International E-commerce: A Comprehensive Guide
International e-commerce is an undeniable growth opportunity. In the United States alone, online retailers made an estimated $455 billion in 2017, with current year-to-year growth measured at 15.2 percent.
Outside the U.S., prospects are just as profitable. Eighty-four percent of Canada’s residents have shopped online, with the U.S. Department of Commerce International Trade Association estimating that by 2019, 20 million Canadians will spend $50 billion on e-commerce transactions a year. Sales are expected to reach $43 billion by the end of 2018 and, to the south, 21.1 million Mexican consumers will shop online.
Overseas, the market is wide-open: While 87 percent of Brits have made e-commerce purchases, over 75 percent of local stores dislike their own e-commerce experiences, admitting they aren’t strong enough to meet market need (a dismal 4 percent are pleased with their mobile apps). Further afield, e-commerce is also booming in Australia, with Power Retail reporting 29 percent year-to-year projected growth through 2020.
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Estimated E-commerce Sales as a Percent of Total Retail Sales.
How High Will E-Commerce Sales Go? The Definitive Guide to Omnichannel Real Estate,
Forecast e-commerce sales Figure 1: Forecast E-commerce Sales and Share of Total Retail, CBR
In India, for example, e-commerce finds tremendous potential: Customers spent $38.5 billion in 2017, with $64 billion projected for 2020 and $200 billion forecast for 2026. Less than 65 percent of the population is online, meaning this market is far from peaking: Internet penetration is slated to double by 2021. As a result, the India Brand Equity Foundation projects India’s e-commerce industry will surpass that of the United States by 2034, becoming the second largest in the world after China. In 2017, Chinese shoppers spent more than $1 trillion online — an e-commerce first.
Online retailers are now facing their greatest chance in industry history to expand internationally, especially as the growth of these individual markets directly correlates with profitable opportunities in cross border e-commerce itself. While Stat Trade Times calls cross border e-commerce “the new growth buzzword ticking the world,” there’s more to this trend than talk: It’s slated to expand at twice the rate of domestic through 2020. Forty percent of non-U.S. shoppers have made online purchases from a foreign site, with cross border purchases averaging higher than domestic. Global e-retailers are currently growing 1.3 times more quickly than single-country sites.
What Is International E-Commerce?
International e-commerce is the business of selling a product through an e-commerce website to buyers in foreign countries. As the proliferation of digital tools increases internet availability worldwide, any company can sell online, making international e-commerce easier than ever before for both pure play companies and brick and mortars. For traditional retailers, e-commerce can also serve as a testing ground to determine whether new, foreign markets will be successful before opening a physical location there.
While it’s tempting for e-commerce professionals to assume expansion into a country with a similar culture will require less work, the word “international” is key. No matter how much countries have in common, each one is unique. Canada is not the United States, Belgium is not France. Every global market deserves its own methodical planning and consideration.
Four Areas to Investigate Before International Expansion
In addition to financial investment, building an international e-commerce presence takes effort. That’s why marketers, logistics professionals, and others must ensure the timing is right. How do you know the business is ready?
1. Start with operations
International expansion doesn’t necessarily need a brand new pool of resources, but it does take commitment from the ones you already have — namely, people and finances. Regarding human resources, executing marketing and operations on a global level requires a unique skillset. Employees should either have international experience already or be willing to learn something new. If they aren’t, consider hiring new staff or shifting certain individuals into domestic-only roles. From a financial standpoint, it is recommended that business with global aspirations carve out an international marketing budget separate from their domestic marketing budget — depending on overall growth strategy and market conditions, of course.
2. Weigh product demand with international supply.
Google Insights and similar SEO measurement tools can track how often consumers search for certain items, as well as measure existing foreign traffic to your site. High conversion rates and/or average order values from a particular region are strong indicators as well. Additionally, examine international e-commerce figures that measure which products consumers in the target country are accustomed to buying online: For example, 47 percent of India’s online spend goes toward electronics, the country’s most popular e-commerce category. But in China, clothes and paper towels are hot ticket items, selling better online than in-store: Digital Commerce 360 reports these and other “tangible items” make up 28 percent of the country’s e-commerce sales.
