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Going Global 101: What is Border Friction?

by Laurel Delaney | August 2, 2013 | Comments Off on Going Global 101: What is Border Friction?

Creating an efficient production flow eliminates border friction issues.

 

Border-Friction-chartEcommerce is a key selling channel, leading the way in making it possible for all businesses to reach international markets. Let’s face it: Technology fuels growth and dominates every aspect of the customer online experience. Marketing drives sales. Fulfillment centers and transportation carriers help get the products efficiently to the customer’s door — wherever they might be located. But none of this is easy, especially when it comes to border friction. What’s that, you ask? In this article, I discuss what border friction is, what causes it and how to minimize or avoid it.

According to the spring 2013 Siemer & Associates’ eCommerce Report featured in Internet Retailer, “global e-commerce spending will reach $963.0 billion next year, up 17.4% from $820.5 billion in 2012.” The article goes on to report that eMarketer estimates that online retailers and travel companies will sell $1.22 trillion in goods and services to global consumers this year. That’s a huge opportunity for e-retailers, but it also raises a whole host of challenges that can get in the way of selling internationally. One of those is border friction.

 

Understanding Border Friction

Border friction (also referred to as “border barriers” or the “border effect”) is a barrier that is imposed due to a number of factors when goods cross a border. When border friction occurs, it slows down international trade, raises costs and generates a risk — leading to a reduction in trade. One of the key challenges for all e-retailers selling internationally is to minimize border friction to ensure customers receive products in a timely and cost-efficient manner because any border friction equals increased cost. It’s that simple.

Any of the following factors contribute toward border friction:

  • Long distances: The further a product travels, the more likely problems will arise.
  • Customs forms clearance and management: Exporters, including e-retailers, need to know how to create the right documents, fill them out correctly and comply with procedures on how to clear the product through customs.
  • Documentation: Each country requires different documentation (a paper burden for many e-retailers) to accompany a product shipment.
  • Duties, taxes and tariffs: Any of these can be levied on products entering a country and can be used to restrict trade.
  • Varying regulations: If not understood and handled correctly, additional regulations can cause delays or temporary holds on products at a border.
  • Shipping and tracking: Getting the product physically delivered to a customer thousands of miles away safely, timely and economically requires understanding international rules and regulations.
  • International addresses: If incorrect or improperly formatted, international address issues can cause delays or no delivery at all.
  • Inspection: Sometimes it is required to have an inspection certificate accompany a product in order for it to clear through customs.
  • Government: The government of a country can impose new policies and enforce them at a moment’s notice.
  • Currency conversions: How will additional fees be paid, in what currency and to whom?
  • Language barriers: Speaking the native language helps to expedite the movement of goods.
  • Other restrictions and barriers: These can include handling the certification process, licensing requirements and returns management, to name a few.

Are you confident you can avoid all this? If not, read on.

 

How to Avoid or Get Around Border Friction

Companies can manage the risk by absorbing it on their own (taking cost hits, for example, or handling customer complaints as they occur due to delayed deliveries). Alternatively, they can insulate themselves against border friction by outsourcing capabilities through an experienced firm that can eliminate this on international shipments. There are essentially two goals, no matter who is responsible for eliminating border friction:

  • To establish reliable methods of finding the final costs (or “landed costs”) so that neither the company nor the customer are surprised by extra fees.
  • To remove bottlenecks in the international shipping process, caused largely by the fast pace of ecommerce operations.

The impact of border friction on ecommerce is similar to the one-click checkout feature on an ecommerce site — if it doesn’t work, you lose a customer. If there’s border friction, or too much of it, your customer will experience delays in receiving his product. We know that outcome: no repeat business.

The devil is in details, and international ecommerce is very detail oriented. To create a frictionless border strategy, get the help you need to service customers appropriately around the world. To make your supply chain as efficient as possible, it oftentimes requires the help of a fulfillment center that knows how to handle the complexity of international shipments. Look for experienced partners that can bridge the gap between customer orders to only one or two countries versus selling to the world freely and confidently with minimal border friction. Better to grasp the border friction issue now than in hindsight. It will mean the difference between running an e-retail operation one international inquiry at a time versus unlocking your firm’s true global potential.

By limiting cross-border friction, you will benefit your customers around the world through greater efficiency, lower costs and reliable deliveries. That, in turn, will boost the global competitiveness of your business, ramp up international ecommerce sales and increase access to foreign markets.

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Pitney Bowes enables operational excellence in global ecommerce by eliminating “border friction”, and connecting you to the a global consumer base. If you’re a US retailers looking for more information on cross-border parcel shipping, subscribe to this blog for weekly updates, and contact us for more information.

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