What is Cross-border Ecommerce?

The term cross-border eCommerce generally defines international online trade. It entails the sale or purchase of products via online shops across national borders. Buyer and seller are not located in the same country and are often not ruled by the same jurisdiction, use different currencies, and speak different languages.

Online trade within the EU, with its single market and common currency in many member states, is evenly referred to as cross-border e-commerce as for example selling from Germany to China.

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.

eVanik helps Indian merchants to seamlessly connect with Global Ecommerce Marketplaces end to end.

What are the advantages of Cross-border Ecommerce?


Cross-border eCommerce offers advantages for both buyers and sellers. Sellers (both retailers and brands) can expand their business outside their often saturated home market and tap into new markets. Selling abroad also offers the opportunity to seize the potential of different product ranges compared to the domestic market.

For buyers, the advantages of ordering products on foreign websites are often perceived to be a better price, and the availability of products that are not available in the home market. In addition, consumers often choose to shop directly from the online shop of their preferred brand.

What are the challenges of Cross-border Ecommerce?

Selection of adequate markets

The first question before even thinking about localization should be: What markets offer reasonable chances to set up a profitable business within a feasible time frame? Blindly investing in expansion to new markets is dangerous. Often, the obvious choices for example the large eCommerce markets such as the UK or Germany are not the only options: the true potential for individual players can very well be situated in smaller or emerging markets. There is no one-fit-all approach. In order to select the right markets for online expansion, the target countries should be profiled in order to determine their potential. Sellers should also include an analysis of the search frequencies of the products they wish to sell in the new markets. Another important step is a comparison of product prices, CPC (Cost per Click, average costs when running an AdWords Campaign), and CPO (Cost per Order, quality of a marketing measure).

Languages/Translation

For most sellers from non-English speaking countries, selling abroad means translating their website. Some merchants choose to offer a uniform dotcom-version of their online shop in English, in order to attract international buyers. This is often seen with big international brands, which can build on their already mature brand recognition. For many other players, however, going abroad means translating the online shop, product descriptions, marketing efforts, terms of use, and all consumer communication. Figures by Common Sense Advisory [1] showed that over half of Chinese, French and German consumers prefer buying from sites in their native tongue. Moreover, product descriptions and other relevant content in the local language improve the search engine ranking, which is crucial for consumer attraction.

Language is, however, also a challenge when it comes to understanding legal requirements, making agreements with local partners, and offering customer service in a new target market.

For more information about this subject, please refer to the topic of Translation Management.

Trust

Online shopping depends a lot on trust: in order for consumers to transfer their money, they need to feel safe. They want to understand if the product is the right one, how long delivery takes, how the return process works, and whether they can trust the means of payment. A new seller will at first have to gain the trust of the new audience in order to build up a "good name". Some factors that influence trust include assuring buyers that they will get what they ordered, being transparent on prices and additional costs and fees, offering a locally trusted payment system, and being available for customers if they have questions or problems. Post-purchase, a good experience is obviously the best driving force of trust.

Perception of data safety

Across Europe, the perception of whether personal data is safe when shopping online varies heavily: An average of 57% of Europeans is worried about their data not being safe. This is of biggest concern to respondents in Spain, where 78% of people do not think it is safe. Germany was the second-highest with 62% and UK-based respondents showed the least concern, at 49%.



HR and internal responsibilities

A new market demands a lot of attention and time investment. Not everybody in the organization might be as enthusiastic about the expansion as the CEO is, or people are simply too busy doing what they were doing before the new market entry. However, if nobody sees the international expansion as his or her project, it is hard to get the attention and dedication of co-workers when something needs to happen. That is why having a country manager is a real asset. You can choose to assign this task to someone internally or hire a new employee, or you could consider outsourcing the management of your foreign shop. The country manager becomes the project owner, able to identify needs and problems, communicate across organizational levels, and request and organize resources needed to cater to the new market.

Development resources

Adding new target markets means increasing your development team's workload. And even if the new markets might start off as less profitable and thus appear less relevant, they deserve the same dedication as the home market in order to thrive in the future. If companies are unable to free up the necessary development capacities, chances are the new markets will not grow, or at least not as fast. Ramping up development capacities is a key factor for creating scalability and accommodating growth in a new market.