3. Look for a competitive vacuum.
In developing countries, new markets show sharp increases in the number of consumers using mobile to go online. Before, traditional retailers made the mistake of ignoring these markets in lieu of focusing exclusively on growth in markets with established, physical operations. Even in their own countries, they failed to see e-commerce’s potential, making it harder to later gain market share. In Belgium, for example, German, French, and Dutch companies actually have larger market shares than Belgian retailers for this very reason: Domestic businesses were too concentrated on brick and mortar while foreign competitors seized the online opportunity. International e-commerce allows smaller, more agile companies to enter emerging markets and establish themselves early as market leaders.
4. Determine the scope of expansion.
International growth is typically much easier for e-commerce operations than for brick and mortar. Will the company need to open physical locations? Or does international growth simply mean adapting web design, payment, and shipping for global shoppers? As with any other initiative, the better the company defines its needs, the more likely it will succeed. It’s important to decide early on what global expansion looks like for your business.
While some contend that having a website makes the company international by default, successful cross border e-commerce takes more thorough planning. Going global is far more complex than converting the company books from the dollar to the pound sterling. Just like the United States, many foreign countries have culturally-unique regions with specific product and marketing preferences. Retailers should consider customizing sales, marketing, and customer service efforts for these individual markets as needed. In countries like Canada, Belgium, or Luxembourg, where multiple languages are spoken, this is much more important.
In addition to cultural and linguistic differences, retailers need to prepare for national or regional payment options, differences in local legal regulations, the necessary taxes and duties, and global economic shifts. This data is crucial in determining which country offers the best growth opportunity for you. Canada, Mexico, and Europe have long been traditional early markets for U.S.-based retailers, but as the European Union faces economic slowdowns, e-commerce’s most rapidly growing opportunities are actually in India and China.
Before entering any new country, management should determine the current market opportunity, project realistic market saturation, consider local pricing and payment methods, evaluate area shipping options, and anticipate all landed costs. Any early, international e-commerce strategy should start here, then move toward areas uniquely affecting the business.
Estimated E-commerce Sales as a Percent of Total Retail Sales.
6 things to consider when launching cross-border
Localization and translation are often used interchangeably despite being quite different. Translation converts one written language into another, while localization adapts everything else for the local audience: logos, website images, colors, and any other non-linguistic elements affecting sales. In the context of e-commerce, this includes ensuring that local payment and shipping options are available, that items are culturally appropriate for the target market, and that times, dates, and prices are correctly displayed in local formats (for example, 14:40 instead of 2:40 pm). Time zones are also significant, as the difference can actually result in the company and the customer having two different purchase dates.
Additionally, address forms should be internationally optimized. While zip codes are required in the United States, they don’t exist in many other countries. When they do, the format is different: Postal codes in China are six digits long, for example. In Canada, Ireland, and the United Kingdom, they are alphanumeric. For international customers to complete checkout, this field must be open and non-required, or adapted completely for different markets.
Localization works best when paired with translation. On its site, the U.S. Department of Commerce International Trade Association shares that customers stay on a translated site twice as long and that translating purchasing instructions lowers customer service costs. Translation, Commerce continues, “enables the company to be multilingual and to be sensitive to cultural conventions without the need for extensive redesign. Localization or internationalization must be part of the online exporter’s corporate strategy for website and business development.” A fully-optimized site will utilize IP sniffing or other geolocate features to identify which country the user is in, then automatically display the correct language for that locale. Avoid asking users to choose their language by clicking on flags as some consumers may find this offensive. Take Taiwan, for example, an independent country still claimed by China. People who live there speak Chinese, but may not like being forced to select the Chinese flag to identify their language.
Sales and promotions may also need to be adapted since shopping holidays are often country-specific. Green Monday, the first Monday in December, is a German version of Black Friday, for example. In Belgium, Sint-Maarten is a big shopping day on November 11th. In Mexico, November shopping season Buen Fin runs an entire weekend.
