Characterized by increased information transparency, deepening technological penetration and sophisticated global supply chains, the world today is perfect for fostering cross-border trades.
Consumers buy from abroad when domestic offerings can’t satisfy their needs or wants. Businesses expand internationally when they’ve reached growth limits in their home markets.
This article explores the topic of cross-border e-commerce from an analytical perspective, covering what it is, why it’s important, reasons for shoppers to make cross-border purchases, as well as tactics for monetizing the trillion-dollar opportunity. Let’s get started!
- What is cross-border e-commerce?
- Why should you care about cross-border e-commerce?
- Top reasons for cross-border shopping & winning tactics
- Some last words
What is cross-border e-commerce?
Cross-border e-commerce refers to the process of providing goods or services to customers worldwide. As sellers and buyers are located in different geographies, sales are often conducted via an online store or platform.
Broadly speaking, there are three types of cross-border e-commerce transactions: business-to-consumer (B2C), business-to-business (B2B) and consumer-to-consumer (C2C).
As its name suggests, B2C e-commerce refers to the supply of goods or services by online retailers or brands to consumers. B2B transactions are trades between business entities, whereas C2C involves individual consumers providing goods or services to other consumers.
Why should you care about cross-border e-commerce?
Cross-border e-commerce is an enormous market, and it’s growing at an unprecedented rate.
A report by McKinsey & Company projected that the total value of merchandise traded across borders will jump by some 67%, reaching $500 billion by 2025.
Still not convincing enough? The figure is forecasted to hit a whopping $2 trillion by 2030, meaning that cross-border e-commerce could be a trillion-dollar opportunity.
For domestic brands that aspire to grow and scale their businesses, or are facing growth bottlenecks due to limited local market sizes, cross-border e-commerce has presented itself as a solution to fulfill their ambitions or address their greatest pain points.
This is why cross-border e-commerce is an opportunity you mustn’t miss.
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Top reasons for cross-border shopping & winning tactics
Despite how luring the cross-border e-commerce market may appear, you can’t work your way into the realm unless you know what global customers want.
Zooming into the profiles of global online shoppers, here are three popular reasons why people make cross-border purchases and tactics for attracting these customers.
1. Lower product prices
Consumers’ emphasis on product price and value is nothing new, but a wider range of purchase options, coupled with increased information transparency, seems to have raised the standard higher.
The trend: Price as the primary driver of cross-border e-commerce
According to PayPal’s Borderless Commerce Report 2021, consumers in 11 out of 13 key markets worldwide name “Better Prices” as the #1 or #2 reason for making a purchase outside of their own countries.
Price-conscious consumers are particularly common in regions where the costs of living are high, such as France, Singapore and Hong Kong, the report revealed.
It’s no coincidence that consumers in these high-cost regions tend to buy from China and other regions in Southeast Asia, where product prices are generally lower than their Western counterparts.
The strategy: Maintaining competitive pricing whilst avoiding a price war
The takeaway from online shoppers’ apparent price sensitivity is that pricing is key.
This attribute of consumers is hugely favorable to brands that operate with comparatively low material, labor and overhead costs.
If your business activities take place in Southeast Asia such that you can keep costs at a minimum, competitive product pricing could be a tactic for attracting overseas customers.
That being said, you should always be careful not to get into a price war with your rivals. It could squeeze your margins too thin that you end up pursuing unprofitable growth. Over time, you may see a constant increase in sales volume but not your bank account balance.
Most importantly, setting low prices as your business’s value proposition is not a good idea in industries where quality and credibility are major factors influencing purchase decisions.
To illustrate this, healthcare, electronics and cosmetics are some product categories in which price isn’t necessarily the prime consideration.
2. Access to products unavailable locally
Cross-border e-commerce is the 21st century equivalent of goods imports.
What isn’t otherwise available domestically can be now bought online, making cross-border shopping a common phenomenon among new-age consumers.
The trend: Product demand as the driving force behind cross-border sales
In the digital age, global flow of information is closely connected to the flow of goods across physical borders.
For instance, an individual may come across an online review and gain interest in something that is only available in another country. It may be a particular brand, product type, or merchandise of special attributes (e.g. limited editions sold in certain markets).
