The challenges for global expansion in eCommerce
Editor’s note: This is a guest post from KnowGlobal.
In an increasingly digital world, expanding your business into new global markets is more accessible than ever, with international communication and transactions far more fluid than we could ever have imagined. This presents vast opportunities for businesses who find themselves no longer restricted by their geographical location, but equally presents many challenges for businesses looking to dip their toe in the world of cross-border. Whilst some challenges might be obvious, like translations, shipping your goods, and marketing, others are less so, here we give our top challenges for global expansion and how you can prepare your business to overcome them.
Where, when and how?
With close to 200 countries in the world, the first and biggest of all your decisions, is selecting where to start your cross-border activities, should your business focus on one key market or test multiple markets? Taking the time to complete research here will create solid foundations for your expansion into the global market, providing an understanding into what the competition is, the level of demand, and what your options for routes to market are.
For eCommerce businesses, there’s decisions to be made on localizing your existing website to cater for your target markets globally or making use of the thousands of online marketplaces worldwide, to catapult your goods into the eyes of your target consumers. The choices are endless with the likes of TradeMe, Flipkart, NewEgg and Spartoo to name a few, great alternatives to the UK’s favorites, Amazon and eBay.
Understanding your cross-border VAT and sales tax obligations
Although tax and VAT are probably not the first (and most exciting!) thoughts when it comes to hitting new markets, understanding your compliance obligations in both the short and long terms will be paramount to your success.
If you’re looking at European markets or others with VAT based systems, it’s crucial you understand the de minimus thresholds which vary massively across different countries (anywhere from £35,000 – £280,000), you’ll need to plan for and understand when you’ll cross the thresholds which will then require you to register and account for VAT in that country, taking a proactive approach will avoid receiving any potential costly penalties for late filing and late registration.
Equally if you’re looking further afield to other markets with unfamiliar Sales Tax regimes, you will need to understand whether you should be charging Sales Tax on your products and how to account for this. The application of VAT/Sales Tax will naturally impact your pricing strategy and so should always be at the forefront of your cross-border strategy, for example, children’s clothing retailers in the UK are used to a 0% VAT rate on sales but should they begin to sell into France their products are subject to the standard rate of VAT (20% currently).
Managing international delivery and returns
Building on your research of the market’s demand, competition and your competencies, understanding your customer expectations in the new market and how you can meet them is vital to your business’s global success. When using marketplaces as your global sales channels, you may be subject to conditions for maximum numbers of delivery days, take Zalando who currently operate a 3 day delivery maximum. This research will lead you to make choices based on your operations, will you work on a drop-shipping basis or will having locally stored inventory provide a more competitive approach?
***Top Tip: Understanding the import duties and taxes that will apply on the shipping of your goods to your end customer is vital, this goes back to understanding your tax obligations. As a consumer, there is nothing worse than ordering what you think will be a bargain, only to be landed with a large import duties bill when you receive your product. Whether you decide to deliver your goods with duties paid or unpaid, communicating the Total Landed Price for goods clearly to customers is incredibly important to your cross-border success.
With the right know-how and partners in place, these challenges are far from insurmountable, the rewards of taking your business in to new markets should not be underestimated. Whilst growth rates in our domestic markets may plateau and return on investments dwindle, targeting new markets worldwide provide exciting opportunities to grow your business and open up new sales channels. For access to market insight reports, your ticket to global marketplaces, or advice on how to manage your VAT and Sales Tax obligations speak to the KnowGlobal team.