Even in the United States, psychological pricing is essential. As Harvard Business Review reports, customer perception of price is just as important as price itself. In other countries, it’s even more critical: 68 percent of global consumers say price is the number one reason they shop on cross border sites. The cultural triggers marketers use to subliminally connect with customers have to change from country to country. Like Americans, Norwegian and Australian consumers respond better to prices that end in a nine (for example, $15.99). In China, Hong Kong, Japan, India, Brazil, and Argentina, items sell better when prices end in a zero ($16.00).
Currency conversion can make pricing even more of a pain point. Fluctuations in exchange value could make the difference between a well-executed sales strategy and the inability to turn a profit. As a solution, most e-commerce marketers sell items at fixed prices to ensure that their customers are not charged a different amount later once the item ships.
But leaving prices in USD could create missed opportunities and depress conversion rates. Fifteen percent of British retailers say shoppers abandon carts when prices aren’t displayed in pound sterling.
Reason for shopping cart abandonment*
* Flow Global Research Report: Cross-Border E-Commerce Trends, 2020
Similarly, consider whether display pricing should include tax. U.S.-based customers know sticker prices are non-inclusive and anticipate a higher checkout total accordingly. This is also common in Canada where national goods and services tax (GST), provincial sales tax (PST), and/or harmonized sales tax (HST) can be added at point of purchase, depending on the region. But in France, the United Kingdom, and other countries, often tax is already included. Adding the amount later may make your brand look like it’s nickel and diming its clientele. This can backfire: In the United Kingdom, retailers say 16 percent of all cart abandonment comes from customers upset with unexpected charges at checkout.
3. Landed Costs
In e-commerce, landed costs are the charges retailers pay for a product to ‘land’ at the client’s doorstep. This includes taxes, duties, currency exchange fees, customs, tariffs, insurance premiums, shipping and handling expense, and payment processing charges; however, it does not include the cost of manufacturing (or for resellers, acquiring) the actual product.
In foreign countries, landed costs can be unexpectedly higher. For example, the average ship rate for sending an American product to Canada is around 25 percent lower than domestic, but the total landed cost is approximately 125 percent higher. In other countries, duties can work in a retailer’s favor: In Australia, a 1000 AUD duty threshold and low local supply make U.S. sites more affordable. Compare an item’s effective cost to locally-purchased products in order to keep offerings price competitive.
Accepting credit cards is a given in e-commerce, with 72 percent of all online transactions via credit or debit. While PayPal is popular on mobile, where nearly a third of its payment volume occurs, only 12 percent of online transactions are paid that way.
In the United States, if a company doesn’t accept credit cards, then it might as well not exist. Go global, and e-commerce is a whole different story. Sixty-one percent of American shoppers have two or more credit cards, compared to Mexico, where only 19 percent hold a Visa, the country’s most popular card. In Southeast Asia, the situation’s even more surprising: Payment gateway provider Ayden reports that only 15 percent of the population has a credit or a debit card — in part because less than a fourth of residents have a bank account. In Kenya, 94 percent of all transactions are made in cash.
How will customers pay? Despite low banking penetration, electronic transfer accounts for half of e-commerce transactions in Malaysia. There’s always cash-on-delivery (COD), which can be logistically difficult. Indonesia has developed its own version of COD, with customers printing their e-commerce cart, then taking the print-out to Alfamart, Alfamidi, or another convenience store, where they pay the store to finish the transaction. E-wallets like GCash and SmartMoney are popular in the Philippines, and some countries have a small, but growing number of consumers who pay with cryptocurrency.
This doesn’t just pertain to developing world countries: 29 percent of British retailers say cart abandonment comes from not offering the right payment options. The true solution for your customers’ needs will vary by location. Even if companies do limit payment to credit cards, the question remains which one. In Brazil — where local card ELO’s popularity is quickly growing — 70 percent of credit card accounts are not authorized for international charges. This includes Visa and MasterCard, as well as local providers like Boleto Bancário, which processes 15 percent of the country’s online transactions. In France, Carte Bancaire is the leading card with more than 10 billion transactions a year, and Barclaycard is popular in the United Kingdom.
A/B testing is one way to determine the best payment methods for each market. Not only is it important to test these methods, but also test how many options you display at once, as the paradox of choice can lower checkout conversion.
