International retail sales are booming. Cross-border e-commerce sales alone are projected to grow to $627 billion in 2022, a 120% increase from 2017. Furthermore, 57% of online shoppers have already made at least one cross-border purchase over the last 12 months. Cross-border purchasing is here to stay, and with the right infrastructure in place, the world can be any brand’s oyster.
Each new market compounds the risk and complexity of doing business. Brands that wish to leverage the opportunity of international sales must ensure that they have a solid logistics or supply chain, tax, and compliance foundation as they build their global vision. Overcoming common challenges to cross-border e-commerce will help keep customer satisfaction high, tax burden simple, and international success achievable.
Communicating Accurate Duties and Taxes
Calculating international duty and tax rates is a difficult endeavor. With the move away from bulk shipments to single or individual import deliveries, the volume of customs entries has increased exponentially. As a result, more local tax authorities have introduced low value thresholds, which pass the import tax obligation to the supplier of the goods rather than at the point of entry. This reduces the compliance burden on the customs authority and increases the local tax obligation of the distance seller based outside the ship to territory. Brands can no longer assume they have no tax obligations in the ship to jurisdiction under these rules.
In addition, some jurisdictions operate a split taxing obligation—e.g., the United States, where the import duty is due when the goods are cleared on entry into the jurisdiction and the sales tax is payable by the brand, even though they performed the sale of the goods from an offshore location. This requires the brand to be aware of the more than 11,000 sales tax jurisdictions in the U.S.
Before expanding internationally, brands also need to understand the import-export rules applicable for cross-border sales of their products or services, as well as the costs associated with customs clearance and local selling taxes. For example, a candlemaker needs to know which countries accept candle imports and what duties and taxes each country imposes for a given volume of candles. Using a landed cost tool, the brand can then display those calculations and allow consumers to pay fees upfront during the checkout process, rather than let their customers be surprised by a demand for payment when their purchase arrives at their door.
Transparency over duties, taxes and fees upfront will not only improve customer satisfaction but also will improve conversion rates. A well-designed process helps ensure that hitting “pay” is truly the final stage of customers’ cross-border buying journey.
Determining the Right Fulfillment Strategy
Import and export rules determine what can be shipped where and in what quantities. How products get from point A to point B for cross-border purchases is another story. Successful international shipping practices require expert knowledge of what the rules are, how they are implemented, and how the processes and practices of demonstrating compliance vary from country to country. Couple with that the ever-changing landscape of shipping methods and rates and it’s clear that selecting the right logistics partner is critical to any consideration of cross-border selling.
From the customer perspective, a good international shipping experience means packages arrive on time with no “surprise” customs billing or complication. And nothing brings customers back like receiving their orders as and when they expect them. Seventy-three percent of customers will stop recommending a retailer after a poor delivery experience.
Nailing the international shipping equation is no easy task. Third-party logistics, or 3PL, firms can provide a simple solution for many brands. These companies have shipping networks in place, understand the nuances of different shipping regulations, and can help negotiate better rates. In effect, 3PLs will handle the challenges of cross-border shipping compliance for you, but that convenience comes at a price.
Companies on a budget might instead consider drop-ship fulfillment. Drop-ship arrangements relieve retailers of the shipping burden altogether by leveraging local merchants and suppliers. The drawback of this option is less visibility over the shipping process and consumer experience. A third option is direct fulfillment. Direct fulfillment clears up the opacity inherent to drop shipping but requires building a compendium of regulatory and compliance knowledge.
Selecting the best option can also depend heavily on where inventory is located and how it is managed. No matter where or how brands manage or locate inventory, they should focus on ensuring that orders can move quickly, as speed of delivery is a major factor in customer satisfaction. Brands should also focus on the return experience, to make sending and receiving as transparent and simple as possible for the customer. Regardless of the method employed, leveraging expert partners with deep knowledge of international trade will help mitigate the risks of global expansion and enable brands to build sustainable customer relationships around the world.
Localizing the Checkout Procedure
Global expansion doesn’t mean brands can neglect their customers from a local perspective. Localized checkout procedures will help pave the way for seamless customer experiences and more conversions. This requires more than basic translation. Successful localization requires detailed understanding of the words and symbols that consumers in a particular region are familiar with. That includes offering purchases in local currencies, which studies show that most shoppers prefer, as well as offering preferred payments methods, whether that is local cards, digital wallets, installment payments, or direct debits. Eliminating “cultural friction” in the checkout is a key component of driving increased international sales.
Partnerships Are Paramount to Global Expansion
The decision to move from domestic to global selling is not without risk or complexity. Neither should it keep brands from thinking about international expansion. Instead, these challenges should simply signify that growing brands should consider enlisting a “helping hand” in their global expansion plans.
While there is no single solution for international expansion, a strong network of expert partners can alleviate much of the stress of international selling. Shipping partners and tax experts can be a good place for brands to start learning about the requirements and considerations applicable to their specific products or services. Brands might also consider partnering with a merchant of record, or MoR. MoRs act as international resellers, taking on the burdens of payment processing, tax compliance—even shipping—and all the international back-office operations risks that come with them. This can dramatically reduce the burden and cost of cross-border selling and enable the brand to focus on the most important thing: building sustainable customer relationships.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Adam Coyle has spent over 25 years in the financial technology industry in a wide range of executive roles. Adam joined Digital River as CEO after spending three years as Digital River board member and executive partner at Siris Capital.
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