Cross-border electronic commerce is international e-commerce which is buying and selling goods and services online from merchants outside the county under a different jurisdiction. Online trade between consumers and merchants that speak the same language or share same border or countries using same currency are not always perceived as international e-commerce. An example is EU neighbors who speak the same language. The Internet has enabled consumers and merchants to interact online. Consumers can acquire goods and services online usually driven by common language, same currency, common border, special offers or driven by the ability to obtain a product in their current location (Yousefi, 2015). Consumers can now shop online, compare prices, discuss products and transfer payment via their smart phones, laptops, and iPads. Every intermediary of this trade profit the opportunities presented and more intermediaries are getting into the business. Consumers profit from the convenience of the transactions while merchants profit from sales realized at less costly services including a less costly web shop as compared to rental shops. Payment service providers also profit from service fee and banks have realized offering their services to traders established online is more profitable than selling the bank products (Chavan, 2013). One fact with online traders like payment services and card processors is that they have hardly been affected by economic crisis and their growth has been extremely tremendous in this age of international trade. The cross-border e-commerce constitutes of about 21% of total global online trade. The tremendous cross-border electronic commerce is predicted to continue exhibiting explosive growth with increasing economic integration. However, there challenges that needs to be overcome by online merchants in order to realize successful international expansion. In this paper, I am going to first give a brief analysis of the trends of cross-border e-commerce and then analyze opportunities and challenges found in the business.
Trends of cross-border e-commerce
E-commerce industry has existed for the past two decades and its already booming. In 2013, sales in global commerce were estimated as $ 1, 25 trillion. The already established markets are declining businesswise as new and emerging ones are taking the crown. To compete with this trend, merchants in the West are pursuing every opportunity in global e-commerce to maintain their success and continue flourishing in the industry. According to 2014 survey, the new trend can be explained by the growing preference to drive growth through markets with similar language and culture. This can be seen by the large growth between US and UK as they are united by similar language and cultural preferences (Xue, Li, and Pei, 2016). The major current trend observed is the growing China market where China has outstripped the US in e-commerce sales, a trend that has been precipitated by mobile e-commerce. Additionally, China is expected to drive much of e-commerce due to its large and growing middle class that prefers high-quality foreign products. Today, China’s middle class is equal to that of US, and it is predicted to grow to 630 million by 2022 (Wang, 2014).China is expected to become the largest cross-border e-commerce market by 2020.
Cross-border e-commerce is growing with activities getting smoother and faster and payments getting cleaner. This shift has not solely been driven by increased demand as popularly believed, but it is mostly driven by merchants (Chavan, 2013).Previously, foreign customer were characterized with bringing liabilities and complications into the business than their custom was worth. Merchants like those of US and UK did not put much effort to cater for these customers. Today, merchants have obtained a new view and enthusiasm as they see these global customers as a profitable venture. With China’s growing e-commerce market, merchants are more focused on growing their business momentum with a main focus on emerging markets. Today, cross-border e-commerce is contributing largely to the total global e-commerce which is mainly driven by the big three namely US, UK and China. These are key drivers and opportunities that are driving this growth.
Mobile internet explosion
Technology advancement is playing a major role in the growth of e-commerce being the major platform where these business operations are conducted. Online shopping was adopted out of the need of ease and with the development of mobile internet, the convenience is more assured which is encouraging more consumers and merchants to exploit it.This efficiency is making shopping-on-go to gain popularity. The growing popularity of mobile smartphone has been associated with the growing global sales led by increasing middle class in need of modernized lives from China, India, and Indonesia among others. In particular, social media is driving the sales growth with increased activities on social networks like Facebook and Twitter. These are platforms that merchants are able to advertise their products and capture the growing number of users each and every day. Consumers’ decisions are influenced after visiting forums and discussions where features and functions of different products are discussed on these social platforms. Firms are therefore able to woo these consumers with incentives like discounts and loyalty programs. Also, the prices of smartphones are reducing and becoming more affordable hence more accessible. As a result, the mobile penetration globally has doubled from about 18% in 2011 to 36% today( Hanna, 2016).Merchants are guaranteed of availability and accessibility of markets and their enthusiasm to market their products and win markets is what is driving cross-border e-commerce today. Consumers with disposable incomes and low domestic availability of products have a platform where they obtain anything they want from anywhere in the world in a smooth and convenient way. With the 36% global internet penetration and almost 2 billion social users, the internet has brought people together reaching about 93% of people across the globe. Internet penetration is, therefore, a key drive in the growth of cross-border e-commerce.