Shipping costs can often seem out of a retailer’s control, as UPS, FedEx, and others establish rates the company is forced to pay. Only a set number of providers ship internationally, plus different countries have their own limitations: In France, for example, many streets are too narrow for delivery trucks. Recipients have to travel to distribution centers for pick-up, so many prefer La Poste — the French mail system — which offers home delivery. And in Canada, packages sent to rural provinces, such as the Northwest Territories, Yukon, and Nunavut, may require additional time and costs since shippers deliver less frequently to those areas. No matter which route you choose, a lack of flexibility in shipping options is often an e-retailer’s greatest pain point.
Consumer Expectations for Available Shipping Options
Allowing customers to choose their preferred delivery method can address this concern, but it can also be a logistics nightmare for you. Many shipping providers offer e-commerce companies special deals for regular or bulk shipments, but companies can’t benefit when every customer chooses a different option. Alternatively, choices generate growth: In a customer survey, shipping provider DHL found that companies offering ‘premium’ delivery alternatives and delivery times grow 60 percent more quickly than average — particularly those in fashion or technology. In some country, options may even be required to be competitive: Customers in India expect a one-day delivery guarantee, which existing market leaders Amazon India and Flipkart gladly provide.
Shipping costs are also a decision point: Does the company absorb the charges or pass them on to the shopper? In the United States, it’s standard not to charge customers for shipping at cost, rather a flat rate commensurate with total purchase amount. If a cart surpasses a certain amount, shipping charges are often waived entirely.
Whichever way your company chooses to cover costs, make sure the decision doesn’t turn away customers. In the United Kingdom, 73 percent of e-commerce shoppers abandon carts because delivery costs too much. In Germany, 43 percent of consumers say free shipping convinces them to buy. A/B testing can help companies experiment with different shipping and delivery options and use the results to iterate quickly.
6. Customer Service
When a customer is unhappy with their order, it’s important to have a plan for handling returns, exchanges, and refunds. While Americans jokingly see returns as their constitutional right, consumers in some countries (like France, for example) assume all purchases are final. Then there are the markets in between: Canadians don’t return as often as Americans, but still expect a 30-day window. When expanding internationally it’s important to consider how your business will address each country’s return policy.
Some retailers, like Anthropologie, vary policy by country, explaining how returns could affect customers’ sales tax considerations on the company site. At Macy’s, cross border purchases are final: The store does not allow exchanges for items shipped internationally.
Of course, there’s more to customer service than returns. In Brazil, Mexico, and other countries, consumers buy using payment plans. In Brazil, interest-free installments are applied to 80 percent of high-ticket, e-commerce purchases, according to payment gateway provider Ayden. Increments vary from two to 12 months by retailer. Even businesses like Eventbrite allow customers to pay over time. In Mexico, installments can be broken into as many as 20 payments. In Germany, payment on account is popular: 58 percent of online shoppers do not pay immediately, preferring to receive an invoice after shipment.
In addition to traditional customer service elements like returns or shipping, there are market-specific expectations. In China, nearly 60 percent of consumers buy clothing online, but these buyers aren’t driven by variety: They shop on sites that give them style advice. And in India, customers expect to e-commerce sites to have a chatbot to answer purchasing questions.
Customer Service Preferences Across the Top 11 Markets
Additional Considerations for International E-Commerce Expansion
A new country means new logistics. Early in the planning process, determine what level of infrastructure is required to be successful. Does the company need a brick and mortar store or is this global expansion strictly e-commerce? What about an in-country representative to navigate unexpected business issues that may arise? Is current counsel qualified to review local contracts and explain legal restrictions? In China, where 9.86 million domestic merchants already operate online, the government must approve new e-commerce providers for bonded import. In Kenya, sites need a Communications Authority of Kenya (CAK) license, and South Africa requires Consumer Affairs Committee registration. Does current counsel understand the new market’s required application processes?
Online-only retailers may need a new address: While .com is internationally ubiquitous, consider adding .cn, .au, and similar country-specific domains. Fully translated sites on local domains perform better in SEO, helping brands attract new customers in those markets. If translation is too intimidating, try buying foreign domains that redirect to your company’s main page. Even if these new URL’s are never used, owning them prevents competitors, domain resellers, and others from buying them first. Similarly, e-commerce companies should trademark brands and slogan in each new market, preparing for possible intellectual property theft in countries like China where piracy is common.
