Cross-border e-commerce: it's a big deal
Our CEO Jack Zhang flew over to eTail Asia in Singapore this week to speak alongside the globe’s biggest brand directors about the challenges and opportunities presented by cross-border e-commerce. Purchasing cross-border goods online has taken off faster than a Louis Vuitton handbag in transit, and two out of three customers who shop online now look outside of their own country in search of the best deals. In line with Jack’s visit to Asia’s hottest e-commerce conference, we explore why and how cross-border online retail has made such phenomenal growth.
The cross-border e-commerce boom
Cross-border e-commerce is making huge strides, owning a 21% share of the world’s online trade market – and it only continues to expand. A February report by DHL predicted that cross-border e-commerce will grow at a rate of 25% over the next three years, reaching $900 billion by 2020.
It’s not just the big corporations who are benefitting from cross-border e-commerce. The report highlighted four very different types of successful e-commerce players: e-commerce giants like Amazon and Alibaba, Pure online retailers, Brick-and-mortar retailers that can leverage the reputation of well-known brands, and manufacturers, which can bypass middlemen like distributors and sell more profitably directly to consumers.
There are four main reasons why it has become so popular:
The increase in the use of mobile phones to purchase goods. A survey by Mobify found that 40% of online shoppers in India were using smartphones. This is similarly true in China, where around almost half of online sales are made on a mobile device. Nearly half of US citizens have made a payment using their mobile phone. The future is mobile, and online retailers are adapting to it.
Shipping costs have decreased, thereby making the prices more attractive for the consumer. New container ships are larger and more efficient than previously, while the economic downturn has also created an over-supply of shipping, meaning it can now be incredibly cheap.
Consumers are more connected, and prepared to look internationally. They know what’s out there and they know how to find more affordable alternatives without sacrificing quality.
The surge in financial technology over the past five years has lead to a diversification of payment options in the market. With consumers using a variety of payment methods which vary depending on the country, a number of technology solutions have sprung up to aggregate them and allow online retailers to offer local payment methods to their customers. While credit card payment is still the number 1 option for cross border online shoppers, online payment methods like Alipay and Wechat Pay are coming to the fore, and are expected to disrupt the way consumers pay for their goods.
Twelve main players make up 80% of the world’s cross-border e-commerce customers: Australia, the UK, Hong Kong, Germany, Singapore, Japan, Brazil, Switzerland, United Arab Emirates, Kuwait and France. Singapore and Australia outpace China in terms of e-commerce consumers purchasing cross-border, with South Korea a serious contender with close to 50% of online shoppers making a cross-border purchase in the past year.
Cross-border shopping habits are, however, not unified across the globe. The Asia-Pacific region is growing the fastest and will have the leading contribution to cross-border B2C E-Commerce sales globally between 2014 and 2020, accounting for almost half of all purchases.
While the market is dominated by the world’s richer countries, e-commerce continues to grow steadily even in countries with struggling economies. Despite the continuing economic crisis, the greek online market has been growing by 40-50% according to eMerchantPay. Based on the research of Credit SUisse Research Institute, the “total annual online retail sales across our surveyed markets- Brazil, China, India, Indonesia, Mexico, Russia, Saudi Srabia, South Africa and Turkey- could reach up to 3.5 trillion US dollars and impact companies across multiple sectors, including retail, finance, security and technology.” India is also an avid consumer of cross-border goods, with a spend of US $8.7bn last year- that’s an increase of 78% between 2015 and 2016.
If you’re looking to break into the lucrative global market, make sure to target customers differently depending on the country. Cultural differences could possibly rule out your chances of becoming a success overseas. For example, in China red is associated with luck whereas white is associated with death. Hiring a local partner might be a good way to overcome cultural issues.
China: a nation transformed
We hear a lot regarding China’s expanding middle class and the consumer of 2020, with Deloitte predicting that there would be 60 million affluent consumers in China by 2020.
Chinese consumers have long been fond of international products. This was exacerbated after the 2008 baby formula incident where 6 infants died and 54,000 babies were hospitalised after ingesting locally made infant formula containing melamine. Foreign goods, particularly those from renowned brands, are perceived to be better quality, due in part to higher quality standards in Europe and North America. Chinese consumers are also extremely price-sensitive and they love bargains. Many are willing to wait for longer shipping times if it means getting a cheaper, authentic branded good.
