Cross-Border eCommerce Expansion During a Pandemic: Weighing the Pros and Cons

Customers are making cross-border online purchases like never before. Now might be the right time to expand your operations internationally.

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eCommerce brands have enjoyed a bumper few months as consumers have been forced to shop online during lockdown. 

DTC outdoor furniture brand Outer “went from thousands of dollars in monthly revenue to millions of dollars in monthly revenue” during lockdown, according to company Co-Founder and CEO Jiake Liu. Overstock saw sales surge by 109%, writes Industry Dive Senior Reporter Ben Unglesbee.

Such an increase in demand puts eCommerce brands in a somewhat unique position to consider expansion at a time when other businesses are struggling to survive. When you’ve achieved success in your home market, the natural progression is to start selling abroad. 

Expanding internationally opens up huge opportunities for growth, but isn’t without challenges. At the same time, the pandemic is magnifying both the risks and rewards of cross-border commerce. 

So, is now the right time to expand your operations internationally, or is doing so in the middle of a global pandemic too much of a risk?

What’s the Current State of Cross-Border Commerce?

Customers are making cross-border online purchases like never before. The pandemic has sent demand for cross-border eCommerce soaring according to a study by Global-e. They report that cross-border eCommerce transactions have increased by more than 10% between January and April. Huge surges were seen in the Middle East (cross-border sales in Qatar increased by 844% from March to April) and Italy, where sales increased by 40% in April. 

The company’s CEO and Co-Founder, Amir Schlachet, says cross-border sales will play an important role in brands’ recoveries. “Even with lockdowns lifted and bricks-and-mortar stores reopening, many shoppers are continuing to shop online, suggesting the recovery of high street retailers is slower and may never fully recover pre-crisis.”

The findings of a report by eShopWorld seem to support that analysis. That study found a 109% year-on-year increase in cross-border transactions during May. The highest growth was seen in Israel, Ireland and New Zealand. 

Logistics companies are also seeing increased demand. DHL eCommerce Solutions has reported peak shipping volumes as more consumers shop online. Domestic volume has increased by 36% while cross-border volume has increased by 28%.

This growth in cross-border eCommerce isn’t likely to abate even after the pandemic eventually slows and ends. The Cross-border E-commerce Logistics Market report forecasts the size of the cross-border logistics industry to grow at a CAGR of more than 8% between 2020 and 2024, and generate in excess of $30 billion in revenue.

shipping yard with cargo; cross-border eCommerce concept

Expanding Internationally Can Aid Economic Recovery

International expansion is an essential step for any eCommerce brand looking to grow during the pandemic. Once brands have taken care of the most pressing matters like improving their supply chain and protecting staff, they should turn their attention to growth opportunities, says Payoneer’s Kavish Ahuja. Capturing new markets should be a part of every brand’s pandemic-related recovery operations.

International expansion can even help multichannel brands make up for underwhelming sales at home, writes journalist Sharon Edelson. With the majority of stores still not operating at full capacity, sales don’t look like they’ll be increasing any time soon.

Some foreign markets make for particularly tempting targets for U.S. eCommerce brands. Take Germany, for example, says market researcher and analyst Marcia Kaplan. It is Europe’s biggest economy, has the second largest population and is the fifth-largest eCommerce market in the world. Most importantly, it has weathered the pandemic far better than most other European countries. 

What’s more, Europeans are already used to making cross-border purchases, says Riskified’s Alon Livneh. “More than one-third of European shoppers already make cross-border purchases from other countries within the continent, and that number is growing,” he says. There are certain challenges brands will need to overcome, including fraud risks and international competition, he warns. If they do, however, they’ll find huge growth potential.

sculpture of the euro symbol in front of glass office buildings; cross-border eCommerce concept

Challenges Facing Cross-Border Expansion

Selling across borders isn’t without its challenges. Some of these — fulfillment, regulatory and returns — have been made even more difficult during the pandemic.

