The two main challenges of cross-border eCommerce
Recently, Cross-Border Commerce Europe released the first edition of the Top 500 Cross-Border Retail Europe, a study about the state of cross-border eCommerce in Europe.
This study concerning Western Europe and Scandinavia, also known as EU16, revealed that the total eCommerce revenue in 2018 was 416.6 billion euros, and that cross-border eCommerce accounted for 95 billion euros of that total. This means that international online trade makes up 22.8% of total online sales in Europe.
That may seem like a good number, but when we stop to further analyse the situation, it’s easy to see how it could be better.
For example, according to several studies, cross-border eCommerce is becoming a consumer favorite, especially in smaller eCommerce markets, such as Spain, Portugal and Nordic countries. And as stated by TranslateMedia, this is due to two main factors.
One of them is related to the availability of products. Around half of cross-border consumers admitted that having access to a wider range of products is a big driver to purchasing internationally.
The other main motive pointed by consumers is the cost. This suggests that products that are available within their origin country aren’t at the right price for the shopper – or it means that they can get a better deal “overseas”.
So, from these studies, we can observe that there is no intrinsic barrier for consumers to not purchase cross-border. But even so, according to a study by the Swedish National Board of Trade, although 47% of European consumers shop online, only 12% of them buy internationally.
So what is up? Why these 12%? Why does cross-border eCommerce account for 23% of online sales?
Well, if the causes aren’t on the consumer side, it’s plausible to assume that they’re on the online store’s side.
And thanks to the same study by the Swedish National Board of Trade, we can back that statement up with data.
Barriers to cross-border trade
According to the Swedish National Board of Trade, there are several areas that serve as barriers for the development of international eCommerce. They range from the legal framework of cross-border eCommerce, such as labelling requirements and national VAT norms, all the way to the obstacles of international parcel delivery.
Although the EU has a heavy number of laws and legislations that contribute to the creation of the so called Digital Single Market, such as the elimination of geo-blocking or as removing national product regulations, they are still not sufficient to remove all international trade barriers.
Amongst the biggest problems identified by the Swedish National board of Trade are:
- Unclear Rules on Jurisdiction
One of the most common situation commented by online stores concerns the difficulties in asserting which rules will take place in cross-border transactions.
For example, when a Portuguese eCommerce sells in France, which rules will apply when it comes to consumer rights, licensing requirements, product labelling, and so on? Will it be Portugal’s or France’s?
This is the case of online advertising, for example.
In some EU countries, online advertising must follow the legislation of the country where the product is being sold in; in others, the legislation of the country of origin must also be taken into account.
- Barriers on Payments
Online stores are usually able to offer several payment options to its clients, like debit, credit, payment in instalments, among others. However, there are some disparities between legislations among EU countries in certain types of payment, which makes it more difficult for online sellers to offer the same payment options throughout European territory.
Another issue concerning payments is related to the complexity and fragmentation of the taxation system in cross-border transactions.
Although there is a European VAT framework, VAT-rates differ from country to country. That means that the rates for an online transaction vary from country to country.
In addition to that, there is the possibility that an eCommerce needs to register in other EU countries if its sales volume reaches a certain amount. And to makes things more difficult, you guessed it – not only do these amounts fluctuate between countries, but the registration procedure may also be different.
All these variances combined represent a burden for an online store, both time-wise as well as economically.
International Parcel Delivery
Parcel delivery is a crucial part of an online sale. At the end of the day, that is the part of the process that ensures that the consumer gets what they asked for, and the part that the customer remembers.
So if this is a process that is already time-consuming on domestic grounds, it’s a whole different level when it comes to cross-border eCommerce. In fact, according to a study by the European Union, in 2014, 97% of national shipments were delivered successful – but only 48% of all attempts at cross-border shipment succeeded.
According to the study by Swedish National Board of Trade, the main problems in cross-border deliveries are: lack of transparency on available services and prices, high costs for cross-border deliveries, the lack of track and trace mechanisms and return procedures that are not adapted to cross-border deliveries.
So, how what to do about these barriers?
When it comes to problems concerning the legal framework around cross-border eCommerce, the European Union has already measures in place to handle these issues, as you can observe here in the Swedish National Board of Trade’s study.
But almost as important as having legislation in place, is communicating it correctly to the interested parties. This means not only making the laws clear and non-ambiguous, but also to make sure the information reaches all the necessary players.
Concerning the international delivery of parcels, these barriers often don’t depend on international entities and rules – they are caused by industry players. More specifically, carriers and online stores themselves.
Regarding online stores, since there are already external measures in place to improve cross-border trade, they have two main tasks at hand.
Firstly, they need to keep up to date with measures developed by national and international entities concerning these subjects, to make sure they are taking advantage of all the opportunities offered to them when it comes to their international business. The second thing is to ensure that they communicate all necessary updates to its clients, for the sake of transparency.
When it comes to carriers, it’s a bit trickier, because they are a key player to improve cross-border trade.
So, in order for them to upgrade their processes, they will not only have to invest time and money, but will also need to keep in mind that progress won’t just happen overnight.
But if they set the goal to take their track and trace mechanisms, the transparency of their communication regarding international services, and other issues related to cross-border trade to the next level, even if it takes a while, they will start improving their services overall, which will also benefit them.
Will these changes be costly and time-consuming?
But will improving cross-border trade be a good opportunity, not only for consumers, but for online stores and carriers alike?
We believe so. And that is why we believe they are worth being pursued.