Cross-Border Ecommerce

Borderless Global Commerce The Promise has Arrived: With the rapid advancement in Digital and logistics connectivity over the past decade, B2C e-Commerce is pacing its way to be a mainstream channel for retail. By 2020, over 2 billion e-shoppers, or 60% of target global population1, would be transacting 13.5% of their overall retail consumptions online, equivalent to a market value of US$3.4 trillion (Global B2C GMV, growing at CAGR of 13.5% from 2014 to 2020). Until now, B2C online transactions have been mainly domestic (supply and demand from the same nation); however, cross-border e-Commerce is taking over as the key growth engine to B2C trade, with a CAGR of 29.3% from 2014 to 2020.

Asia Pacific is leading the pack, not only in overall GMV, but also in volume growth of cross-border e-Commerce, contributing 53.6% of the incremental trade volume over the period of 2014 to 2020 (Figure 1). Western Europe and North America are trailing at 18.9% and 14.4% respectively; near-shore B2C transactions among EU countries is the driver behind a relatively high cross-border component in Western Europe. Remaining emerging regions would all experience rapid growth with domestic and cross-border at almost same pace, enjoying the maturity of borderless global commerce.

Figure 1: Global Cross-Border B2C Market (sources: EIU, Industry Research Report, World Bank, Accenture Analysis) Global cross-border B2C e-Commerce transaction value (US$ billion)

Western Europe

Mid-Eastern Europe

North America

918 502 13% 67 2014

19% 176 2020

Latin America 10% 61 6 2014

140 37% 53 2020

674 32%

402 18% 73 2014

51

13 2014

216 2020

Middle East & Africa 33% 15 5 2014

25%

60% 43 26 2020

48% 45 2020

93

Asia Pacific 1525 558 12% 71 2014

31% 476

2020

B2C e-Commerce B2C Cross-border e-Commerce

2014-20 e-Commerce Contribution Figure 1 Global Cross-Border B2Cincremental Market B2C cross-border (sources: EIU, Industry Research Report, of global total incremental trade volume (billion dollars) trade volume (%) World Bank, Accenture Analysis) Asia Pacific Western Europe North America Latin America Mid-eastern Europe Middle-East and Africa

1

405 143 109 47 32 21

53.6% 18.9% 14.4% 6.2% 4.2% 2.7%

Target population of 15-65 years old; sources: EIU, ISI, World Bank, Accenture Analysis

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Values Beyond Bargains:

achieve that by cutting-through layers of intermediaries. On the other hand, with cross-border e-Commerce, B2C consumers are seeking values beyond bargains, and they vary across different countries (Figure 2).

For most shoppers who make online purchases domestically, besides convenience and variety of selections, bargains over conventional offline channels is the most important value driver – no doubt, online merchants

Figure 2: Values and Categories (sources: eMarketer, Google & TNS: Consumer Barometer, Jul. 2015, EIU, Accenture analysis) Cross border B2C e-commerce shopper penetration 2015 (% of population above 15 years old) 89%

88% 83%

70%

88%

86%

66%

85% 77%

89% 73%

71%

57%

50%

48% 31%

UK

USA

19%

France

18%

Germany

12%

Russia

48%

32%

30% 21%

Australia

67%

61%

23% 10%

Japan

10%

China

9%

Brazil

23% 16% 8%

Mexico

7%

23% 9% 1%

Turkey

India

Turkey

India

B2C cross-border e-Commerce (at least one purchase over 1 year) Intemet penetration (mobile + broadband) B2C e-Commerce (at least one purchase over 1 year)

Values pursued by cross-border B2C e-Commerce shoppers (%)

Australia

UK

USA

Appealing offer Better price, services, payment tems

France

Germany

Russia

Better availability Diversity of products

Japan

China

Better quality Word of mouth

Brazil

Mexico

Trustworthiness of shop / brands

Product categories pursued by cross-border B2C e-commerce shoppers (%)

Australia

UK

USA

France

Apparel & accessories Computer hardware, software & peripherals

Germany

Russia

Japan

China

Cosmetics, beauty & health products Books, CD, DVD, games

Brazil

Food & grocery Toys

Mexico

Turkey

India

Household good & furniture

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• “Appealing offer” is very consistent in all countries (except Japan) as a key value driver to cross-border trade (more so than “better price”). • Western developed countries have relatively higher share of cross-border trade, driven largely by digitizable intellectual products (Books, CD, DVD, games). • Developing countries, in general, value “trustworthiness of shop/ brand”, “better quality”, and “diversity of products” much higher than developed counterparts. This could be explained by the underdevelopment of multinational retailing in developing markets, and all the downstream issues of this (e.g., counterfeiting). • Product-categories-wise, “apparel & accessories” scores highest as what cross-border e-shoppers are pursuing. China is exceptional where products related to personal consumptions such as “cosmetics, beauty & health product” and “food & grocery” are also highly sought-after.

