Everything You Should Know About the Cross-Border E-Commerce Market
Learn about the cross-border e-commerce market and how it is impacting electronic commerce order fulfillment around the world
In today’s global environment, e-commerce businesses have more opportunity to trade outside of their home markets than in previous years. Cross-border e-commerce business models have become more popular as advanced technologies have propelled global supply chains towards digitalization. The competitive advantage supply chains once gained from controlling operational costs and quality is now hinged on how well they can serve the e-commerce market to satisfy international consumers. Last year, cross-border e-commerce sales made up 55% of global e-commerce purchases.
Cross-border e-commerce has transformed the way that consumers, logistics service providers, and sellers do business online. On the surface there may seem to be little difference in purchasing from an e-commerce site hosted in an entirely different continent and one located in your country. However, cross-border e-commerce solutions are not blanket solutions. With cross-border online shopping becoming more dominant in the e-commerce market, companies need different solutions for the various locations they service. These variations can impact:
- Customer satisfaction
- Customer retention
- Purchase price
With the power of the internet, cross-border e-commerce is helping to form integrated and collaborative global supply chains. For example, pieces of traditional supply chains such as cargo shipping, payment transactions and document changes are included in a network of supply chain services that can lower costs and improve the efficiency of cross-border e-commerce order fulfillment.
Leading Cross-Border E-Commerce Companies
What Does Cross-Border E-Commerce Look Like?
Cross-border electronic commerce involves the fulfillment and parcel dispatch of orders placed on e-commerce websites by consumers in other countries around the world.
Types of cross-border e-commerce:
- Business to Consumer – B2C e-commerce transactions relate to online retail sales where companies sell directly to consumers.
- Business to Business – B2B e-commerce is online trade between two businesses.
- Consumer to Consumer – C2C e-commerce is between private persons via online marketplaces such as Alibaba and Amazon.
In the aftermath of the COVID-19 pandemic, experts predicted that the scarcity of products in domestic markets would have a positive influence on the cross-border e-commerce market. As the internet and advancements in information technology have integrated supply chains with e-commerce platforms, people are making purchases from other countries with the push of a button.
Cross-border online shopping accounted for 22% of all e-commerce in 2021, rising from 7% in 2016. The market is expected to grow to over $15 trillion by 2027. What is driving cross-border e-commerce growth? Experts believe that the growth is due to a few reasons.
Along with the advancement of technologies that make cross-border online shopping easier, experts believe that free trade agreements have also made an impact. China’s Free Trade Area and the recently amended European Free Trade Agreement have helped expand the cross-border e-commerce market by opening supply chain networks. These trade pacts enable:
- Faster exportation procedures
- Increased market access
- Expanded tax-free programs
In 2020, there were 9.3 billion cross-border orders, and 60% of were intercontinental.
Technology and Cross-Border E-Commerce
Cross-border e-commerce is the next venture for many e-commerce businesses, big or small. When addressing online consumer demand at home and abroad, it is vital for companies to have transparent and sustainable online business infrastructure. The ability to not only order products thousands of miles away from a mobile device, but also receive quick, secure delivery is important to cross-border consumers. Any disruption that causes a negative customer experience will influence customer satisfaction.
Companies that are taking their e-commerce business beyond their borders are utilizing digital technology to engage with their customers through interaction with:
Digital technology enables companies to utilize an omnichannel approach, which offers a more personalized online experience for each shopper. For example, companies that sell products online can increase customer retention by leveraging social media channels such as Instagram and platforms such as Amazon to boost customer engagement. Touchpoints such as these help to accelerate the customer journey by streamlining the flow of information. As a result, retailers and online stores can engage with international customers at various levels along the supply chain, from content to payments, logistics, and even customer support services.
Today’s consumers want a fast and seamless online shopping experience without paying high prices. For example, as prices continue to rise in the United States and Europe due to labor and fuel shortages, consumers are purchasing products from abroad. In Europe there are nearly 1 million ecommerce sites, and over 73% of Europeans that shop online buy cross-border.
