From Factory To Front Door: The Global Evolution Of E-Commerce

Natasha Baker , CenturyLink

In the manufacturing-centric city of Dongguan, China, a local startup company called SainStore has formed a lucrative business helping nearby manufacturers build brands, design packaging and sell goods via its niche e-commerce platforms. But it’s not Chinese customers that SainStore is targeting. In fact, the bulk of its sales are to overseas customers, in the United States, United Kingdom and Germany.

Across the world, companies in search of greener pastures and higher profit margins are increasingly looking to sell their goods internationally—rather than domestically—via e-commerce. And revenues from cross-border e-commerce are growing quickly due to innovations in e-commerce platforms, cheaper and more seamless shipping and payments, and growing trust among shoppers.

Last year, shoppers spent about $105 billion through cross-border e-commerce platforms, and that number is expected to grow 200 percent by 2018, when shoppers will be spending $307 billion annually, according to Modern Spice Routes, a study conducted last year by global market measurement firm Nielsen in conjunction with PayPal.

“Cross-border e-commerce is taking off because compared with traditional trading, it’s much more efficient,” said Diane Wang, CEO and founder of DHGate, a platform for cross-border trade based in Beijing, China. “We believe it will change the way people do business around the world.”

The Allure of Cross-Border Shopping

Both small to medium-sized enterprises looking to source products and consumers hunting down bargains are being drawn to foreign sites to find cheaper goods and greater variety than they might find domestically. DHGate, for example, allows these enterprises and consumers to order more than 20 million products directly from factories around the world, bypassing the middlemen typically involved in foreign trade.

Prior to the emergence of e-commerce shopping sites like DHGate, traditional foreign trade involved large minimum order quantities, partnerships with factories, pre-payment of goods and much longer lead-times.

“There’s all kinds of things from all over the world that people want. We’re able to find the treasures of different parts of the world and make them global,” said DHGate’s COO, Noah Herschmann, who has held roles at some the world’s largest e-commerce companies, including eBay and Groupon.

Cross-border e-commerce benefits manufacturers by reducing the barriers they often face in reaching international markets and helping them reap healthier profit margins, since platforms only take a small percentage of the sale (about 3 percent), as opposed to involving importers, exporters and other intermediaries.

“Most Chinese manufacturers see only about 2 to 4 percent profit margin. But by cutting out the middlemen, manufacturers can see closer to 30 or 50 percent,” Wang said.

Consumer Demand

At the same time, consumers are also becoming more eager to purchase items cross border.

“Cross-border e-commerce has been growing very fast across most corridors, specifically for Asia,” said Philip Yen, general manger of the Digital Technology Global Center at MasterCard. “We have seen many countries where cross-border e-commerce is equal to or even greater than cross-border spending at the physical point of sale environment.”

Top cross-border purchases among consumers include clothing, shoes and accessories, health and beauty products, electronics and computer hardware, jewelry and watches, according to the Modern Spice Routes study.

Customers are so eager to purchase cross-border that third-party services have sprung up around the world to that will ship goods internationally from domestic e-commerce sites. For example, shoppers can use services like dotdotbuy and Panli to purchase items from the popular Chinese e-commerce site TaoBao, which otherwise only ships domestically.

Cross-Border e-Commerce in the United States

Cross-border e-commerce will be just as important for U.S. companies in the years to come. The United States is the leader in terms of revenues from cross-border e-commerce, and as western brands remain in high demand, international sales will continue to rise–whether it’s to the Asia-Pacific, Europe, or Latin American regions.

In fact, sales in the United States from cross-border e-commerce are expected to jump from $11 billion in 2014 to more than $50 billion by 2020, according to a recent report by OC&C Strategy Consultants.

“People having more spending power helps in terms of looking for more goods to purchase,” Yen said. “The preference for name brands also points people to looking beyond domestic for products from overseas. That’s certainly a trend we’ve noticed in Asia.”

Yen added that the percentage of consumers in China shopping on foreign sites as opposed to local sites increased from 8 percent in 2011 to more than 16 percent in 2013. In China, 84 percent of cross-border shoppers bought products from U.S. websites, according to Modern Spice Routes.

Barriers to Cross-Border e-Commerce

Although it’s clear that consumers are getting more comfortable with shopping cross-border, barriers still stand in the way for companies looking to reach international markets via e-commerce.

Companies across the world need to acclimatize to new business models; overcome language and cultural barriers; deal with new operational and marketing challenges, including fierce international competition; and sway consumer sentiment so that cross-border shopping is perceived as being as safe and convenient as traditional e-commerce.

According to the Modern Spice Routes study, the biggest barrier consumers face is concerns about identity theft and fraud when shopping cross-border.

Players at all stages of the process are working on allaying these concerns. DHGate, for example, has implemented measures such as holding money in escrow until a buyer has confirmed receipt of items. And payment companies like MasterCard have introduced products that supply virtual card numbers to provide consumers with greater confidence. If a number gets compromised, it means it cannot be re-used, and consumers can also set alerts if the card is used at certain hours, such as while they would likely be sleeping.

Ultimately, though, sellers will need to win consumer trust if cross-border shopping is to grow at the same monumental rate as traditional e-commerce has. Remember, it was only 10 to 15 years ago that many shoppers were hesitant to type their credit card information into a website. For cross-border e-commerce to go mainstream, the experiences delivered by cross-border sellers must provide consumers with the feeling of trust and convenience that they have come to expect from traditional e-commerce.