Cross-border ecommerce is the new growth buzzword ticking the world

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Cross-border e-commerce is fast evolving as a vehicle of growth, thanks to the exponential spur in the online retail sales, which currently stands twice the domestic e-commerce, said a report titled ‘The 21st Century  Spice Trade’released by the German transport and logistics giant DHL Express.

With a market size pegged at $300 billion gross merchandise value (GMV) in 2015, there is a massive growth in cross-border e-commerce to the tune of 25 percent per annum—a rate very rarely available in most traditional retail markets.

Delving deep into high value spice trades: According DHL, about 20 percent of cross-border purchases are worth over $200, which is higher in terms of share than the domestic e commerce markets, and provides high profit potential.

Spice routes for high-value purchases are being expanded out of ‘sleeping giant’ markets in Europe (Italy, Spain, France and Germany) and Asia (Singapore, Hong Kong and India) with growth rates up to two to three times higher than the global average.

Every tenth US dollar of cross-border e-commerce revenue is made through a time-definite premium shipment. And premium shipping is suitable for all types of e-tailers including SME and ‘accidental shippers’. Those retailers and manufacturers offering premium shipping have the potential to grow 1.6 times compared to those who don’t.

Consumers across markets are motivated to shop cross-border for fundamental reasons, including product availability, attractive offering (including price), and trust. Sharpening a competitive advantage related to availability and trust is both a motivation and a strategic opportunity for the majority of cross-border retailers and manufacturers.

Products purchased cross-border, including fashion and electronics are well-known cross-border top sellers, but consumers have been demanding more. Great opportunity lies in the underserved product categories, such as beauty and cosmetics, pet care, food and beverage and sporting goods.

Practically every product category has the potential for a premium segment. Similarly, there are pockets of premium cross-border shipping demand– even if only occasional, in some cases—for virtually every product.

Snapshot of cross-border e-tailer growth: Currently, cross-border e-tailers are managing to boost their sales by an average 10 to 15 percent by selling globally and are expecting the shareto further increase. Hence,those who have failed to address this market are likely to miss out on a relatively easy-to-capture sales uplift.

It’s not a story only for e-commerce giants—opportunity extends to all types of retailers and manufacturers. E-commerce giantsset the standards for consumer experience but manufacturers stand to be a big winner of the growingcross-border e-commerce, since they are able to boost margins and control their brand by ‘cutting outthe middlemen’. Hence, they are expected to grow 1.3 times as quickly as the already thriving average retailer. Forretailers, this indicatesthe need to find a distinct value proposition in order to compete with them and secure their place within the value chain.

Cross-border e-commerce has developed into a large, quickly growing ecosystem and a great success story for many e-tailers. The success is visible in real numbers. During 2015, the cross-border e-commerce market accounted for $300 billion GMV2, about 15 percent of the overall e-commerce. This rapid growth is expected to grow by about 25 percent year-on-year until 2020 – nearly twice the rate of domestic e-commerce and a growth rate that most traditional retail markets would dream of achieving.

In 2020, it is expected to account for about &900 billion GMV, translating into a roughly 22 percent share of the global e-commerce market. This growth momentum yields unrivaled opportunity for retailers and manufacturers.

The report indicates that the cross-border e-commerce is not an e-commerce giant story as various manufacturers and retailers will be able to successfully go global.

Even beyond 2020, all evidence shows that overseas demand for products is expected to increase. Further, considering the growth patterns, e-commerce companies are currently expanding their regional footprints anticipating that every e-commerce purchase would eventually evolve as a local purchase.

However, even e-commerce giants, such as Amazon, Alibaba, and Zalando, which already operate local distribution centers in several countries, ship a significant part of their sales cross-border. It’s driven by huge number of stock-keeping units (SKUs) offered by some of these players.

But having slow-turning SKUs sitting in inventory everywhere, a pre-requisite for pure local fulfillment is much more costly than shipping a certain share of orders cross-border.

And in order to fulfill consumers’ expecting faster delivery, many e-tailers offer premium international shipping options to their customers, for a surcharge. This is testimony that cross-border is not a passing phase or trend, but rather a significant staple in the e-commerce market that requires premium shipping.

