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Understanding the Challenges in Cross-Border Ecommerce

by Ajeet Khurana | February 4, 2014 | 2 Comments

global-ecommerce-conceptMultiple parties have to work in tandem to smooth the path of cross-border ecommerce. The problem arises from the fact that each of these parties has a different level of understanding, motivation, and sense of urgency.

However, it is possible to prepare for and overcome the challenges once you understand them. Most hurdles can be divided into the following major categories:

  • Regulatory issues
  • Payment methods and payment processing
  • Logistics and reverse logistics
  • Organizational readiness

Regulatory Issues

  • Inconsistency: At the bare minimum, business requires consistency in regulation. But the challenges that ecommerce is throwing at regulators is causing them to repeatedly change their mind. Even in developed countries, such as the U.S., there is debate about the applicability of state taxes on ecommerce transactions, so you can imagine the inconsistency of legal and tax regulations in less developed countries.
  • Domestic incorporation: Several countries treat domestic companies quite differently from those incorporated abroad. So if you are serious about selling to customers in a specific country, you might find it to your advantage to incorporate locally.
  • Legal limitations to sale: Every country has its unique set of dos and don’ts about what can be sold to whom. Most countries consider transactions entered into by minors as unenforceable, but the exact age of legal adulthood varies by country. Likewise, several categories of products — food, alcohol, weapons, and antiques, among others — have specific requirements. Even as an ecommerce business, you can be held liable for not meeting those requirements. For instance, a customer’s country might mandate that all packaged food must have the ingredients, nutritional values, manufacturing date, and expiration date printed on the label. If you are shipping goods from a country that does not meet these regulations, you could be in violation of local laws in the customer’s country.
  • Clarity and strength of legal frameworks: It’s not just about meeting local laws — it’s also about having recourse to courts and competent authorities when the need arises. Several countries around the world have a rather weak legal framework. Even where the framework is sound, there is often a huge issue with delays in the judicial process. So, while an ecommerce player selling to another country will be bound to live up to the regulations of that country, for all practical purposes it may not be able to defend its legal rights there.

Payment Methods and Processing
A robust payment processing system is absolutely necessary for ecommerce. Preferred payment mechanisms vary across the world, so research your potential market before you make assumptions about your payment system. In Japan, Konbini, a local payment method, accounts for a sixth of ecommerce payments. While close to 100% of ecommerce payments in Spain are by Visa, MasterCard, and American Express, in France it is close to 60%, and in Germany it is only 30%. Interestingly, Germany has a well-developed ecommerce ecosystem without a high degree of credit card penetration. India and other Asian countries have shown a strong preference for cash on delivery.

You will need to accept payment in the method that the customer prefers. Other than credit cards, there is no other truly global payment method.

Logistics and Reverse Logistics
Unless you are exclusively selling digital downloads, you will have to develop a strong logistics process. Effective logistics has repeatedly proven to be a strong competitive advantage for online, as well as offline, retailers. The costs associated with cross-border logistics can be the tipping point for your ecommerce business.

But it is not just about the costs. It is also about reliability and predictability. I have come across several small ecommerce businesses that work on the premise that their role ends once they can prove that they handed over the goods to the logistics provider. But that is not how the customer thinks. Customers believe that you are responsible for ensuring that the product reaches them.

And if your delivery logistics are complex, imagine the complexity of reverse logistics. Given the costs, customs duties, and documentation, many ecommerce players may not be able to provide reverse logistics in cross-border situations.

Organizational Readiness
Any discussion on the constraints to international ecommerce will be incomplete if we do not focus on the business’s own readiness for selling abroad. Right from an appreciation of local tastes to sensitivity for cultural factors, you must develop a deep understanding of every market you intend to tap.

Despite the list of challenges mentioned in this article, cross-border ecommerce presents huge business potential in growing economies around the world. A judicious approach will help you reap the fruits of cross-border ecommerce.

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  • Rajvi Mehta

    Once again a fact-filled article. I would like to highlight the point of logistics and reverse logistics. In a country like India, which is geographically vast logistics is a problem. To overcome the same, e-commerce business should try and cover the major cities as well as lots of tier 2 and 3 cities. Easy accessibility should be the highlight of the business. The second point being that of payment. I know of an e-commerce giant in India who was the first one to start the concept of “cash on delivery.” Today we look at how huge this particular firm has become. So, businesses like these should, no, HAVE to come up with innovative ideas to survive.

    • Ajeet Khurana

      Thanks Rajvi. All good points. Though ecommerce is supposed to be a leveler, as players get entrenched deeper in various markets, they are finding that regional characteristics have to be respected in order to gain larger shares and penetrations. Thanks for visiting all my articles. Keep visiting and sharing your points of view..