What is Cross-Border Ecommerce and its Impact

By | 6 September, 2016

Cross-border ecommerce is a channel that allows online shoppers to buy foreign products and brands unavailable in their home country. Know everything about what it is in this article. In developing countries of Asia, especially China, consumer’s willingness to spend stemming from increased income levels have caused a surge in foreign product demands.

These brands may not be available in their own market. If they are, they might be sold at very expensive prices domestically. In some cases even if the brand is available locally, consumers prefer to buy its counterpart manufactured internationally. Primary reasons for shopping for consumers to shop via Cross-border ecommerce are:

  • Perception of enhanced authenticity and quality
  • Low risk of counterfeit associated with foreign manufactured products
  • Much lesser price on cross-border outlets than domestic prices of imported brands
  • More variety that is unavailable locally

What is Cross-Border Ecommerce Importance

Cross-border ecommerce market is growing at upward of 50% annually.

Although you might have only just heard this term called Cross-border ecommerce, cross-border ecommerce business has already had a jump start in China. According to McKinsey report, the 2015 cross-border ecommerce market in China is valued at $40 billion (a little above 6% of China’s total ecommerce market).

Many big names including consumer good companies such as Unilever, P&G, Pepsico, Nestle have established their cross-border businesses to sell to Chinese consumers. It is worthwhile to note that these companies are already present in China, however they use their cross-border business to sell brands which they haven’t introduced into the China market yet. For example, Unilever sells variants of its luxury soap Lux and skin cream Pond’s which are available in the west but not in China and Chinese consumers are loving this extended range available to them.

Paypal Report of 2014 shows the following categories selling the highest via Cross-border ecommerce channels:

  • Apparels & accessories – $12.5 Bn
  • Health & beauty products – $7.6 Bn
  • Personal electronics – $6.0 Bn
  • Computer hardware – $6.0 Bn
  • Jewelry, gems & watches – $5.8 Bn

Cross-border ecommerce has especially picked up in product segments where health and safety are of high importance. Products such as infant milk formula, Vitamins, Supplements which have had a history of bad safety in China are being preferred to bought over cross-border ecommerce platforms.

Cross-Border Ecommerce Platforms

You must be interested to learn how companies and brands are implementing cross-border ecommerce at such a big scale. In China, the ecommerce giants Tmall and JingDong (JD) have taken the lead in providing a platform. Tmall operates its cross-border site at Tmall Global and JD operates JD Worldwide. Chinese consumers can access these sites to shop foreign brands and products at fair prices and get them delivered to their door step.

Amazon.cn a relatively smaller player in China with less than 1% share of the ecommerce market has forayed into the cross-border business by offering a select few foreign products. They have also opened up their international shopping sites in US, UK and other countries to Chinese consumers in an attempt to ride the cross-border ecommerce wave in China.

When JD launched their Cross-border business with JD Worldwide, one of the most interesting moves was country-specific malls such as Australia-mall, Europe-mall, Taiwan-mall etc that JD set up. “U.S. Mall,” for example offers authentic U.S. products. Many American brands  including Converse, Samsonite, Nautica Kids and Jeep apparel have signed up to be listed in this mall.

Factors Contributing to Cross-Border Ecommerce Growth

The growth in the Cross-border ecommerce market is only going to sustain itself with a 50% annual growth. Tmall Global and JD Worldwide already have some big brand names which have set up their online stores to reach out to the Chinese consumers. Japanese online retailer Rakuten and South Korea’s Lotte which have set up their flagship stores on JD are testimony to the huge growth of Cross-border ecommerce.

There are quite a few factors which have made the environment conducive for Cross-border ecommerce to thrive in China.

  • Government regulations regarding duty for personal-use items are low (10 to 50%). Duty fee lesser than RMB 50 is typically waived
  • Governments establishment of Free Trade Zones (FTZs) within different cities of China
  • Logistics operators are improving their network and services to cater to the Cross-border business. For example, DHL Global Forwarding has tied up with JD to deliver cross-border products on time in China
  • Finally, ecommerce players like JD and Tmall have worked consistently to improve the speed at which custom clearance occurs for cross-border products

Conclusion

While China is the front runner in cross-border ecommerce currently, an Alizila-Accenture report predicts that the global cross-border ecommerce market will be worth $1 Trillion by 2020. This is an upcoming area that digital marketers should study carefully because many businesses are going to be pivoting to this model.

I hope this article was able to explain clearly what is cross-border ecommerce and its impact. Would love to know your thoughts below!

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