Cross-border e-commerce: What’s all the fuss about?

The UK e-commerce market has really caught light over the past few years and this ramping up of activity shows no sign of abating. The statistics bear this out with the UK e-commerce market, totalling £60 billion in 2015 and expected to reach £90 billion by 2018, according to eMarketer’s latest forecasts. This means our market is the strongest in Europe and the third largest in the world.

With shoppers in the UK and Europe as a whole becoming more comfortable with e-commerce, many are now happy to buy from other countries. Subsequently, cross-border e-commerce has become the next great bastion of opportunity for online retailers. The statistics support this with cross-border e-commerce accounting for $230bn (£160bn) of a total estimated $22trn (£15trn) in worldwide e-retail sales. By 2020, forecasters predict an annual growth of approximately 20 per cent, bringing that number to over $1trn (£0.7trn), or almost 30 per cent of all B2C retail transactions.

But what do we mean when we talk about cross-border?

In layman’s terms, cross-border e-commerce is effectively international e-commerce, i.e. when consumers buy online from retailers that are located in other countries, jurisdictions, and territories. These international consumer retail transactions are primarily of products and services that may be otherwise unavailable in home countries; however, factors such as speed of delivery and cost of product are now also deemed as key considerations for consumer purchases.

So what are the opportunities presented by cross-border e-commerce and what’s driving all of the interest?

The benefits of cross-border e-commerce

The Internet is truly the enabler of the global marketplace. Consumers can shop globally by purchasing products and services across their border driven by factors such as a common language, a common border, special offers, or simply because the product or service isn’t available in the consumer’s own region. The increasing popularity of mobile devices like tablets and smartphones allows consumers to compare prices and select a web shop independent of location. Consumers can transfer payments via their PC, laptop, mobile phone, or tablet, anytime, anywhere.

Cross-border e-commerce allows retailers to expand their business outside of their often saturated home market and into otherwise unknown or underexposed demographics, in particular, locations with a burgeoning economy. In an increasingly global marketplace even smaller retailers have indicated increased revenues due to the proliferation of international e-commerce.

The challenges of cross-border e-commerce

There are a number of challenges associated with cross-border e-commerce, from regulatory restrictions and the plethora of payment options to the myriad of tax and liability variances throughout foreign territories.

Retailers need to understand local business customs, consumer preferences and cultural differences, all of which affect decisions around inventory management and product marketing. Marketing strategies need to be customised to reach a different audience in a foreign market. Different infrastructure might also require local logistic and delivery services. Managing this range of variables is becoming ever more challenging however technology, as it so often does, is stepping up to help retailers take advantage of these growing markets. E-commerce platforms and providers continue to develop intelligent software which enables retailers to handle multiple markets, marketplaces and sales channels.

Consumers also have high expectations around logistics and timely delivery and shipping costs are important drivers determining consumer preferences. We know from independent research that we commissioned late last year that consumers expect goods to be delivered within three days and also expect clear returns policies if they are to commit to a purchase. This becomes even more important when shopping from abroad. We also know that retailers that offer free or cheap delivery and returns attract more consumers.

With the growth of cross-border e-commerce, investing in this area is essential for SMEs and bigger businesses alike. Many consumers are just becoming aware of the opportunities to buy outside the UK and retailers need to offer broader options to allow these items to safely arrive in the country and in good time, especially around peak shopping days such as Black Friday and Cyber Monday.

Consumers also prefer to pay in their local currency. Global expansion requires multi-currency conversion and settlement in currencies defined by major card schemes, including interchange rates. Banks in other jurisdictions have to be compliant with local legal requirements. Global payment solution providers with regional partners in the card payment sector, partners which have acquired expertise in the technical, innovative and legal aspects of online sales, can help retailers to manage transactions over one secure payment gateway.

Only recently however the European Commission announced a new proposal for a law stopping 'geoblocking' (where companies limit access to their websites based on user location) which will vastly change the limits currently placed on e-tailers, opening up websites to more customers, especially for small and medium sized businesses.

Cross-border e-commerce really is an ideal channel for expansion for most online retailers seeking new markets and territories to operate in. The UK is leading this e-commerce expansion throughout Europe and has quickly become one of the top countries cross-border shoppers purchase from. Retailers are also eager to tap into the rapidly growing mobile shopping market. PayPal reported that 59 per cent of online transactions in the UK are made via mobile devices. The language uniformity and comparably smaller surface area of the country also allows for a streamlined fulfilment infrastructure and simplified selling process.

Moreover, in the digital retailing context, UK online consumers are already avid cross-border shoppers. So despite the challenges associated with cross-border e-commerce, the reality is clear; cross-border e-commerce is the next big opportunity for online retailers, so jump on the bandwagon or risk being left behind.

Matthew Robertson, Commercial Director at NetDespatch