Local insights have reported that the biggest opportunities to global e-commerce is local events both the traditional and emerging ones. Every country has local events ranging from public holidays to religious events which inspire seasonal sales. These events are driving online purchasing as merchants are finding importance in understanding how these events are celebrated regarding what is purchased and used as gifts, or what services are needed( Lever, 2014). In Mexico, Dia de Los Reyes is celebrated on 6th January and is the day children receive gifts. In Japan, White Day Men buy women gifts and response is usually on Valentine’s Day. China celebrates Singles’ day on 11th November, a day that has been associated with the highest online shopping activities. These and, many other local events celebrated in almost every country have presented opportunities to online traders to increase their sales and profitability levels. With modernisation, people have advanced and are looking for quality and unique products which are obtained from online shops. Duringcelebrations, they go online to look for the best products and services that their loved ones can enjoy which most times are not provided domestically. This is, therefore, an opportunity to increase global ecommerce to bring good and services closer to emerging consumers that are demanding foreign goods.
Apart from internet access, markets are also benefiting and finding it easy to transact online due to experienced retailers that are focused on online rather than the traditional bricks. Retailers have always been ready to take a change, and the rising e-commerce had been a driver for a change in the global retail trade. Companies selling products online like consumer goods, household goods, and packaged goods have created a strong foundation in e-commerce. The ability to deliver goods quickly is now the competitive advantage. Amazon is opening smaller distribution facilities to enhance speed. The retailer has adopted a new strategy of integrating different channels like stores and webs which is bringing a new shopping experience (Cardona, Duch-Brown, Francois, Martens, and Yang, 2015). This integration has enabled consumers to pay online and get their services or products from stores.US retail venture Walmart is one of the giant retail traders that in recent years projected its sales crossing $10 million in January 2014, and extending to $13 million in January 2015.Online retailers have an opportunity to project their sales by coming up with more strategies for capturing potential customers.91% of individuals aged between 30 to 49 years buy online, and retailers should target this demography by finding alternative payment system that reaches this market( Miao, and Jayakar, 2016). For example, three-quarter of German population prefers invoice or micropayment system. PayPal is also an increasingly emerging payment mode by e-sellers. Experienced retailing and the growing number of e-customers is driving international trade.
Despite the success in cross-border e-commerce as seen in markets across the world, there are still challenges that should be eliminated by merchants to be able to fully capture the eventual success from the borderless global commerce (Zhou, Liu, and Lu, 2016).
Barriers related to laws and regulations
According to Ghemawat (2013), merchants are mostly concerned with these barriers. Every country has its laws and regulations governing product returns, consumer protection and discounting which must be complied to. These regulations may easily lead to uncertainties. The high set fees and tariffs are the reasons many merchants do not meet full landing costs including duties, shipping cost and taxes when carrying out a transaction which discourages purchases. Some rules require a business to use local language which has been a common problem among online retailers. Business regulatory have complied into this adaptation in their website, but the problem is, it is usually costly for countries with more than one official language and especially if the sales volume is small. Some countries have regulations that do not match from states to regions. The US has been mentioned by many businesses to having this problem. Sometimes these regulations are unclear, and it is usually costly, and a burden seeking clarification from authorities and merchants find it difficult adapting to websites especially in cases where they are unsure of what is required of them. Other regulations restrict what business can post on their websites. An example is a report by one business that Saudi Arabia restricted how much skin of women and children should be posted on websites, and therefore, women and children in underwears and certain pyjamas could not be posted (Weber, 2015).
