Recently, the Gorilla Group team had a virtual sit down with ecommerce industry analyst Kent Allen, Principal of San Francisco-based The Research Trust, and cofounder of the Global E-Commerce Leaders Forum. He touched on a wide range of topics driving the growth of the community active in the Global E-Commerce Leaders Forum.
The following excerpts include some of his thoughts on trends in and key drivers of the international ecommerce landscape. The following is part one of a two-part series of excerpts taken from our wide-ranging discussion with a focus on cross border commerce strategy and roll-out implications.
Do companies typically have a physical presence (in-country fulfillment or a retail location) before moving into a new region? Or are they choosing to go web-first without having actual physical infrastructure or offices?
It really depends – on size, on the global equity that a brand might have, on the product category. More mature product categories, like PCs and electronics, are more likely to have some locations on the ground. Typically they also have a distribution partner presence.
On the other hand, newer fashion companies – like those that are aggregating boutiques, designers and new digital concepts – tend not to have any kind of physical infrastructure and are instead entirely digital-first in strategy.
There are also lots of hybrid market-entry options companies are testing right now. Certainly more than we saw in the recent past. Going back 5 years or so, some of the first companies to get serious about cross-border ecommerce were mid-size, often pure-plays without a significant international presence.
Many were at first surprised and then somewhat overwhelmed by demand from international customers, who were basically asking, “I know there will be international shipping and duty charges, but I really want the product. Will you sell it to me?”
At the same time, we also saw bigger global brands – especially in the consumer electronics and luxury categories – with existing global distribution getting more serious about cross-border ecommerce opportunities. In many cases, those brands sell through master distributors, wholesalers, and other retail channels, and tend to have physical infrastructure, whether its fulfillment or just retail locations, on the ground.
This was when we saw brands revisit the older market-entry options which kind of boiled down to two choices – “go big or stay home.”
How do brands establish a beachhead and boost awareness in regions with little to no native brand recognition?
Interestingly enough, at our first Global Ecommerce Leaders Forum back in May of 2014, we pulled together a panel of folks who were ahead of the times in terms of investing in cross-border ecommerce. They had already realized the importance of putting more muscle behind customer engagement and acquisition programs.
Those panelists agreed that when their firms were just entering a region where they had little to no brand recognition, often times the brand needed to focus on more traditional public relations tactics – including old-school, feet on the street, brand building 101 initiatives. For instance, when targeting overseas college students, some went to the campus dorms and dropped off samples and hosted events and what not.
That being said, digital marketing obviously has its place alongside more traditional advertising and PR.
I’m especially bullish on social marketing, especially in emerging markets. We’ve found those markets haven’t really had the ‘online portal era’ build out of digital media that we saw in the early days of ecommerce where portals were designed to capture eyeballs and acquire customers. These emerging markets have basically leapfrogged the 1.0 online advertising period that we saw during the first 10 years in the U.S. So although there are obviously digital media opportunities everywhere now, I do see a lot of social marketing opportunities, especially those coupled with mobile opportunities to help build brands in emerging markets.
Once there is some awareness of and demand for the brand, what’s the next step? Testing the waters via international expansion through Amazon, Ebay and more regional marketplaces, going all in and building a dedicated online brand presence, or a mix of both?
That also depends. The majority of brands tend to see international demand via their traffic log, coming through email requests, etc. So they begin shipping internationally, fulfilling from U.S. ecommerce operations and testing to see what volume looks like, which promotions are successful, and how shipping options work best.
Once they get an idea of volume, brands – especially those with commodity goods — tend to gravitate towards marketplace environments like Amazon and eBay.
eBay has actually bought a number of in-country/native marketplaces over the past 5 years, but there are still many interesting second and third tier marketplaces out there. Especially when you think of marketplaces more broadly as demand aggregation plays like all the innovative curation plays and other digital and mobile aggregation plays today.
So you see lots of cool digital opportunities for international sale growth these days. But typically, once brands test the water with international shipping, they will broaden their sales reach and move into selling first through the traditional definition of marketplaces.
But the primary pitfall with selling through marketplaces is a loss of control over the experience because the brand cannot own or aggregate data on the customer. Not surprisingly, one reason brands often look at in-country, second- and third-tier marketplaces is the opportunity to cut a deal for a bit more data.
We’ve talked about B2C brands going global. What does that shift mean for the B2B channels?
The whole B2B supply chain – from manufacturer to master distributor to smaller distributor – is ripe for transformation. And its starting to happen.
Particularly in Asia, we’ve seen a lot of big global brands and export trading companies realizing that they need to digitize their business and move away from spreadsheets, faxes and phones and embrace the ecommerce ecosystem. Those companies are seeing their roles shift and opportunities open up towards becoming de facto digital commerce enablers. But its still early.
I think one of the big opportunities for solution implementers, platforms and partners is being able to help these massive B2B distributors, large brand retailers, etc. when it comes to offering traditional B2C offerings like expedited delivery and things of that nature. But at the same time, they need support different purchasing roles, advanced pricing schemes, invoicing agreements and all the fun stuff that comes along with B2B commerce.
Another key trend on the B2B side is branded manufacturers realizing the opportunity to go direct-to-consumer. Early on, a lot of the forward-thinking international distributors were also able to grab digital commerce rights. As digital direct-to-consumer becomes a huge opportunity, especially for international manufacturers with strong global brands, we’ll see more brands re-visiting those agreements.
Just look at China where those global brands will have a big opportunity in the future to sell direct into tier 3 or tier 4 cities as the rising middle class in China wields tremendous spending power.
One question still to be determined is whether the manufacturer or distributor will own the digital channel — and the customer data.
Is there anything we haven’t we covered that would be beneficial to readers who want to understand more about cross-border international commerce?
One thing to consider is how increasingly similar the international and U.S. markets are in term of disruption of the “old ways of doing business.”
So while you can apply a lot of lessons learned in the U.S. to other markets, but you have to be very careful not to take a cookie cutter approach and assume that what works in the U.S. will work elsewhere. A better approach is taking some trends and testing them internationally. Accept failing fast and embrace learning.
Another thing that’s important to understand is that the first phase of cross-border ecommerce has been predominantly driven by serving wealthy, well-educated global citizens with disposable incomes who are comfortable shopping online, have international credit cards, and are comfortable with English language websites, whether it’s their primary language or not. That market has been sufficient to get cross-border and international on the radar.
However, the real opportunity is the next generation, again this rising middle-class of “borderless” online shoppers. Especially in emerging markets, buying power has increased and people will have more and more disposable income. People are spending more and more through digital channels and what they spend it on will differ from what we’ve seen so far from the wealthier cross-border shopper that gravitate towards luxury goods. This ‘global millennial’ will be aspirational and convenience-driven. So understanding the segments you are targeting cross-border is really important when it comes to planning out your future retail strategy.
So in the short-term – and maybe even longer-term – there’s simply not enough time to build up the number of retail locations and storefronts to entirely mimic the physical U.S. retail mall and outlet world we know.
While there will still be plenty of urban areas with high-end retail fashion stores, retailers need to begin preparing for the rising disposable incomes in emerging markets by localizing logistics and customer service processes of their digital direct-to-consumer channels. Getting ahead of that curve will be very important.