The key is, those products can’t be bought locally. Consumers therefore make an online search for the merchandise they desire, and have the goods shipped to themselves.
The strategy: Prioritizing search engine optimization to maximize online footfall
It’s not surprising that global digital communication has an impact on consumers’ behavior. However, not every business has the ways and means to respond to emerging trends.
So we’ve a quick tip for you — prioritize search engine optimization (SEO).
Simply put, SEO is what determines your website’s ‘ranking’ on search engine results pages (e.g. on Google, Yahoo! and Bing). The better you perform in SEO, the higher position you get, hence more visitors for your online store.
When it comes to e-commerce (be it cross-border or not), SEO is an absolutely useful skill. This is because e-commerce sites don’t enjoy the same privilege as brick-and-mortar stores, where people naturally walk past and pop in.
In the online world, you’ve to work hard to drive traffic to your store.
The importance of SEO is paramount in view of how online merchants attract overseas customers empirically. PayPal’s research found that in borderless commerce, the top customer acquisition channel is direct online search, not social media or referral.
If these sound too vague to you, consider the case study in which consumer demand for a brand’s products increased by 123% over a three-month period, or another case where a retailer saw a 40% increase in online revenue, all thanks to SEO.
3. Discovery of new and interesting products
Another reason for the rising popularity of cross-border e-commerce is that it enables shoppers to discover new products worldwide.
The trend: Product innovation as the charms of cross-border online shopping
From books and apparel to furniture and electrical appliances, we can now buy virtually anything online. But what captures the attention of shoppers isn’t everyday items like these. It’s “new and interesting” products that intrigue consumers, PayPal reported.
A case in point to illustrate this is Etsy, a marketplace known for selling handmade items and craft supplies.
The picture below shows a soap set with the looks of nigiri sushi. Like real sushi, they’re made by hand — but not for your tastebuds — they’re for your body!
Another cool item available on Etsy is a toothpaste topper that resembles the fictional character Shrek. Imagine when toothpaste comes out of its butt onto your toothbrush, it’ll look like Shrek’s pooping toothpaste…
At Etsy, you can also find cool t-shirts like this — money is calling, will you decline the call?
As the case of Etsy has shown, online marketplaces could be ‘treasure vaults’ packed with cool stuff that consumers have never seen in their hometowns.
Though not all items are original inventions of e-commerce sellers, the temptation to “try it out” and an adrenaline rush are good enough reasons for shoppers to make cross-border online purchases.
The strategy: Devising a unique selling proposition that truly suits your brand
If you’re thinking about sourcing or producing all kinds of cool stuff and selling them on your e-store, give a pause to that thought.
People tend to make cross-border purchases when they find new and interesting products, but it doesn’t mean innovation is the only way to succeed in the global e-commerce space.
For instance, Book Depository, an online bookseller, beats competition by offering free delivery to 100+ countries. Pinkoi, a Taiwanese designer gift site, positions itself as the to-go destination for gift searchers worldwide.
Not all e-commerce brands have distinctive product offerings, but their unique selling proposition (USP) is what makes people make purchases on their sites — even when they live abroad. So if your brand doesn’t have a unique selling proposition yet, give it one.
→ Quick summary: Understanding consumers’ motives behind cross-border purchases is key to bringing more sales and revenue to your e-commerce store.
Some last words
It’s often said that “with change comes opportunity”. In light of consumer behavior shifts in the highly dynamic business environment today, we’d say that with great change comes great opportunity.
E-commerce players that quickly act on new opportunities will be the ones who succeed, but incumbents who fail to respond should expect a slack in business growth.
If you are eyeing the trillion-dollar opportunity — brought about by the rise of cross-border e-commerce — Choco Up could be your business’s growth partner.
We offer not only flexible funding to fuel your business’s growth. We also provide a suite of essential fintech solutions to help our clients ace the global e-commerce race.
About Choco Up
Founded in 2018, Choco Up is the leading revenue-based financing platform in Asia Pacific, offering non-dilutive growth capital to fast-growing companies.
Currently covering more than 10 markets and 10 sectors, Choco Up has helped hundreds of businesses capture growth while protecting equity upside.
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