Spreading Your E-Commerce Wings
Jun 10, 2013 5:00 AM PT
Much has been said recently of the opportunities that lie in emerging retail markets, especially in countries or regions that have been less affected by recession or economic slowdown. For many Western companies, however, a lack of confidence and basic local knowledge is stifling opportunity for international expansion.
There are two key markets that I consider to be low-hanging fruit for U.S. merchants: Russia and China.
In Russia, for instance, e-commerce will triple in volume over the next three years from US$12 billion in 2012 to $36 billion by 2015, according to Morgan Stanley in its Russian e-commerce market overview from January 2013.
This year will actually be a turning point for Russian e-commerce, which has been rapidly growing in recent years, the firm says. In 2012, online retail in Russia made up $12 billion and accounted for 1.9 percent of the total $670 billion retail trade in the country.
A Primary Growth Driver
It's a similar story in China. Some 242 million Chinese now shop online, according to China's online shopping giant Alibaba, and they're expected to spend $265 billion in 2013.
China is also the primary driver of growth in the APAC, or Asia-Pacific, region, according to eMarketer. That region is set to surpass North America to become the world's No. 1 market for B2C e-commerce sales.
Despite the relatively low-risk nature of e-commerce, the confidence needed to expand into new markets comes with knowledge and experience. So how do you start selling overseas?
First, develop a simple strategy for processing international payments efficiently and securely, and -- above anything else -- remember the key to international success is localization. Next, think about the following core considerations for expanding an online retail store across borders.
I've said it before and I'll say it again: Think local -- local language, local culture and behaviors, local currency and local payment methods.
Shop and product descriptions need to be adapted for local habits; Chinese consumers in particular have a number of cultural traditions that should be taken into account.
In addition, appropriate adjustments must be made to address the local government and legal landscape.
Imposing a foreign currency on customers abroad will bring down conversion rates and encourage order abandonment. Your payment service provider should be able to provide settlement either in the local currency, if you have a local entity, or currency conversion, if you need settlement abroad.
Credit cards are popular in the United States and UK, but in most other countries many consumers will abandon their baskets if they don't find popular local payment methods. For instance, Qiwi wallet and kiosk cash payments are essential in cash economies like Russia.
Trustpay and a direct connection to the Russian acquirer, like UCS, is also important because U.S. or EU acquirers cover only 50 percent of Russian credit cards. This is because they lack a license from either Visa or MasterCard in Russia. With a Russian acquirer like UCS, a payment service provider can help merchants to cover 100 percent of the Russian credit card market.
Likewise, Chinese consumers have learned to love comfortable online bank transfers or wallet payments, such as Alipay and Tenpay.
Communication Channels and Marketing
Consider the right communication channels for your customers. In countries with low broadband penetration, for example, mobile shops and mobile payment options are vital success factors. Unlike in the U.S., having a "mobile shop" is considered a key success factor in China.
You will find other little differences when conducting business in China, too. For instance, don't expect Chinese consumers to respond quickly to emails -- it could take weeks. Particularly for target groups under age 35, QQ instant messaging is more important than email in this country.
Also in countries like China, it may not be good enough to put up your own online store and marketing. You should consider putting up a secondary Web shop for special offers on malls like T-Mall in order to spread your brand message. However, don't rely on malls alone, because constant rebates would probably damage your brand. A good typical market-entry strategy in China is to sell only special offers on marketplaces but sell a broader range of products at normal prices in your own Chinese Web shop.
Payment Guarantees, Fraud Prevention
Try to use local payment methods with payment guarantees for merchants in order to minimize the risk of payment default. If there's no payment guarantee for a payment method, set up the right fraud-prevention measures with an experienced payment service provider.
While opening your business to overseas prospects raises the potential for more sales, it also increases the possibility for fraudulent behavior during the checkout process. The good news is that many payment methods have come a long way in preventing fraud and guaranteeing payments.
As difficult as venturing into the Chinese market might be for Western companies, payment security is great in China because nearly every payment is guaranteed thanks to security features like reliable SMS authentication or online bank transfers being linked to card payments.
In Russia, payment schemes like Qiwi provide payment guarantees, too.
With PayPal, the global PayPal Seller Protection program has been in place since 2010. It extends to international payments, making the method safe for use outside of the U.S. When the dealer submits the payment and the shipping address is verified, PayPal's guarantee becomes unlimited for all payments worldwide.
Seller protection does not cover products such as intangible goods, tickets or services, however.
Clearly, preventing fraud and guaranteeing payments are critical, regardless of geography or payment method. This becomes even more important when you are conducting business over borders and across oceans. As an online retailer, ensuring you have the right payment solutions in place will help to minimize your risk and enable you to transact effortlessly, with confidence.
Processes and Policies
Ensure you get settlement files that include your own reference and invoice numbers and therefore allow a smooth reconciliation process in your accounting department.
Find out what expectations local consumers have regarding delivery and return policies, and set up the shipping processes accordingly. Check the local law on return policies and establish refund processes for all of your payment methods.
Logistics, Tax and Tariffs
Other challenges that are easily resolved are logistics, tax regulation and tariff calculations. In order to save time and effort, retailers can work with full-service providers like eShop World or Hermes. They provide tools and services that calculate duties and tariffs in an instant. Once you have these lined up, it is relatively easy to test how Chinese and Russian consumers will react to your products or services.
It has never been easy to reach out to new shores; however, the opportunity is there for the taking. It is low-risk and a minimal investment to test new markets. Provided the product fits the market, international economies promise a bright future and will be worth the effort for many retailers.