More Than Just Payments: Financial Complexity in Global eCommerce
While developed markets continue to command a significant share of global online retail sales, they show signs of saturation. To find new growth avenues, online merchants should consider looking beyond their domestic and developed markets.
Developing a Global eCommerce Strategy
However, when planning international expansion, online merchants should thoroughly consider how a broader e-business strategy will fit within their existing value-chain, specifically in areas of customer service, finance operations and logistics. The challenge is to balance consumer preferences and expected purchase experiences against the cost of increased complexity in back-office operations.
Meeting the Challenges
Global expansion will increase the complexity businesses face. Diverse government structures, unique social and business cultures, and an ever-changing array of legal requirements and compliance policies make it difficult to overcome country-specific challenges.
- Localization. Online shops must be fully localized in terms of language, terms and conditions, pricing, check-out process and culturally preferred payment methods. Add the complexity of various import taxes (sales tax, VAT, GST) and foreign exchange and repatriation rules that need to be carefully attended, and it’s clear that a business may need to consider a country-by-country strategy. The online shopping experience continues long after payment and includes shipping, customer support and possible returns or repairs. All these factors need to be adjusted to the local flavors. A “one size fits all” approach will not be successful.
- Governmental Policy. Of the various challenges, the complexity of government-based monetary policies can quickly become an organization’s biggest headache. Even very attractive emerging markets, for example Brazil, pose this problem. In fact, multifaceted tax, import and repatriation rules can be some of the most difficult issues to untangle and manage over the long-term. eCommerce taxation is a complex and dynamic field, as governments’ modify tax regulations to cater to ever-changing public policy needs. In the past decade, administrations have struggled to agree on tax treatment for cross-border transactions. In the context of international eCommerce, this complexity is compounded as online merchants have to deal with the differing tax treatments of multiple countries. For online merchants, the risk of non-compliance can be direct penalty cost, as well as indirect cost in terms of reputation damages and for those reasons it is imperative to carefully manage this element. Consider as an example, the changes the European Union has introduced to its VAT rules as a way to level the playing field when selling cross border e-services (e.g. downloads). Currently the applicable VAT rate is based on the merchants’ locale. However, in 2015, both EU and non-EU merchants will have to collect applicable VAT rates based on the consumers’ residence. For instance, the applicable standard VAT rate in Germany is 17%, compared to 21% in the Netherlands. Assuming product pricing is the same in both countries, Dutch consumers currently have a higher incentive to buy from an online merchant based in Germany, but this will change. The online retailer has a rather large responsibility to its consumers and countries where it does business and must understand and appropriately apply these changes to its model.
- Competitive Differentiation. The critical difference between you and your competitors isn’t always about who offers the better product or service, but the experience customers have throughout the end-to-end purchasing event. A prerequisite for you to be successful is to fully understand the characteristics and regulations of the markets you are targeting. This positions your business to operate at a more professional level, with less risk of consumer dissatisfaction with a transaction. As a result, there is potential to gain a competitive advantage by developing an optimized payment mix in combination with a competitive eCommerce model.
Conclusion: Finding Scalability in Partnership
Choosing the right partner can be the make-or-break decision that determines success in expanding your global footprint. An experienced partner can not only to help you tackle country- and industry-specific challenges, but also to help you grow as your eCommerce strategy evolves. In some cases, going a step further beyond payment transaction basics and outsourcing the primary elements of financial management operations, the supply chain and eCommerce processes provides the optimal solution, empowering you to focus on your core business.
After all, eCommerce success is more than just payments.
When expanding your eCommerce strategy, look for a partner that is ready and able to extend your market reach, offering localized shopping experiences such as regional payment options and processing, multilingual contact center support and deep knowledge of local logistics, import and export complexities.
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