High-basket-value transactions, especially profitable for e-tailers account for a significant part of total cross-border e-commerce sales. Even at a relatively high minimum threshold of $200 for a sale to be labeled ‘high value’ and applying a conservative estimate, such sales represent 10 to 20 percent of all cross-border transactions or a ‘spice’ market of at least $30 billion GMV. It represents a higher share of high-basket-value sales than any domestic e-commerce market.

Converting such high-profit opportunities should be a priority for e-tailers who require the use of premium shipping options.

So what does the global map for such high-basket-value spice route trans-actions look like? It is a lot more diverse than some may think. On a regional level, while the US may seem to dominate today’s overall e-tailer landscape - at least from a Western perspective - the approximate $30 billion market of high-basket-value transactions is in fact quite evenly divided between Asia, Europe, and North America.

Looking at this in the context of the overall cross-border ‘pie’, including lower-basket-value transactions, Asia has a comparably small share as far as high basket value is concerned.

On a country level, the US, UK and China are the three biggest spice route supply markets, and currently account for about 60 percent revenue.

With a relatively broad and ever-expanding e-tailer landscape fanning out across geographies, where are international shoppers with high-basket-value purchases to be found? Again, the general answer could be ‘pretty much anywhere around the world’, with consumers engaging in the spice trade to similar extents across Europe, Asia, and North America.

As with the origin countries, Asia has a relatively small share of the high-basket-value destination pie compared to overall cross-border e-commerce including lower-basket-value transactions.

On a country level, demand is more fragmented than supply, with the US, UK, and China accounting for closer to 30 percent of the overall global high-value demandas against 60 percent f supply, and other markets, such as Australia, France, and Canada playing a larger role.

So, e-tailers from large ‘lead spice markets,’ and smaller specialists have the chance to sell to a wide range of countries. And the opportunity for e tailers can often start literally at their doorsteps, with a high share of intraregional trading—over 60 percent of the overall European trade comes from various countries in across Europe.

Going forward, diverging momentum levels can be expected between regions and countries, driven by factors, such as general economic growth and changes in e-commerce penetration, domestic market maturity, trade terms, or exchange rates.

E-tailers with high average basket sizes in the survey sample expect demand growth especially into the Americas (37 percent) and Europe (33 percent), and to a lesser extent into Asia (19 percent). However, there is surprisingly low growth of sales into Asia. This can be explained by the fact that many companies have a dedicated go-to-market strategy for China, including local fulfillment and no requirement for cross-border shipping.

However, considering the emergence of a new middle class with a big appetite for high-value products and the general trend of diminishing trade barriers, many high-value e-tailers may be underestimating the potential of high-value cross-border sales into Asia.

The commercial spice routes for high-value goods especially out of Europe and Asia is expected to expand further. The notion that cross-border e-commerce is all about price arbitrage of low value products is onlya myth.

If a consumer pays $300 for the latest electronics gadget or for larger-batch shipment of customised gear from a low-cost producer for their local football club, it’s likely that they would expect the consignment to the sent quickly and securely.

Depending on their local market environment, they may expect e-tailers to cover it out of their margin (with the unwritten industry rule that logistics accounts for 10 to 15 percent of e-commerce sales, leaving plenty of chips to bargain with) or be willing to pay for it themselves.

Currently, every tenth US dollar of cross-border e-commerce revenue is made through a time-definite—premium) shipment, which is the ‘Caravans’ of our age.

Along the natural fit with high-basket-value transactions for which premium shipping is a must have, this counterintuitive reliance on a premium shipping solution has various underlying reasons.

As many cross-border purchases are occasion-generated or have highly emotional involvement - pre-Christmas, birthday presents - it pays for retailers to offer a premium shipping option that complements the standard - the  deferred shipping option. In this case, consumers are willing to kick in the extra bucks for increased speed of delivery.

For many smaller retailers and manufacturers, lack of consumer trust in their offering is an obstacle, putting them at a disadvantage vis-à-vis the e-commerce giants.

‘Borrowing’ the trusted brand of a renowned logistics provider is a recipe for international success for these retailers and manufacturers.

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