Fraud and credit risk
E-commerce has been invaded by sophisticated hackers. Online merchants are growing awareness and increasingly becoming keen on mechanisms like address matching, code validation, security of cards and password authorisation in order to prevent hackers from breaking in (Ahmed and Chander, 2015).The hackers are finding new ways of breaking in these business activities and so merchants are not safe unless they keep on inventing new strategist to upgrade their security and also ensure they carry out a dynamic credit risk evaluation to ensure buyers are able to meet set requirements for products offered (Madden, Banerjee, Rappoport and Suenaga, 2016).
Lack of technological infrastructure in emerging markets
The emerging e-commerce markets like China and India are big, but they are yet to mature. The main challenge encountered in trying to reach these markets is the lack of infrastructure and establishment of trust. Poor logistics infrastructure is the main feature with India and (Brazil, Yang, and Yin, 2015). Regarding trust, there are culture constraints and fraud related activities that are yet to be overcomed.In order to overcome the lack of infrastructure and trust issues, online traders need to come up with innovative ideas and policies. An example already in the industry is eBay India which helps power shift service to beat the logistics challenges and also offers a guarantee to build trust. The guarantee is 100% refund or replacement of bought products for up to a period of 30 days after the time of purchase.
Market entry costs
Established merchants are advantaged in winning new markets, but for those retailers entering the industry for the first time, there are costs associated with building a brand in new markets to prove demand at initial stages. Some merchants might take the initiative of testing the market by driving their sales with promotion while analyzing how their products are perceived. This approach, however, do not have the ability to build the market brand or win customer loyalty.
Intellectual property barriers
This is one of the main challenges online merchants have complained about in the recent years. Their claims are that property rights are usually controlled nationally, but they are not harmonized across borders. For example, most countries are governed by the national collection society and copyrights like films and music licenses are usually controlled for use over a limited geographical area. These barriers have been reported to be most common among EU (Gomez-Herrera, Martens, and Turlea, 2014).Businesses have been subjected to infringement of these intellectual rights causing them to use names of Swedish companies to avoid this problem. China and Ukraine have been reported to have this problem. Companies have faced the problem of illegal downloading of products like computer games and mobile applications. Users have gained the ability to unlock set restrictions and obtaining the products without paying.
Another problem is rules on third party liability which have been said to differ. The copyright proprietors lets the thirds party to control what is posted on companies’ webs and sites and are supposed to remove any violating information on immediate effect. Some countries fail or do not want to take the responsibility for these infringements and hence end up not holding customers responsible for their actions (Whitehead, Sheahan, Elliott, Fair, Stockwell, and McHaffie, 2013).Companies who encounter an infringement immediately contact the people responsible for the infringement directly or consult the third party to remove them. Regulating sites is, therefore, important but these regulations do not exist in some countries (Hoffman, 2016). Other challenges related to copyrights is difficulties encountered in securing rights to copyright protected material which can be either caused by lack of information, or it can simply not be possible. Another challenge is difficulties encountered in finding information about intellectual property rights like pattern and patents which result into businesses risking property rights out of their will.
The rapidly growing Cross-border e-commerce has a foreseeable future due to increased ownership of smartphones, accessibility of the internet, and growing number of middle-class people and enthusiastic activities of experienced workers. Even with so many opportunities, the online users including customers and merchants face difficulties which are discouraging purchase on the side of customers and giving merchants a hard time in exploiting this business. Some of major challenges are first, rules and regulations of different nations which are responsible for restricting free sell and purchase of products across countries contributed by factors like costly duties and tariffs and secondly restricted requirements on what should and should not be posted on companies’ websites which limits their level of advertising (Chavan, 2013). Other challenges include increasing fraud lice activities, lack of infrastructure to capture the growing market and infringement of property rights. Policy makers need to come up with strategies that address both legal and administrative barriers to harmonize regulatory frameworks for easy clearance of goods. The most important strategy to minimize these challenges is if regulatory bodies around the world cooperated with private and public sectors to ensure the full promise of borderless global commerce is achieved.
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