FEATURE
Crossing Over: E-Business Transcends National Boundaries

After all, the world population is growing. As just one example, China is expected to have a population of 1.48 billion by 2050, according to the International Institute for Applied Systems Analysis. Even in regions where population may decline, such as Europe, which has about 380 million residents, more and more people will be getting online -- and finding they can access resources beyond their national boundaries.

As a result, governments and global organizations are encouraging international e-commerce between wealthier and less developed nations. "E-commerce and e-business are ... capable of offering new ways to participate in global markets, new possibilities for diversifying national economies, and new and better jobs for young people," UN Secretary General Kofi Annan told members of the United Nations last year.

Also, as citizens and businesses around the globe continue to log on to the Internet, a growing percentage will come to view it as an alternate -- and perhaps preferable -- buying medium. In the first quarter of 2001, more than 459 million people worldwide accessed the Internet from home, according to Nielsen//NetRatings, an increase of about 30 million from the prior quarter.

"With the business world converging and global barriers diminishing, there are more opportunities for firms of any size to attain a global reach," said Gerrott Schumann, CEO of element 5, which has headquarters in Cologne, Germany, and a U.S. division in Greensburg, Pennsylvania. Schumann's company specializes in Internet software sales for such clients as Ipswitch, Toshiba, Zone Labs and Executive Software. In addition to its U.S. and German locations, element 5 has offices in the United Kingdom, France, Italy, Sweden and Israel, and it claims to support 11 languages.

Obstacle Course

Of course, overseas sales are not without their share of challenges.

"There are quite a few hurdles, including high shipping costs, data protection, language barriers, taxation, local currencies and payment options and personalization," Richard Mitchell, general manager of the United Kingdom at Digital River (Nasdaq: DRIV) , told the E-Commerce Times. "High shipping costs will always be a deterrent. Companies need to subsidize these to make the total cost to the consumer attractive."

Piracy also is a major concern for publishers and resellers of software, music, movies and other intellectual property. In 2002, the software industry alone lost about $13 billion as a result of piracy, according to the Business Software Alliance, and 39 percent of the world's software is pirated, the industry watchdog estimates.

Worth the Gamble

Still, making the requisite investment in dollars, time and nationalization can be worthwhile. "Digital River's international business is growing at a quicker pace than its domestic business," Al Galgano, vice president of investor relations, told the E-Commerce Times. "In our most recent 10K, we reported that approximately 22 to 23 percent of revenues were international -- primarily in EMEA (Europe, the Middle East and Asia) and Canada.

"Among our client base of nearly 34,000 companies, it is mostly domestic companies that are selling internationally," Galgano added. "We expect our international business to continue to grow at a nice clip during the next two to three years."

For its part, element 5's European and U.S. clients earned more than half their revenue in their own region, according to Schumann. "One-third was made in the other region, respectively," he said, and "the remaining revenue was made outside both of these regions."

Seamless Sales?

The Internet should create an environment that equalizes sales of some products, regardless of where they take place, Schumann added. "There should not be a difference between domestic and international transactions in the software industry," he said.

However, Galgano cautioned, businesses must carefully consider their global clients' financial means and culture.

"There are always nuances to doing online business in different regions and geographies," he noted. "We think it will never become a one-size-fits-all solution because of differences in things like buying power, Internet adoption and varying salary levels. For example, it wouldn't be very expensive for someone in the U.S. to purchase antivirus software online for $50, but it would be quite expensive for someone [in a developing country] to buy the same product at the same price."

Outside the Box

Because of the complexities of selling abroad, companies such as element 5 and Digital River, which provide outsourcing sales services to businesses that are exploring markets outside their geographical region, are optimistic about the future.

"We take the time and devote the resources to learning all of the nuances from country to country, so our clients can sell into many different regions without the risk," Galgano said. "In the new economy, it is imperative for companies to make sound economic decisions while aggressively competing on a global basis for market share."