In 2016, China saw almost US $32bn worth of cross-border ecommerce sales, an annual growth rate of 86%. The most popular categories included cosmetics and children’s clothing. With fresh food seeing a big increase in domestic online purchases, it’s only a matter of time before it makes an appearance in the list of favourite cross-border shopping categories.
The Chinese government introduced regulations to facilitate cross-border ecommerce four years ago, lowering duty tax on ecommerce goods and though there has been a slight tightening of regulations in 2016, these have not substantially compounded the difficulties in selling direct to the Chinese consumer.
Whilst personal overseas trips remain an extremely popular way of purchasing foreign goods (where such trips are positioned as tourism but firmly revolve around the task of securing desired products that the Chinese are not able to find on the domestic shelves), Chinese consumers are shopping more and more for foreign goods online. The four main channels for Chinese consumers to acquire cross-border goods are:
Tourism, where Chinese tourists buy the goods themselves when traveling abroad or via acquaintances;
Daigou, a channel of commerce in which a Chinese person overseas purchases commodity, includes luxury goods and groceries, for a customer in mainland China; this usually takes place over social media (e.g. WeChat) and daigous have been known to film themselves purchasing products to prove the goods’ legitimacy
Haitao, the phenomenon of scouring the global websites to buy the products that the consumers want. International e-commerce websites like Amazon now allow the Chinese to directly purchase from their international site and have the products shipped to China.
Directly via an international brand’s online website, however most do not ship directly to China. As a result, a number of third parties have sprung up allowing international buyers to buy goods say in the US and get them shipped to a US address – the service will them ship the goods back to the buyer’s home country for a premium.
Purchase via foreign retailer on a Chinese B2C web shop. Since the spring of 2014, this is an interesting option for foreign retailers due to initiatives as cross-border portal Tmall Global, JD.com, and DHGate. The main advantage is that as a foreign retailer you are not obligated to have your company registered in China.
Consumers of goods in China are so enamoured with the online shopping of foreign goods experience that Alibaba’s Tmall has seen its imported products to Chinese consumers double in 2016 and Amazon saw over 10 million orders from the country last year. As a result, the connection between brick and mortar stores and ecommerce is quite strong.
At the moment, a lot of businesses prefer to sell on sites like Tmall to reach online Chinese cross-border shoppers. In fact, almost two-thirds of Chinese cross-border online consumers utilise import channels of major Chinese E-commerce websites such as Alibaba's Tmall Global and JD.com's JD Worldwide when purchasing international products online . But social shopping is becoming increasingly popular and WeChat’s recently announced mini-programs mean it’s essential for online retailers to have a presence on the platform.
Payment methods are obviously crucial, particularly in China which has a very unique payment ecosystem. eWallets are incredibly popular and traditional card schemes like Visa and MasterCard have a very limited presence.
In 2017, eMarketer estimates, retail e-commerce sales in China will reach $727.24 billion, making up 61.0% of retail ecommerce sales and 13.3% of total retail sales.
You’ll all be familiar with Alipay, WeChat Pay (Tenpay) and Union Pay. Whilst Alipay remains the dominant player, in part thanks to its dominance in the B2B ecommerce market, WeChat Pay made enormous gains since launching in 2013 and the same progress would see them overtake Alipay in 2017 in China
Very clearly, if you’re trying to expand to the Chinese market and you don’t support Chinese payment methods, you’re very much missing out.
Shipping costs have decreased, customers have become more price-savvy, and the future is mobile: these are just three of many factors that have led to unprecedented growth in the cross-border e-commerce market, which has gained popularity in both booming and developing economies worldwide.
Entering into a market that is set to be worth $900 billion, there are clearly huge lucrative benefits from selling your goods cross-border. However, in order to maximise on these benefits you need to ensure you find the best exchange rate available to you, and that you are complying with the legal requirements for the specific countries you are looking to expand into. Cross-border e-commerce is the future, so make sure you are ready for it.