Scalability

Scalability is key when it comes to the feasibility of an eCommerce expansion across borders. Your business needs to be able to change and grow in order to meet demand. The investments you need to make to operate an online shop in a foreign country should be as scalable as possible because having long-term contracts and other fixed obligations when the demand fluctuates is hazardous for sellers' profitability.

Logistics

Research reveals that many of the obstacles to cross-border shopping are delivery-related: in 2014, Pitney Bowes [2] found that high shipping costs (68%), additional fees at the time of delivery, including duties and taxes (58%), and too lengthy shipping times (42%) were the three dominant factors motivating the abandonment of a filled shopping cart. Doubts about the return procedure and costs count among significant hurdles for cross-border shopping.

A well-streamlined logistics procedure is also important for buyer retention: a good delivery experience would encourage over 80% of German, French and British customers to choose a retailer over others [3], as research has shown.

For more information about this subject, please refer to the topics of Supply Chain Management and Warehousing.

Returns

Handling returns is a crucial issue in cross-border eCommerce. For customers shopping cross-border, transparency, and comprehensiveness of the returns procedure is highly relevant. As evident from the European Commission's Consumer Scoreboard [4], three out of the ten most relevant concerns when shopping from a foreign online seller relate to returns. Consumers are worried about high return costs, they fear that sending the products back and receiving their money back is going to be complicated, and they are afraid that arranging replacement and/or repair might not be easy.


From a customer perspective, shopping online means sacrificing the ability to see, touch, and try an item in exchange for other advantages, such as convenience, a better price, and better availability of a certain good. Despite that, the idea that the product might either not be as imagined or might arrive damaged creates the demand with customers to know exactly how to return the products and how to receive their money back. An unclear return policy is a second-most occurring reason for shopping cart abandonment, according to a survey by ComScore in March 2015.
Reasons for abandoning shopping carts per percentage of respondents (UPS, Statista)

Tax

Taxes in the European Union

Open borders and the free movement of goods and services: the European Union and its single market would seem to be a veritable Mecca for online merchants and suppliers of services. The positive trade climate in the EU has come about in large part thanks to the harmonization of numerous laws and constantly improving telecommunications and logistics infrastructure. As a result, the environment for online merchants has greatly improved over the course of the last decade. At the same time, VAT rates differ in many countries, and often sellers are responsible for determining what tax rate is applicable to their products or services in another Member State. In addition, in a number of countries individual, reduced rates apply under respective national law.

Things are changing, but for whom?

Are you a B2C online seller of goods in other EU countries? If so, then nothing will change for you. You will still need to calculate and pay your VAT according to the European VAT regulations on distance selling. More information on this can be found in point 1 of this segment below. Are you selling electronic services to private customers, e.g. music and movie downloads, software, online courses, or apps? If so, starting immediately you will have to apply the VAT regime of the country in which your customer is located. Vendors who sell to business customers continue to use the reverse charge procedure, i.e. the biller does not charge VAT. Consequently, the change primarily affects sellers of electronic services abroad. See point 2 of this segment below for more information on this.

Why does the regulation mean trouble for companies like Amazon and eBay, which primarily sell goods?

American giants like Amazon and eBay opted to establish their European headquarters in Luxembourg since that country levies a very low VAT rate of 3% on digital services. This is especially advantageous for sales of e.g. e-books. Amazon is increasingly focusing on selling digitized media. This advantage is done away with under the new regulations. Beginning now, the country where the consumer resides determines which tax rates must be applied. In Spain, for example, VAT on e-books is 21 percent. In addition, Amazon only registered its Luxembourg headquarters as a seller of products - e.g. the British branch is officially nothing more than a "logistics service provider". Consequently, the VAT rate in the UK was always extremely low. While countries such as France and Britain have long railed against this "tax dumping", this proved to be a bonanza for Luxembourg: out of its 2013 GDP of 43 billion euros, no less than 950 million euros were collected from eCommerce alone. The EU has now put an end to this game.