Fulfillment Challenges

EasyPost’s Saura Johnston calls shipping “the greatest challenge” of cross-border commerce. There are custom forms to fill, shipping rates to negotiate and duties and taxes to calculate, each on a country-by-country basis. The good news is that there are many platforms and APIs that help companies make the most of international markets. Johnston recommends brands prioritize partners that provide cross-border facilities and integrate with their eCommerce platform of choice. 

Even with the help of these platforms, fulfilling orders in new markets can prove difficult. The International Air Transport Association (IATA) and the Universal Postal Union (UPU) have both warned that the current capacity for postal services is insufficient. A 95% reduction in passenger flights — a leading method of transporting mail — and a significant increase in online orders, has many postal organizations struggling to deliver goods internationally.

eCommerce is naturally more sensitive to problems with international transport, explains political and economic analyst Ganyi Zhang, Ph.D. “Generally, there are two models for cross-border eCommerce logistics: global delivery and overseas warehouses in or near the country of destination,” Zhang writes.

Global delivery — where products are shipped individually from a warehouse in a brand’s native country — relies on passenger airplanes to transport packages. As discussed above, the drop in international flights has caused significant disruption. Overseas warehouses — where products are shipped in bulk to the overseas market and fulfilled locally —  are typically more resilient during periods of disruption, says Zhang. However, this method is susceptible to changes in local regulations. In France, for example, Amazon warehouses were shut down until May 18th. So even if products were located there, they still couldn’t be delivered. 

Regulatory Hurdles

Local regulations are a common hurdle to cross-border eCommerce and they, too, have been made more complicated by the pandemic.

As well as disrupting supply chains, the coronavirus has highlighted the paper-heavy nature of international trade, according to Ziyang Fan and Mike Gallaher at The World Economic Forum. They recommend digitizing documentation to improve trade and reduce costs. “A good first step would be adopting policies recognizing and permitting electronic signatures, transactions and records, such as UNCITRAL’s Electronic Transfer Records,” they write.

Even so, regulatory problems can still occur. A recent Stripe report highlights the issue with regulatory problems in the EU. Of the study’s 500 respondents, 64% of online businesses would sell to 10 or more EU countries if regulations were consistent. Almost three-quarters (72%) say regulatory compliance is a barrier to international expansion. Just 26% of respondents are confident they understand which regulations affect them.

The problem, says Susan Lund, Economist and Partner at McKinsey & Company, is that most international trade agreements were written before the digital era. They cover goods that arrive at major container ports in bulk, which is in stark contrast to the deluge of small eCommerce parcels that arrive by air. On the bright side, 75 countries have agreed to World Trade Organization talks to reduce regulatory issues going forward.

Returns Headaches

It’s not just getting products to consumers that is proving difficult during the pandemic. Brands are suffering from floods of returns. Relaxed return policies, closed stores and supply chain issues mean brands are experiencing increased returns and excess inventory, says Larisa Summers, SVP of Marketing at returns technology company Optoro.

A good returns policy is key to getting consumers to commit to cross-border purchasing, according to Uwe Bald, CEO at Hermes NexTec and President at BorderGuru. One-third of cross-border eCommerce transactions are abandoned because of the involved processes and cost of returns. For the customer, the concept of returns is simple. If they don’t want an item, they want an easy way to return it. The returns process ends as soon as they send it off. For brands, it’s a little more complicated. 

Returns are also subject to custom headaches, explains Bobbie Ttooulis, Group Marketing Director at Global Freight Solutions. Duties are paid when products are delivered to consumers and shouldn’t be required on the way back. 

“However, it’s important to have the right documentation on hand to prove that payment has been made, or retailers can risk charges or fines,” she writes. “To ensure this is taken care of, technology is available to generate the necessary Customs relief documentation and the right kind of returns label. This guarantees a seamless returns experience for the customer, and gives the retailer reassurance that it’s compliant.”

The pandemic has made cross-border eCommerce expansion more difficult, but it was never an easy strategy in the first place. Still, the rewards for a successful expansion haven’t changed. If anything they’ve become even more valuable. That makes it all the more important to lean on trusted partnerships to ensure you enter into a new market as smoothly and profitably as possible.

Images by: Ben White, chuttersnap, Maryna Yazbeck

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