A recent study shows that although cross-border e-commerce is increasing in emerging online markets such as Africa, Latin America, and Asia, nearly 75% of cross-border retailers have stated that their e-commerce transactions are not being settled in their preferred currency. This can cause companies to increase their prices to recoup exchange rate fees, which can impact their cross-border e-commerce sales.
Cross-border e-commerce payments can be complex because they often involve the exchange of currency between multiple parties. The seller and the consumer are usually located in different countries and make transactions in different currencies, which can cause issues without the correct technological infrastructure. These parties can include:
- Businesses or consumers purchasing products
- E-commerce platforms
In August 2019, Citibank launched their version of a global digital wallet. This wallet enables its customers to make online purchases across 150 countries without converting currency. This is especially beneficial to e-commerce supply chains and consumers as the strength of the American dollar grows.
The Internet of Things is also helping to push cross-border e-commerce forward by empowering companies to add value to their supply chains through automation and artificial intelligence. Cloud communication enables global payment platforms such as PayPal and Google Pay to save information from credit cards or bank accounts for seamless e-commerce transactions. The ability to automate repetitive tasks in fulfillment warehouses and utilize cloud communication for online payment enables cross-border e-commerce businesses to:
- Grow their customer base
- Increase brand loyalty
- Boost sales
The implementation of blockchain technology within the cross-border e-commerce market has also helped to improve the e-commerce checkout process. Blockchain is not limited by country boundary lines. With IoT, blockchain technology can interconnect banking systems on a single network and store data in cloud computing systems. Blockchain is useful because it streamlines transactions between businesses and consumers, enabling real-time settlements without the need of banking systems or high exchange rates. These transactions can be processed 24 hours a day, 7 days a week, enabling businesses to meet customer expectations in prompt order fulfillment and delivery.
Percentages of Shoppers Per Country That Purchased from Cross-Border E-Commerce Stores
Brazil – 86%
Australia – 85%
Canada – 83%
France – 79%
Germany – 74%
UK – 66%
Chinese – 65%
USA – 61%
India – 56%
South Korea – 41%
Japan – 36%
Cross-border E-Commerce Order Fulfillment
Cross-border e-commerce requires a fast fulfillment process to give customers a good shopping experience. This process includes warehousing, picking/packing, shipping, and logistics.
Handling of Products
Most consumers avoid paying obvious shipping costs. A recent PayPal study shows that high shipping costs deterred over 25% of internet shoppers from international purchases. This means that cross-border online retailers must carry shipping costs. For example, if a company is storing inventory and shipping orders from a warehouse in its home country, the company will have to pay for international shipping or pass that fee along to the consumer by raising the price of the product. Cross-border e-commerce companies have options to avoid these shipping costs, however.
Some companies move their products to warehousing locations that are closer to the borders their products across which they are shipped. Others utilize international warehousing, storing inventory in fulfillment centers within countries with a high-order volume of their products. Products are picked, packed, and shipped from that location as well.
These warehouses focus on the decentralized storage of products around the world. Alibaba and Amazon are examples of companies that operate international warehouses that maximize a products proximity to the consumer. International warehouses provide cross-border e-commerce companies with a reduction in shipping costs and delivery times.
This is where relationships with e-commerce fulfillment providers and third-party logistics providers come in handy. Handling cross-border e-commerce order fulfillment and shipping independently is a gargantuan task for companies both big and small. 3PLs and e-commerce fulfillment providers offer efficient inventory management, packaging, and transportation through efficient supply chains. They can negotiate carrier rates for cost-effective shipping as well as store fluctuating SKUs for seamless warehousing operations. They can also navigate customs clearance and enable cross-border tracking and shipment visibility to meet consumer delivery expectations. This enables cross-border e-commerce executives the time to concentrate on adding value to their companies.
Cross-border e-commerce companies must utilize a wide variety of transport modes to move products from one country to the next. Combinations of air, sea, rail, and ground services all influence the delivery of orders to customers.
Air transportation makes cross-border delivery faster, safer, and more reliable. The COVID-19 pandemic limited air cargo capacity for nearly two years, however, international deliveries are growing twice as fast as domestic ones. In fact, according to the International Air Transport Association, in 2021 80% of cross-border e-commerce parcels were at some point transported by air.