A Disrupted Market Landscape: Cross-border e-Commerce brings all market participants on an even level playing field. No longer are global consumers only assessable by those having resources to deal with complications of global distribution or costly market expansion. SMEs, especially those born Digital, are the new (micro-) multinationals in the game of e-Commerce. When all gears in the cross-border engine is well lubed, it is indifferent to the shopper whether the online purchase is domestic or crossborder. Cross-border online merchants could compete as effective with domestic offline merchants as they were on-shore. OEM manufacturers would have opportunity to market directly to end consumers, eliminating all wastage existed today in multi-tier distribution and retailing (e.g., supply-chain inefficiencies).

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Implications to Enterprises and Governments Challenges to Tackle: Despite of early success in cross-border e-Commerce as seen in number of markets, there are still barriers to be addressed in order for merchants to capture fully the promise of borderless global commerce. A study done by Accenture on the European cross-border e-Commerce market has unveiled impact of barriers related to market-entry, law and regulations, logistics, and localization (Figure 3). According to the survey, merchants are most concerned with barriers related to laws and regulations. Each destination country has its own set of regulatory measures in product returns, consumer right protection, labeling and discounting – costs of compliance for cross-border transactions add up quickly with

uncertainty. Many merchants still could not provide full-landing costs (product net + shipping + duties and taxes) at the time of transaction – this in return discourages purchase. Barriers related to market-entry are mainly costs associated with building brand awareness in new markets, especially when demand is yet to be proven in initial stage. Some merchants might choose to test the market with listing on e-marketplaces first, complimented with promotions to drive volume, and at the same time understand market perception on their products and price sensitivity. However, this approach could never build up brand nor customer loyalty. Another cost-justification consideration is the tailoring of product and label to the new markets.

Other barriers are related to logistics and localization. For cross-border purchases, especially from long-haul offshore origins, transition time could be unpredictable with limited track-and-trace (e.g., postal network). In addition, the reverse logistics for return are costly and complicated – altogether dragging down overall customer experience. Merchants also need to consider complexity in translation (e.g., for listing and customs clearance) and aftersales services/ conflict resolution. Besides, payment needs to be localized to motivate purchases, and in some cultures where pre-payment is not preferred (e.g., Russia), effective COD option needs to be provided.

Figure 3: Barriers to Cross-Border e-Commerce (source: Accenture European e-Commerce Survey) Percentage of respondents who identified the issues below as barrier to cross-border e-Commerce

Market Entry

Laws and Regulations

Logistics

Localization

37-42%

38-47%

34%

Building awareness in multiple new markets

42%

Market-entry costs not justified for unproven demand

37%

Product return laws

47%

Cost of compliance with different national laws regulating consumer transcations

42%

Discounting and sales laws (e.g., frequency of sales and promotions)

41%

Differences in product packaging and labelling

38%

Customs clearance: duties and taxes

N/A

32%

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Call for Action: Merchant Enterprises Call for Action: Service Enterprises • Destination market-entry: Merchants need to prioritize destination countries according to market demand (per Figure 2) and readiness (per Figure 3). Defining marketing mix is a unique exercise of identifying a small set of winner SKUs and placing them at the right direct and/ or indirect e-channels (subject to local consumer preference, and brand awareness/ promotion strategy), and finally offering the appropriate level of discounts. For brand owners and manufacturers: this poses the golden opportunity to sell directly to end consumers, and to reorganize sales structure along customer demand (vs. the tradition geographical structure in brick and mortar distribution). For retailers/ franchisers: many see crossborder e-Commerce as a channel for introducing new products into an existing market (lower barrier in registration/ inspection/ quarantine/ taxation for certain supply chain models). For new markets, they need to refine distribution/ franchise agreement to cater for geographic expansion. Ultimate goal is to have alignment between brand owners, manufacturers, retailers, and franchisers, as such to removing geo-blocking and geo-filtering. • Global operating model: With crossborder e-Commerce, all the sudden merchants are challenged with a complex array of issues in demand and supply chain optimization, globally. Fortunately, the consideration of sales channels and logistics model could be and should be decoupled. Decision on e-channels should naturally follows consumer preference and behavior (e-marketplaces or direct webstore); however, veteran merchants should also anticipate Digital disruptions on consumer front, and start adopting key enablers accordingly (Sidebox 1). Logistics model should be considered with volume effectiveness (e.g., direct shipment vs. bonded warehouse), scalability (e.g., hub and spokes for regional expansion), supply-chain efficiency (e.g., nearshore to destinations) and sourcing (e.g., outsourcing, as-a-service).

