What is Cross Border Commerce?

Bridging Global Markets

Cross border solutions generally involve a retailer in one country accepting orders from a buyer in another. The retailer needs to have the means to price the transaction for the buyer, take payment and to deliver the goods purchased to the buyer in their country without surprise customs tariffs and taxes charged on delivery.  

The goal is to replicate the type of experience buyers are accustomed to when buying from domestic retailers.  With an international transaction, there are new hurdles to consider including foreign exchange rates, payment methods, customs clearance, associated tariffs, and more complex transportaiton routes and vendors to manage.

Domestic eCommerce

In order to help illustrate the nuances of international ecommerce, let's describe the domestic ecommerce experience so that we can use it as a reference.

Most domestic ecommerce orders flow through the following life-cycle.

Retailers start by attracting a prospective buyer to a point of sale with one or more products they are interested in purchasing. The retailer facilitates the shopping experience, closes the order and then delivers the purchased products to the buyer in a timely fashion.

Here are the steps again with some more detail.

  1. Retailer targets prospective buyers using a mix of online and offline mediums. Retailer attempts to entice the buyer with a 'call to action'.
  2. Retailer handles the call to action which typically includes a promotional offer.  Offers can include access to a product that is in short supply, a price discount on products or delivery services.  The goal is to drive the prospect to the retailers point of sale.
  3. Browsing of merchandise is initiated from prospective buyers via the call to action, merchandise is displayed to the buyer, ordered by likelihood of purchase.  Product displays are tailored to buyer's browsing behaviour and tyically includes cross selling of related merchandise.  Buyers are encouraged to add items to their carts for purchase consideration.
  4. Purchase intent is initiated by the buyer through adjusting their cart's product mix and initiating a checkout flow.  During the checkout flow, further pricing is calculated to include discounts associated with quantities or pairings of products, as well as, transportation costs, inventory checks and delivery promise calculations to get the products to the buyer.
  5. Orders are placed when buyers are satisfied with their pricing, delivery promise, have provided a payment method that has available balance and through fraud tools, buyer has been verified and not a restricted party.
  6. Fulfillment of order items ensues once payment and inventory has been verified, items are picked, packed and parcels are measured, weighed, labelled and dispatched through the appropriate logistics agent.
  7. Buyer's order delivered by logistics agent.
  8. Post order support and exception management are managed to acceptable levels of tolerance commensurate with the retailers brand objectives
  9. Analyze buying behavior and buyer profiles, adjust prospecting targets, call to action and send revised demand generation campaign wave out.

International eCommerce Complexity

So how is international ecommerce different?  In our experience, international commerce can be fine tuned at every step of the domestic ecommerce process outlined above, but getting the following areas right is particularly challenging.

International Merchandising - The retailer has more pricing responsibility with international transactions, specifically for brokerage related costs. These importation fees were not part of the base domestic flow as there was no cross border activity.  Now that the transaction, or more importantly the goods that are shipped as a result of the transaction, need to move across an international border, there are extra fees at play.  This includes mainly duty tariffs and value added taxes (VAT) assessed by the buyer's country's revenue agency.  Fees may also include customs brokerage charges which is the fee associated with filing a customs importation entry for the goods being shipped to the buyer. Different countries use different calculations to arrive at what value is dutiable or taxable. Sometimes this includes shipping and handling fees. As with the logistics pricing requirements, financial pricing can be complex as well. Depending on use of features like currencies and payment methods, offered.

Trading Partner Breadth - The retailer can offer different shipping methods for reaching international addresses, this includes address constraints, parcel size and value limitations, insurance constraints and whether the logistic provider can deliver the parcel and charge the retailer for importation fees or not.  Most international delivery solutions offered by logistics companies still carry cash on delivery (COD) fees on parcels where the buyer is charged importation fees at the door.  In INCO terms, this is called delivery at place (DAP).   Only newer delivery duty paid (DDP) logistics products shelter buyer from additional or surprise fees.

Government Regulations - The retailer seeks compliance with different shipping and importation regulations when selling internationally.  Can the goods the buyer is buying be shipped to them?  There are many rules and regulations for what can and cannot be shipped internationally and those rules depend on how the shipping is being done.  If these compliance checks are not done by the retailer early, the international buyer may experience a very cumbersome delays, added expenses and may not be able to receive the items they have purchased.

Localized Payments - The retailer has to consider new complexities around international payments.  Specifically, there are three main issues 1)handling of foreign exchange rates and currencies, 2) fraud prevention and 3) support for limited payment methods.  The financial industry has been making some good advancements with tools in these areas for their retail customers however the operational concerns are still present and must be managed.

Returns Management - The retailer offering could include merchandise returns. Once goods are exported from one country and into another, it is no longer straight forward to return these items.  It can be done but one must understand the extra costs, customs implications and buyer payment credits associated with different return paths.

As you can see, expanding your ecommerce operation globally doesn't come without its challenges. We haven't even touched on concepts like language support, cultural nuances, timezones, varying seasonalities. These concepts and others are explored in the next section as we discuss the retailer's international expansion maturity model. International market share will find its way to those that can manage the complexity of their international expansion wisely.

The International Expansion Maturity Model

Over the years, retailers have approached international commerce in a conservative way with much of the retail community somewhere between points 1 and 2 below. In the most recent years, a greater emphasis on international market growth contribution on CEO top 5 annual goals. We believe that retailers should test and build international order support commensurate with the market opportunity in front of them. The expansion model below illustrates how a market can be optiminized over time in line with buyer demand.

Phase Objective Approach
Phase One Accidental international order support Special orders via toll free phone and customer service agent, leveraging shipping agent with international reach such as FedEx, UPS, USPS. Resilient buyers from select markets may make a purchase.
Phase Two Formal international order support Extend domestic ecommerce operation to accept international orders and fulfill via integrated cross border shipper like Pitney Bowes. Tap into the buyer market with a simple set of features.
Phase Three Managed Country Program Make shipping more efficient by aggregating order fulfillments into containers for more of the multi-leg delivery journey (most retailers don't or at least haven't yet moved past this point). Convert more prospects to customers by reducing costs and improving services.
Phase Four Compete Locally with Local Delivery Move your high volume product inventory in country for fulfillment
Phase Five Local Presence Develop completely local ecommerce and/or bricks and mortar points of sale, emphasis on local experience where warranted. Full market entry with strong growth objectives.
Phase Six Just in Time Leverage manufacturer direct shipping. Reorganize entire sections of the supply chain to minimize the amount of processing done to a product.

 

Cross border trade is made up of a complex network of logistics and payments service providers, the systems that power those services and the marshalling of data between those service providers is where we are at our best. Each border crossing has a different chain of service providers. Each collection of agents uses a different set of pricing rules and currencies to price in.