Author: Tilly Michell, Airwallex
The cross border ecommerce market is growing at a staggering pace.
According to Statistica, international sales will account for 22% of global ecommerce shipments in 2022, and by 2026 the cross-border market will reach a value of $2.25trn. Impressive growth, considering the market was valued at a trifling $579bn in 2019.
Driven forward by new ecommerce trends such as BNPL (buy now, pay later) and supported by logistical solutions like FBA (Fulfilled by Amazon), more and more businesses are looking beyond domestic markets towards burgeoning opportunities abroad.
If you’re one of them, read on to learn the options you should consider before expanding internationally, the pitfalls to avoid, and the handy workarounds that can save your business money.
Choose a multi-currency finance solution
Global expansion isn’t just about selling goods or services abroad. It could also mean importing from overseas suppliers, hiring international staff or setting up foreign business entities.
Whatever direction your international expansion takes, one of the first things you should consider is how to manage your finances across currencies.
If you currently use a single-currency bank account, your business will be charged foreign exchange fees each time you collect payments from overseas customers or send money to international suppliers and staff.
High street banks charge up to 3.5% above the interbank rate for currency conversion, which can put a serious dent in your profits if applied to each international transaction.
The best solution is to switch your business bank account to a multi-currency business account. As the name suggests, multi-currency accounts allow businesses to collect, hold and send many currencies from a single account without auto-converting funds to their domestic currency.
In practice this means a UK business can accept payment from US customers in dollars, hold those dollars in their account, then use them to pay international staff and suppliers, all whilst avoiding FX fees. Multinational businesses can add thousands back into their bottom line using this workaround.
When choosing a provider, it’s best to compare business accounts on fees, platform usability and available currencies to ensure the financial solution meets your requirements.
Identify the market potential for your product or service
Before investing in international expansion, it’s crucial that you establish where your opportunities lie.
It’s easier to target consumers that are in a similar demographic to your current customers, particularly if they share the same language, culture and retail habits. For this reason, many UK businesses begin their international expansion in the US. But ultimately, where you choose to expand will depend on where there is a market for your product.
To establish this, you should follow these steps:
- Conduct keyword research in the territories you wish to expand to and pinpoint the consumer pain points in those markets.
- Analyse your current website traffic to find out if overseas consumers are already searching for your product.
- Research the import regulations for your target country and make sure your product doesn’t contravene local laws. You should also conduct research to ensure your products are a good cultural fit for that market.
- Research competitors in the countries you wish to expand to. Competition is not always a bad thing, in fact it’s a good indication that there is a market for your product, but you must have a clear idea of what your business can offer that competitors do not. If there is nothing like your product in the market you have the advantage of being a ‘first mover’, but you may have to focus on product education in order to drive demand.
- Evaluate the revenue potential in your target market. Calculate your profit margins taking your overheads into account, including international shipping, import taxes and currency conversion.
- Validate product demand by soft-launching your product either through an ecommerce platform such as Amazon, or through PPC advertising. Use this phase to determine the right price and target market for your product.
Scale your shipping and fulfilment system globally
Today’s customer expects a lot. Fast delivery and free returns aren’t a perk any more, they’re fast becoming the norm.
According to research from the Baynard Institute, 48% of cart abandonments are due to unexpected tax and shipping fees. Whilst a study by Invesp found that 67% of shoppers check the returns page on ecommerce websites before making a purchase.
Fortunately, 3PL (third party logistics) companies such as ShipBob, FBA and Borderless360 make it easier for businesses to keep their fulfilment process efficient and cost effective across borders.
When choosing a 3PL for your global fulfilment, ask yourself the following questions:
- Do they have warehouses in your target countries? What’s the location of those warehouses and their average delivery times?
- Is the company able to integrate seamlessly with your ecommerce store? You want to avoid any lags in order processing and inventory management.
- What is their contingency plan during holiday and sale periods?
- Is your stock fast or slow moving? If it’s the latter, consider cutting down your inventory or choosing a 3PL that doesn’t charge extra the longer your stock sits in the warehouse.
International expansion presents a serious revenue opportunity for businesses that get it right.
By conducting thorough market research, choosing the right multi-currency financial solution, and putting in place a solid logistical infrastructure, your business can tap into new markets, reach millions of new customers and grow exponentially.
Airwallex is a multi-currency payment solution that helps businesses cut the cost of FX and improve their profit margins as they scale across borders. Sign up free today to learn more.
Tilly is a content manager at Airwallex—the multi-currency payment solution for global businesses. Tilly creates content that supports companies in their growth trajectory, and specialises in tech and business finance.