Next Stop: The World
The growth rate for e-commerce in markets like Mexico, Brazil, India and China is expected to far outpace that of the United States over the next four years. The combination of a struggling U.S. economy and maturing e-commerce market is forcing retailers to look elsewhere for the type of growth experienced domestically over the last decade.
“E-commerce is still very strong here, but it’s moderating and no longer [growing] in the 30-40 percent range,” says Joanne Bethlahmy, director of Internet business solutions for Cisco. “The rest of the world is taking off with e-commerce -- growth rates are still in the 25-40 percent range. Everyone is looking at these growth rates and wanting to participate; the question becomes ‘how?’”
There are two basic approaches. Some retailers have one universal site, enabling shoppers from around the world with automatic currency conversion and global shipping from domestic facilities. This works well enough for domestic-only retailers, but Bethlahmy believes it doesn’t fully capitalize on the market potential.
The other approach, appropriate for retailers that already have bricks-and-mortar stores in foreign countries, is to open country-specific websites with e-commerce operations abroad. “You can imagine [that] you’d rather buy from an American website and not have the product shipped from Japan,” Bethlahmy says. “You’d prefer to buy from someone local. It’s not shipped as far and you’re able to pay in a more comfortable manner.”
The global payoff
Some 20 percent of online shoppers purchase most from stores that have bricks-and-mortar outlets, so retailers that operate in foreign countries without a local e-commerce solution are missing out. “Some countries are even more multi-channel than the United States,” Bethlahmy says, citing Korea, with the highest penetration of online buyers in the world, followed closely by Japan.
The payoff can be significant, according to Cisco’s new report, “The Global E-Commerce Gold Rush: How Retailers Can Find Riches Overseas.” The study, which is the result of more than 30 interviews with top e-retailers and consultants, shows just how significant the results can be.
“About 70 percent of the growth is happening outside of the United States,” Bethlahmy says. “If you add in travel, global e-commerce is going to reach about $1.4 trillion in another four years.”
This global gold rush is not just about U.S. retailers expanding into burgeoning new territories. Foreign players are entering the United States, and are expanding beyond their own borders into some of these rapidly growing countries, as well.
Learn from those leading the way Based on lessons learned from e-commerce pioneers, Cisco Internet Business Solutions Group created a list of eight universal principles for any company considering expanding into e-commerce around the world:
Base expansion plans on the facts. If a retailer already has bricks-and-mortar stores abroad, prioritize countries in which stores already are doing well. “The level of existing popularity is almost always the best indicator of your potential online success,” Bethlahmy says.
But that is not the only deciding factor. A country’s ability to support e-commerce is dependent upon the rates of broadband service available directly to homes or phones, the sophistication of delivery systems and online payment options. “Those are the three things that really need to be in place to do e-commerce,” Bethlahmy says. “Secondarily, retailers need to look at the relative ease or difficulty of localizing products and creating a good shopping experience online.
Place staff where it makes the most sense. Retailers should manage e-commerce functions at headquarters that benefit financially from economies of scale or tasks that require standardization, like branding, core technology, core navigation and global partnerships. “Those are all things that benefit by leveraging the full-on size of the retailer,” Bethlahmy says.
Not everything can be handled at headquarters, however. “Retailers need to be prepared to staff up locally or use current local staff for those functions that require feet on the ground or country expertise to be successful,” Bethlahmy says. This can include buying and marketing or making minor changes to the website so that the look, feel and language appeal to local customs. It also may include bank agreements and delivery. “Sometimes you’re better off doing local delivery carrier agreements if you don’t have scale in a particular country,” she says.
Use local buyers to match your country’s preferences. While a master product agreement may be struck at the corporate level, local buyers should have the freedom to choose items from that wholesaler that are available in a particular country. “People in different cultures prefer to buy different things,” Bethlahmy says. “You need local buyers to understand that, to respond to competitive pricing and to offer local promotions that those customers are going to respond to.”
Use local marketing resources. Similarly, a retailer needs to handle marketing locally since there can be cultural or regional differences in the response to marketing tactics. “While a 20-percent-off sale can work well in the United States, it can have negative connotations … elsewhere,” Bethlahmy says. “People [in other countries] may respond better to free shipping or free taxes.” Local experts should also be involved in increasing site traffic through search engine optimization and the crafting of local offers that correspond to regional holidays or themes.
Make sure that the core website platform allows for local variation. It’s not feasible -- or advisable -- for staff in each country to develop its own technology, or to choose a vendor that appeals to their needs. While information technology largely should be handled at the corporate level, it must have the flexibility to allow staff in different countries to slightly alter the look and feel in a way that fits better with that country’s tastes and language. “Look at Amazon’s various websites,” Bethlahmy says. “You know they’re all Amazon, but the homepage [looks] slightly different to tap into what that country prefers.”
Be prepared to meet local expectations for delivery options. Not all Internet shoppers have the same delivery expectations, and some foreign markets may expect more than American companies are accustomed to delivering. “Much of the rest of the developed world has a more sophisticated delivery infrastructure, so retailers have to meet those expectations for speed and delivery options,” Bethlahmy says. In Japan, for instance, customers like to pick up and pay for packages at neighborhood convenience stores, so a retailer will need to develop relationships with those stores. Customers in Japan, urban Australia and Korea have grown to expect same- or one-day delivery at a reasonable cost. Australia and the U.K. expect to choose a one- or two-hour delivery window -- even in the evening. “To be successful, retailers are going to have to meet local expectations while managing their costs,” Bethlahmy says.
The same goes for payment options. In many countries, credit cards are not the preferred payment option. As with delivery, retailers will need to understand the cultural expectations and be prepared to meet them. “To really unlock the revenue in any country, you have to allow people to pay in the ways they prefer,” Bethlahmy says. In Japan, many customers prefer to pay cash on delivery for a package at the same convenience store at which they retrieve it; COD is also popular in Taiwan and Mexico. In Germany, customers prefer online bank transfers, while PayPal is heavily used in other Europe countries and Australia. Of course, credit and debit cards remain a dominant payment method in many countries -- just understand they aren’t the only ones.
Despite all this talk of country-specific customization, a global IT architecture is critical. Companies that commence e-commerce in one country may quickly find themselves expanding into others. This means creating a global IT architecture that can accommodate global e-commerce capabilities, like regional website templates or foreign exchange. “Similarly, you want to plan your data center so that you’re managing costs and making the most of cloud technologies,” Bethlahmy says. “Think about where to place data centers to deliver excellent online response times.” There’s no doubt that expanding globally can be daunting, but the numbers show the potential and the struggling U.S. economy has proven the need for businesses to diversify. “The good news is that some pioneers have been doing this for a while already and they’ve learned some very useful lessons which can be applied by close followers,” Bethlahmy says.
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