Make sure your e-commerce site also honors each country’s data security laws and expectations. In places where international privacy regulation GDPR has been adopted, e-commerce sites must get individual user permission before dropping cookies. GDPR started in Germany, but was later implemented by the entire European Union and the United States. According to the U.S. Department of Commerce, data gathering or use of any type is also prohibited in Israel without user consent, and Commerce indicates Canada has similar restrictions: “Entities cannot collect sensitive information without explicit consent by the consumer.”
Consumers in these countries will likely be more sensitive to how their data is gathered, stored, and used. In e-commerce, this affects customer viewpoint on product recommendations and retargeting ads: Instead of seeing them as personalization, they’re more likely to see your brand as invasive.
This European — and growing American — focus on information security also negatively affects point of purchase. In the United Kingdom, for example, online retailers say 25 percent of cart abandonment comes from customer concern over online payment security. Keep SSL certificates up to date, provide a guest checkout option, and don’t ask for more information than the company truly needs to complete the transaction and ship the product.
Before doing too much research, also examine product legality. In China, for example, Winnie the Pooh memorabilia was outlawed after memes compared the bear to President Xi Jinping’s physique. On a less political front, countries regulate skin care, beauty, and other chemically-based products in different ways. This regulation may be marketing directed (for example, France has strict requirements regulating which foodstuffs can be labeled as organic) or it may focus on how products are made. Scandinavian countries often require proof that imported products were manufactured in ethical and environmentally-safe ways. Other countries ban certain ingredients (Kenya bans mercury, South Africa bans honey), while others require content warnings similar to California Proposition 65 in the United States. The right attorney can guide companies through what they’re obligated to disclose and partner with marketing to develop packaging labels that safeguard proprietary information.
By translating site navigation, item descriptions, and return policies into the local language, international e-commerce retailers not only better communicate with customers but also rank higher in search engines and eliminate risk of chargebacks.
Localization is crucial to a profitable customer experience, but remember to also glean insight from existing marketing and purchasing processes. New countries might mean new challenges, but they don’t necessarily mean completely new work. Before expanding internationally, look to the company’s domestic successes for early guidance.
Go To Market
To succeed internationally, e-commerce retailers need to ensure two different types of product/market fit: (1) The actual items sold must be desired in other countries and (2) products must be sold on platforms and devices where target customers shop.
This is true for business anywhere, but in international e-commerce, it specifically means thinking beyond the site. Smartphones account for one-third of all U.S. e-commerce purchases, so in this market, adaptive design and apps are both givens. But for cross border e-commerce, mobile options are even more essential. In South Africa, 38.51 percent of consumers shop by phone. In India, that figure is 65 percent and in Japan, nearly half of consumers prefer mobile browser to app.
Even customers who aren’t mobile-first like having the option: In China, consumers who shop via computer and phone spend 17 percent more time shopping than those limited to one device. They also spend across 29 percent more product categories.
In other countries, social media is a growing venue. Fifty-three percent of U.K. brands allow buying via Facebook, Twitter, and others. Only 25 percent of British consumers have actually made social media-based purchases, though, so this option is far from required. As more competitors move in that direction, it is worth investigating the prevalence of social media shopping in your target country.
International E-Commerce Purchases on Smart Phones
It’s time for a consumer-centred metric: introducing ‘return on experience’, Global Consumer Insights Survey 2019, PWC
Regarding more traditional product/market fit, market research should be of both a legal and cultural nature. Of course, e-commerce merchants should learn what currently sells well and whether existing competitors have monopolized the total addressable market in target markets. Note that brick and mortar dominance does not equate to dominance in e-commerce. Foreign companies have higher market penetration in Belgium than in the Netherlands, for example, because traditional Belgian retailers were slow to offer e-commerce.
