Expanding your e-commerce business internationally has a number of benefits. However, when surveying small and medium sized businesses (SMBs) only 57% were positive and confident about operating on a global scale, according to OFX’s second annual SMB Confidence Indicator.
So what are the things you need to consider before expanding your business outside of your home country?
This article is the first part from a series of three, on International Expansion. Each discussion topic will be treated independently in order to provide you with in depth information about cross-border operations.
Suppose you are an online business manager who has been in the local market for over 4 years, and has managed to attain a considerable share of the market for his product category. Moreover, you have already diversified your product portfolio with brands that help you cross-sell and upsell to your loyal customers. However, for some time now, your business growth has stalled, and gaining new customers has become increasingly problematic. You have an innovative product of your own, diversified complementary offerings and convenient deliveries, however, new clients are increasingly hard to find. As a business manager you ask yourself, what other growth options do you have at your disposal. Cross-border operations come to mind and you are starting slowly to navigate all uncharted territories pertaining to this subject.
According to a McKinsey study the potential of cross-border e-commerce is predicted to reach 900 - 1,000 billion $ in 2030. This has made you understand that expanding internationally will provide your business with increased revenue as you reach more potential customers. Markets where consumers have a bigger buying power can increase your margins, while your production or acquisition costs remain the same.
Having your revenue stream diversified by geographies allows your company to easily navigate times of uncertainty influenced by the shifting forces of the geopolitical context. Furthermore, international trade will help your company better transition through periods of market recovery, as buying patterns differ from market to market, unless there are global factors influencing all markets.
Lastly, every geography comes with its particular set of learnings and insights. Having a larger view on consumption patterns and consumer behaviour will enable you to make better decisions for your organisation, leveraging the power of comparison between those markets. Thus, your brand will continue growing from strength to strength.
Operating in a new market usually implies a different legislative program you have to adhere to, depending on the rules and regulations in place for that country. In order to tackle this issue, you need to define your cost structure correctly (marketing costs, delivery costs, VAT, import duty, revenue tax, etc) and align it to your existing organisational structure. Preparing this in depth analysis will help you control your cost structure and define your measure for success.
Operating an online business, with no physical presence most certainly implies the delivery of goods towards the end customer. You need to ensure you prepare a list of possible carriers with whom you should conduct the last mile operations, while at the same time ensuring advantageous SLAs. This might be a tricky aspect, taking into account you have no prior direct experience of their services.
Your business has multiple ways of carrying its cross border operations. When trying to solve the complexity of international deliveries, it is important to go beyond the generated cost factors, into the overall experience offered to your new clients, in terms of waiting times, quality of goods after delivery, return possibilities. Let’s quickly break down the major flows your business can engage with when delivering abroad:
a) Dispatch by parcel model
This implies that every time a customer places an order on your site, their order is being processed within the SLA and dispatched on an individual basis. While this flow might be the norm for domestic operations, when talking cross border you will have to consider all the accruing costs that this method might entail. This method is most suited at the beginning of your expansion as it allows you cost flexibility while you are building demand.
b) Direct-injection model
This method implies shipping orders in bulk towards the destination country and upon their arrival they get separated in individual parcels that are then allotted to the last-mile carriers before they reach the end customer. While this method might entail better cost efficiencies for a business that has a constant stream of orders, it might propose unnecessary costs for a company that still establishes its presences in a new market.
c) Localisation model
Once a business has established a solid presence in its new geography of choice, another model of shipping might become the norm for profitability. As the demand stabilises and it becomes constant, the company can make accurate forecasts based on it. To further consolidate its presence in a market, the company might consider opening a local or regional warehouse that could service either the country or the region based on what makes more sense for its current and future strategic plans.
Follow this space to discover our next entry in the series: Tools that could help you reduce the risk associated with operating cross-border.