• Industry ecosystem and platform business: Service enterprises facilitate merchants in carrying out the business of cross-border e-Commerce (e.g., trade platforms, logistics providers, payment providers, customs clearance agencies, marketing agencies, operators, etc.) In such a dynamic environment, to stay relevant, such organizations need to anticipate continuous evolvement of the market, and have a vision how their business looks like in the future – this includes understanding their adjacent industries and the interplays. For crossborder e-Commerce to reach farther and inner into the destinations, there needs to be collaborations between global logistics players with the domestic ones. Furthermore, logistics firms should leverage technology to connect and automate their assets and processes (e.g., IoT, wearables, robotics), as such to drive better track-ability and utilization. Trade platforms, besides integrating logistics and payment to create a larger service platform, could also consider cross-listing with those from other countries and regions (i.e., marketplace in a marketplace). • Private-Public cooperation: Crossborder B2C customs clearance requires information from transaction, payment, and logistics, each resides within different companies and systems. To ensure data integrity and to achieve effectiveness, service enterprises should consider data sharing mechanism with governments. Companies should also actively participate and contribute to industry association, for the promotion of cross-border e-Commerce, and for channeling feedbacks and recommendations to public organizations.

Sidebox 1 Digital Accelerators: Advancements in Digital technology and Digital business models are having significant positive effect in accelerating the growth of B2C cross-border e-Commerce. Digital Communications Infrastructure, such as messaging, VoIP, and trade platforms, are the key drivers of cross-border internet traffic, connecting buyers and sellers globally, and enabling the tracking of goods and pre-/ postsales customer services. Crossborder social media connections also play a part in cultivating online sales – e.g., China and other developing countries in particular rely strongly on “word of mouth” before committing cross-border transactions. Digital Customer Omni-channel technology enables cross-border merchants with domestic offline store to integrate and compliment a seamless customer experience (e.g., e-travelshopping). VR technology enables those without any offline stores to embed and mimic offline experience digitally, as such to re-create overseas travel shopping experience virtually based on real-time inventory information. Connected Commerce IoT technology not only generates data for cross-border shipment tracking (e.g., RFID), as such to provide transparency and reduce inventories, but also creates Big Data, when built onto a platform, would be leveraged for new business opportunities with ecosystem partners.

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Call for Action: Governments • Offline/online infrastructure: Besides strengthening transportation network (e.g., rails/highways) and Internet connectivity and speed, governments should also consider working together to establish a global platform (policy and system), for information-sharing among government agencies and service enterprises (e.g., logistics providers, payment and financial institutions, credit bureaus, e-Commerce trade platforms and operations agencies, etc.) as such to streamline cross-border operations globally, to strengthen end-to-end transparency and risk management, and to facilitate online complaint and dispute resolution. Furthermore, governments should establish electronic identity management, and better yet collaborate to define an interoperable global standard to streamline cross-border customs clearance. • B2C inbound e-Commerce regime: Policymakers need to address legal and administrative barriers that hinder crossborder e-Commerce, and to harmonize customs and legal frameworks in order to de-bottleneck clearance of goods. Favorable terms could be given to B2C import purely for personal use, for a certain set of consumer products, within a preset transaction and annual thresholds. Because these measures encourage declaration of B2C crossborder import, in many countries, they also produce a parallel effect of addressing counterfeit and taxation leakage (e.g., due to haitao).

• SMEs and startups environment: Governments need to create a levelplaying field for SMEs and new startups (merchant or service enterprises), by nurturing an open, innovation-friendly, and low-admin-burden environment for them to participate in the cross-border e-Commerce value chain. With the aforementioned government platform, SMEs and startups would have access to knowledge about trade and consumer laws, customs and taxations rules, and other resources (e.g., financing, market data about destinations, etc.) In addition, governments should invest in human capital (e.g., education, import of talents), and IP right/cybersecurity protection, in order to create a healthy and sustainable development of the business. The stake is high with cross-border e-Commerce. It is a moving-goal-post game, where demands of cross-border shoppers vary greatly by countries, while at the same time competitive landscape is continuously disrupted. To capitalize on the next wave of mega growth, merchant enterprises, service enterprises, and governments all have their parts to play in taking down barriers and in adopting Digital accelerators – but more importantly, there needs to be cooperation between regulatory bodies across the world, and between public and private sectors, in order to deliver the full promise of borderless global commerce.

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Author

About Accenture

Ivan Chan Managing Director and Lead of Digital Transformation Accenture Digital, Greater China [email protected]

Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions — underpinned by the world’s largest delivery network — Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 375,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives.

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