Cross-border e-commerce a chance to increase profits, but also a challenge

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Cross-border e-commerce a chance to increase profits, but also a challenge

Expansion into foreign markets may be the answer to the many difficulties retailers currently face. Opening up to European and global customers provides an opportunity to significantly increase sales and profits, which are difficult to achieve by operating solely in the Polish market. Although retailers must also keep in mind that this is not an easy process and various barriers may appear on the way to success. What these barriers are, as well as what specific benefits diversification of markets brings, is shown in the report “Direction: cross-border e-commerce.”

The report was prepared by GS1 Poland, a non-profit organization dedicated to developing and maintaining global standards that ensure effective business communication. “Direction: cross-border e-commerce” was based on the results obtained from 887 surveys and 3 in-depth interviews conducted among GS1 System Participants in Poland who conduct e-commerce activities.

What does our cross-border e-commerce look like at the moment?

Although Polish e-commerce companies still mostly operate locally (52%), more and more of them see potential in expanding abroad – primarily those with several years of experience in the market. Such that decide very quickly to sell to other countries – within a year of establishment – are only 11%.

The share of foreign sales in the revenues of most of the surveyed companies is still relatively small – in 61% of them it accounts for less than a quarter of total revenues. However, for some companies cross-border e-commerce is a significant source of income – 10,8% of retailers report that foreign sales exceed 75% of their total revenues.

The countries in which Polish e-commerce companies operate should come as no surprise. Most of them are in Europe, and the most popular are: Germany, the Czech Republic and France. Nearly half of the retailers (49%) who operate abroad sell goods through both marketplaces and their own e-commerce stores, nearly a third (31,9%) use only marketplaces, and less than a fifth (19%) use only their own store.

Not just higher profits

Dependence on a single sales channel can be risky. Expanding into new markets and developing additional e-commerce sales channels, increases the scale and stability of a company in several ways:

  1. Enlarges revenue potential: Selling in foreign markets increases a company’s reach, allowing it to reach new customer groups. Moreover, geographic diversification of trade minimizes risks associated with specific markets.
  2. Reduces the risk of dependence on concentration: Opening up to new markets and sales channels helps minimize the risks associated with operating in one specific area. This allows the retailer to diversify traffic and sales sources – in the event of an unfavorable change in some market, only one of several channels will be affected. The ability to compare the profitability of different channels and markets also helps decide where to invest more profitably in growth.
  3. Increases the flexibility of marketing activities: The diversity of sales channels makes it possible to tailor promotional strategies and marketing campaigns to the specific requirements and preferences of local customers. What’s more, sometimes lessons and feedback from one country can inspire improved offerings in others.
  4. Optimizes costs: Expansion into new markets can help optimize inventory costs. On top of that, with higher sales volume, negotiations with suppliers are easier and relations with partners are more favorable.
  5. Brings image benefits: a strong international presence strengthens a company’s prestige and credibility. Diversifying operations and expanding into new markets also significantly increases the value of the company in the eyes of investors.

What to face?

Although many Polish retailers are optimistic about expanding abroad, entering another country’s market often comes with numerous challenges. The main barriers to overcome when starting and operating an e-commerce business in other countries include:

  • logistical barriers (23%) – include delivery and return procedures, transportation and storage costs, or difficulties in supply chain management, among others;
  • regulatory barriers (20,8%) – these include differences in tax laws, data protection and consumer rights, or the need to adapt operations to local conditions;
  • customs barriers (19,4%) – involve paying duties and taxes, as well as filling out complex documentation;
  • lack of marketing know-how (15%) – a challenge in reaching customers in a new market and adapting marketing strategy to local conditions;
  • language and cultural barriers (14,6%) – can make it difficult to communicate with and build relationships with customers and business partners.

Overcoming these barriers requires proper preparation and commitment from Polish e-commerce companies. Investing in market analysis, adjusting business strategy and establishing cooperation with local partners can significantly facilitate entry into a new market and increase the chances of success.

On the other hand, the main obstacles standing in the way of entrepreneurs’ desire to expand abroad are:

  • lack of knowledge on how to look for new markets,
  • lack of time and production capacity and/or human resources,
  • lack of funds,
  • fear of doing business in a foreign market.

Overcoming barriers to cross-border e-commerce

Before entering a new market, carefully check the legal and tax requirements there. It will be very useful to familiarize yourself with the local counterparts of the KRS and CEIDG. It is worth establishing cooperation with a Polish law firm serving foreign markets or seeking professional legal services in the target market. Investing in knowledge and professional advice is key to success.

Entering another country’s market may also be facilitated by integration with the largest marketplace operating there.

It is important to take care of the legal protection of the brand and intellectual property, as well as the security of customers’ personal data. Contracts with foreign subcontractors and partners should be concluded before actually starting cooperation – it is also advisable to seek opinions about them on the Internet or from others beforehand.

Unfamiliarity with customs and tax regulations does not exempt from compliance. Experienced VAT and e-commerce advisors will help interpret the regulations and avoid costly mistakes.

Successful entry into foreign markets requires not only good organization of the sales process, but also a thorough understanding of the customer, his buying preferences and expectations. A good analysis of consumer behavior, competition and sales methods is crucial in cross-border e-commerce. A variety of information sources can be consulted for this purpose, including industry reports, government data and opinion polls.

Hiring local employees will provide support in understanding new customers and help prepare content in the local language. It is also important to verify the quality of translations so that you fully understand the messages and information that will be coming from customers.

Success in foreign trade also requires adapting to customers’ expectations in terms of delivery and payment. You need to provide diverse delivery options and integrations with popular payment systems – taking into account local preferences, of course. An unclear returns and complaints policy and a lack of popular payment and delivery methods must be something to avoid like fire.

It’s also important to properly handle goods returned from overseas, estimate their expected volume and ensure compliance with packaging regulations. Setting up a logistics infrastructure for overseas shipments and providing a local address for returns will help.

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