IDG Capital Partners has invested in 18 Chinese e-commerce startups this year.
Without a well-planned backend system, jumping into international e-retailing can be like taking a canoe trip in the deep south with Burt Reynolds and Ned Beatty. The plethora of taxes and tariffs, government regulations and local customs to contend with when moving merchandise overseas can be as intimidating as a pack of unruly locals.
Jay Shen, co-founder of MyCustoms, a Menlo Park, Calif.-based business service provider, says the backend is the most difficult component of international e-commerce. And it’s the least visible. “Often these problems do not come to the retailer’s attention until after they’ve conducted business,” he says. “It’s very intuitive for retailers to address the problems of language and currency, but they don’t have the knowledge to deal with duty and tariff.”
“There is no cookie-cutter, five-step solution to selling internationally,” says Scott Fox, vice president of marketing with LogiSoft, a Fairport, N.Y.-based global solutions integrator. “Every case is different.” That difference largely has to do with the product and how deep the retailer wants to plunge into the foreign market. Kodak, a LogiSoft client, was able to begin international sales in eight weeks, Fox says. However, Kodak is a Fortune 500 company that knew what it wanted to do, who it was selling to and had ground distribution in place in its target countries. “They made life easy for us.” More typically, it takes about a month of planning and three months of execution to begin foreign sales, he says. It is important to take a crawl-walk-run approach to going global.
There are strong indications that global demand for e-retailing will outpace the U.S. in a few years. When looking to go global, e-retailers must understand the importance of their backend operation. And that involves considering how to choose their product offering, how much added cost there is to global e-commerce, how to calculate fees and comply with regulations, how much local presence to maintain, and how to handle returns.
Since the beginning of Internet sales, people’s hopes and dreams of what could be sold internationally have changed, says Tracy Wilk, vice president of product management with Mountain View, Calif.-based CyberSource. “Expanding internationally is a lot harder than people thought,” he says. “People expected to storm the U.S. then very quickly move abroad.”
Shen sees the global e-commerce as young and budding. By 2004, international e-retailing is expected to surpass that in the U.S., he says. “There are a lot of things people are still learning, but they have learned from-and are avoiding some of the mistakes made by-U.S. e-retailers.”
The starting blocks
Experts agree that one way to keep the backend smooth is to have a narrowly focused product offering. Gary Huff, director of e-commerce international marketing for UPS, says it is often easier for companies with a narrow product line to move them across boarders. They are better able to focus on the regulations, which change from product to product, and make sure the backend supports that focus. “It would be faster to go global for someone distributing a particular commodity rather than a retailer who’s trying to be everything to everyone,” he says.
The law of supply-and-demand generally dictates which products will sell well in foreign lands, Fox says. Items that are readily available locally are not likely to do well. But often, the European and Asian markets do not have access to U.S. products. Typically though, the products that did well in the early days of U.S. e-retailing-books, music, apparel, and computer goods-are the ones doing well in foreign markets, he says.
It is difficult to put a finger on the exact added cost an e-retailer will realize when shifting from domestic to global distribution. There are so many variables that each company will have different costs associated with overseas business. Those variables include the value of the product, the country it is entering, the type of product and the shipping method.
But, as a rule of thumb, Fox says, the cost of the logistics for doing business overseas can be 3-15% greater than that for U.S. distribution. Companies selling larger ticket items or items where competition forces price down view shipping as a breakeven venture, he says. However, those shipping lower ticket items or those with a narrow distribution, often use international shipping as a profit center. When looking at the cost of doing business globally, Fox says, it is critical to closely monitor the return on investment. For most companies, it takes 180 days for international sales to become profitable.
“A retailer in the U.S. who wants to move a music CD into Europe, may spend more in duties and taxes than on the CD itself,” Huff says. It may be smarter for low-ticket item retailers to consider moving items in bulk or finding local supply capabilities.
It’s true that death and taxes are life’s only certainties. And when dealing with international commerce there are about as many taxes and fees as there are ways to die. Add to this the complexities of government regulations from both the exporting country and the importing country and e-retailers can quickly be overwhelmed.
Shen says that at least 27 parties, such as the fulfiller, the export agency, the import agency and the broker, are involved in one international transaction before the product reaches the customer. “When you have that many parties, it is easier to make mistakes or miscommunicate,” Shen says. Providing consistent and accurate documentation to all the parties is important to preventing delays in shipping. Huff agrees, saying one of the most common pieces of paper missing with an international shipment is an invoice. “In the States, you can pack up anything in a box and ship it, it doesn’t have to have an invoice.” International shipments won’t budge without an invoice, he says.