Also be sure to note that a country’s online demographics may not mirror its population. While most developing countries have greater internet penetration in cities, culture also affects target market demographics. In India, for example, women have traditionally been barred from having back accounts. In 2014, only 43 percent had an account. But by 2017, that number grew to 77 percent. This late adoption has created an overwhelming male customer base for international e-commerce. For products traditionally sold to women there is now a competitive advantage, since early e-retailers neglected this group. But global e-commerce companies should also consider the age of the market. Whatever you’re selling, ensure you make decisions with the right set of demographics in mind to target.
To be successful in global markets, you will need to carve out or create an entirely separate budget to support marketing efforts for product promotion. To build your first international budget, research performance data in the target country, estimate acquisition and marketing costs, and align these expenses with the company’s larger sales goals. Some markets require larger budgets than others. Certain countries’ marketing channels charge more, and pay-per-click rates, for example, vary by location.
“If you don’t have much of a budget,” the U.S. Department of Commerce says in its online guide, “you will need to compromise on what you want the site to do.” Sometimes making the business case for a separate international budget can be challenging, particularly when a business as little or no historical data or proven success in a given market. To overcome this challenge, start by looking at available market data, best practices, and market trends to make a case for a global marketing budget. Consider getting out in front of the issue by crafting your marketing strategy before conversations for new market launch get too far along. That way you can align all the stakeholders early on and ensure a smoother process once marketing strategy planning gets underway.
Earlier in this guide, we discussed the importance of A/B testing, noting how small experiments can prevent brands from making big mistakes. A/B testing frequently across different target locales allows you to stay ahead of the game and continually optimize your site experience for each market. It’s important to stay current not just on what does and does not work for your brand, but also on larger market preferences and pressures as well. Then use your learnings from these larger trends in your testing strategy to see how your global customers respond.
As you assess all the necessary components for a successful international e-commerce strategy, think about which operations can be managed by technology. The right software solution will calculate VAT, duties, and taxes; integrate with shipping carriers; round prices; display correct prices on product description pages; and allow you to create rules that show the full product catalog to some markets while restricting products for others.
As you evaluate different platforms, think about how this new tech needs to integrate with software you already use. The right technology vendor will have available connectors to major platforms and APIs with hundreds of open endpoints. For more information on the right questions to ask a cross border e-commerce solutions provider and technology vendor, check out our Request For Proposal here.
MVMT: A $20 Million Pivot
When timepiece and accessories company MVMT expanded internationally, the brand initially took a low-impact approach. A strong, global social media following drove site traffic, but international conversion was significantly lower than domestic. Cross border customers were making their own tax and duty calculations and were also responsible for remitting their own fees to local authorities. Orders took up to three weeks to fulfill.
Director of e-commerce Alicia Radabaugh identified the problem, realizing MVMT was missing a significant revenue opportunity. The company turned to technology for a solution, selecting a tool that helped MVMT address these and other operational challenges. Radabaugh’s team used the software to determine local currency pricing for 200 countries, to manage exchange rates, to set rounding functions, to apply proper taxes and duties, and to provide customers with multiple payment and shipping options. The company also streamlined the addition of 60 new local payment options. Processing costs decreased by 20 percent; shipping savings were even greater, going down 30 percent.
Technology also enabled MVMT to better focus on their online customer experience. The team used A/B testing to explore price rounding, taxes and duties display, and shipping tier options. This data-driven approach not only improved customer service, but it also grew sales. Today, MVMT makes more than $20 million a year from international e-commerce.
From the U.S. Department of Commerce to each state’s local World Trade Center, international e-commerce advice is readily available. Most foreign countries also have trade offices to help American companies expand, such as Invest in France or the United Kingdom’s Department of International Trade. Unfortunately, advice from these organizations can often conflict. For example, one group may advise retailers to cross dock, while another recommends direct shipping. The best way to handle any advice is to thoroughly research and analyze which options work best for the company, the product, and the new market. While some e-commerce best practices are static from one industry to the next, what’s best for one retailer may not be for another.
By staying up to date on different countries’ market conditions and by using innovative technology to execute, e-commerce leaders can lay a strong foundation for international growth. When brands trust intelligent partners and strive to learn more about new markets well after entry, they get results and expand their brand reach as revenue grows.