The e-commerce business is becoming my favorite topic lately.
The white paper I was reading focuses on cross border e-commerce activity and the actual pitfalls.
First of all the facts and figures:
Cross border e-commerce is on the up:
The United States is the most popular country for buying online goods (45%), followed by the United Kingdom (37%), China (26%), Hong Kong (25%), Canada (18%), Australia (16%) and Germany (14%).
Opportunities...
The strong growth of cross-border e-commerce is creating an unprecedented opportunity for e-tailers. However, an efficient and flexible distribution network is required in order to fully reap the rewards of this growth. The e-tailers that will be successful in the future will be those that are capable of optimizing their distribution networks and challenging the barriers of cross-border e-commerce.
Evolution of the distribution network
It is important for e-tailers to determine the optimal location for their Internet Order Fulfillment Centers (IOFC), as well as the number of IOFCs they want to have.
The required storage space, the number of orders, and the profiles and addresses of the consumers are important considerations in this. Other factors also play a role, including the availability of items, accessibility, and delivery times.
E-commerce also stimulates the demand for certain kinds of e-commerce facilities: mega e-fulfillment centers, parcel sorting centers (hubs), local parcel distribution centers for last-mile supply chains, local city logistics depots, returns centers, and e-fulfillment centers for online food purchases. Furthermore, Jones Lang LaSalle (JLL) expects a merging of these e-fulfillment centers with urban logistics, since most online consumers live in cities.
Unfortunately, there is no perfect model that can be applied by every organization. Some e-tailers opt to develop a global network with local distribution centers, while others prefer to work with third parties8, or work with logistical operators that not only offer delivery but also provide fulfillment solutions . The importance and the complexity of returns logistics cannot be underestimated. Data from Kurt Salmon, a management consulting firm, shows that online consumers return between 20% and 30% of clothes and other “soft” goods bought online and a little less than 10% of the “hard” goods, such as toys and products for home use.
Obstacles limiting cross-border e-commerce
Complex returns logistics
A quick look online shows that international online transactions are still handled differently from e-tailer to e-tailer. For the consumer, the only solution is to carefully read the returns policy.
With some e-tailers, cross-border e-commerce orders can be returned free of charge, while others demand that the purchaser pay the shipping cost as well as the tax and customs charges if goods are returned.
Many retailers also decide per product category whether a product can be returned or not.
International postal operators put initiatives in place to make cross-border returns just as transparent and easy to use as domestic returns, with the use of a “postage paid” label and a track-and-trace service, among other means
Online payments
In order to make buying online more attractive to consumers in target markets, e-tailers have to be familiar with local payment preferences. Credit cards may be the norm in some countries, while in other countries this may be a completely unfamiliar option14. In Russia, it is still very common to pay in cash upon receipt of the goods, whereas this rarely happens anymore in Western economies.
Closed borders
If there is a clear benefit attached to purchasing products across borders, consumers are prepared to wait longer for their orders17. Similar to domestic purchases online, the customer expects faster, more precise delivery within a more reliable timeframe. For this reason, unpredictable customs checks can be a thorn in the side of many e-tailers18. The World Economic Forum estimates that lowering the supply chain barriers between countries — barriers such as customs formalities — would increase cross-border e-commerce by 60% to 80%
.Online consumers also want insight into the status of their delivery process. Presently, many e-tailers fail to provide online consumers with sufficient insight into the overall delivery process for cross-border purchases. In recent years, there has been a lot of investment in track-and-trace solutions. The Internet of Things also opens up new possibilities
Pricing: VAT systems and import taxes
The lack of a Europe-wide VAT system is one of the greatest obstacles for cross-border e-commerce within Europe. The complexity of the various VAT systems and import taxes worldwide is slowing the growth of e-commerce. It is often difficult for customers to estimate what the ultimate cost of the product will be when making a cross-border purchase online20.
We are slowly seeing examples of e-tailers who go
Need for a "total landed cost price"
The e-tailer will see fewer customers bowing out before the end of the purchasing process. To make pricing more transparent, e-tailers can offer their customers a «total landed cost price». This price includes the total cost of shipment, including delivery, taxes and duties.
Presenting the right currency along with the familiar local payment methods and calculating the customs and excise duties is done automatically based on the ordering location, which is identified using the customer’s IP address.
Eliminating supply chain inefficiencies
For online e-tailers, it comes down to finding the right balance between cost and speed of delivery. This is where efficient distribution networks hold the key. For a consumer that values fast delivery above all else for example, the flexibility of the distribution network is the most important. Large companies often adopt a more segmented approach with centralized warehouses for slow-moving goods and a more local distribution model for fast-moving products25.
Unstoppable change
Cross-border e-commerce will continue to grow in the coming years, due to the gradual removal of barriers to entering the market and the fast growth of e-commerce as a whole. The more logistical e-commerce models continue to develop, the more changes we will see in the physical distribution networks. One of the tendencies currently gaining momentum is that e-tailers are starting to have their own physical stores and are delivering directly to the online consumer from these stores instead of from national warehouses or regional distribution centers.
If the obstacles holding back cross-border e-commerce can be removed, it won’t matter to the consumer whether they purchase from their own market or across the border. This represents a golden opportunity for e-tailers to rethink their business models. Instead of organizing their businesses by region, they could, for example, organize based on customer requirements, the products sold, and the services provided, without specifically taking the location into account.
and the winners will be.....
Long-term partnerships with distribution partners stand to add significant value in realizing this ambition. The e-tailers that manage to jump the hurdles standing in the way of cross-border retail have the advantage in the global market.
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