, customs duties, and other levies that may affect the final consumer. Once you set your prices, communicate the pricing structures to your customers while factoring in all the associated costs to avoid surprises in their buying process.
4. Leverage the services of a third-party logistics (3PL) provider
Shipping overseas can be a challenge, and to efficiently track all orders and ship them to customers, utilizing third-party logistic services can save you headaches down the road. The logistics experts are responsible for all shipping and other services, such as warehousing and distribution. Some of the top logistics providers in the world include DHL, Americold, FedEx, and UPS.
5. Outsource customer support
You need an effective customer support system to build trust and ensure satisfaction for your customers in overseas markets. However, managing customer queries, language barriers, and time zone differences can be challenging. To overcome these hurdles, outsource customer support to local agencies or employ multilingual support staff. This will ensure that your customers receive timely assistance and that their concerns are addressed in a language they can understand.
6. Develop a strategy you can repeat
Consistency is key in cross-border e-commerce. Therefore, you need to develop a replicable strategy you can apply across different markets. This involves documenting your approach’s successful elements, including market entry tactics, pricing strategies, and logistics solutions. You must also regularly evaluate and refine your strategy based on market feedback, changing regulations, and evolving consumer trends to stay adaptable and competitive.
Conclusion
Cross-border e-commerce is a great way to boost your brand’s image while establishing yourself as a global market leader. While setting up an online business beyond your borders has its benefits, understanding its challenges should not be understated. With the tips in this guide, you can unlock the vast potential of international markets and build a sustainable global presence.