Cross-border e-commerce companies such as Amazon and Alibaba not only operate their own air cargo fleets, but also have contracts with airline companies to assist with cross-border cargo hauling. Alibaba recently acquired Cainiao to support its endeavor to offer 72-hour delivery to any location in the world. Cainiao is a Chinese logistics service provider that operates out of Liege Airport in Belgium.
E-commerce has given consumers more control over parcel deliveries. This means that it is vital for e-commerce companies to possess the flexibility to meet customer expectations. If a company is unable to do so, consumers will find one that can. That is why for most e-commerce businesses, their biggest concerns involve keeping customers happy and loyal. Doing so enables them to generate new and return customers.
One of the ways that companies have been able to keep customers loyal and happy is by making sure they receive their orders on time. This all comes down to having a strong international logistics network that can move finished products through an international e-commerce supply chain.
The last-mile is crucial to the success of cross-border e-commerce. It concerns not only customer satisfaction, but also cost efficiency. Today’s e-commerce customers demand a variety of last-mile delivery options and greater flexibility in how they receive their packages. Businesses engaged in cross-border e-commerce have made last-mile delivery extremely competitive, setting a high bar for consumer expectations. Because the last mile makes up nearly 28% of the total cost of moving products, companies must utilize innovative logistics solutions to achieve cost efficiency. Strategies that mitigate bottlenecks and potential shortages, ultimately improve the customer experience.
International shipments can travel via three different transportation channels:
- The postal channel, regulated by the Universal Postal Union, handles nearly 66% of international packages weighing up to four pounds.
- International express shipments comprised of next day and two days delivery make up close to 10% of total cross border e-commerce volume.
- Commercial-parcel operators such as 3PLs handle close to a quarter of parcel shipments. These service providers can capitalize on customer expectations of fast shipping at a reasonable price. With systems connected to the Internet of Things, they offer advanced visibility that enables consumers to track their products. Experts predict that the cross-border commercial-parcel market could be worth $50 billion by 2025.
Top challenges that cross-border e-commerce businesses face
Navigating customs compliance: 51%
Tracking deliveries across borders: 46%
Managing delivery expectations: 43%
Cross-border logistics: 30%
Cross-border returns: 24%
Benefits of Cross-Border E-Commerce
One advantage of cross-border e-commerce is that it helps businesses gain exposure and enter new e-commerce markets. Larger target audiences offer a higher number of potential customers, which can lead to increased orders and revenue. Products that are not as popular domestically have the potential to be better liked in other countries. This can be beneficial to e-commerce fulfillment companies that need to clear inventory of older products to increase warehousing storage capacity.
Apple is an example of a company expanding internationally while personalizing the experiences for its online shoppers. Customers that use Apple’s online store are presented with products to purchase that are specific to their geographic region. This approach to selling online directs the customers buying experience towards the products they can use, mitigating returns that would result from them choosing products that do not work in their location.
In e-commerce, the supply of products typically depends on the demand for those products. Companies that centralize their e-commerce business in one geographic area run the risk of being negatively impacted during seasons when demand decreases. Cross-border e-commerce enables companies to benefit from different market cycles around the world. For example, a direct-to-consumer apparel company based in the United Kingdom can utilize cross-border e-commerce to sell winter clothing to global consumers while the United Kingdom is experiencing the summer season.
Chinese businesses operate over 1,900 international warehouses. 90% of the facilities are in North American, Europe, and Asia.
Selling products online is big business and cross-border e-commerce is growing at a swift rate. Over 2.4 billion people engaged in online shopping around the world last year. Of that number, close to 1.5 billion made cross-border online transactions. Despite the shaky economy, online retail sales have continued to grow globally. As consumers divert their attention away from traditional retailers and physical stores, they are shopping online more. This bodes well for the cross-border e-commerce market, as 42% of online shoppers report being comfortable shopping internationally.
Keeping up with changing consumer behavior and ecommerce trends can be challenging for cross-border businesses. Cross-border e-commerce businesses are utilizing advancements in technology to optimize their reliability, speed, and visibility. By integrating their data capabilities with a trusted network of supply chain partners, they can enhance efficiency and reduce bottlenecks. They are also able to optimize the delivery process, providing customized communications to customers according to their needs.
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