GOINg GLOBAL: PLANNINg FOR INTERNATIONAL ECOMMERcE EXpANSION

The common pitfalls, key considerations and decision points that business leaders face as they expand beyond the border.

Optaros Perspectives Whitepaper Series 2013 Optaros Inc.

Going Global: Planning for International eCommerce Expansion

The common pitfalls, key considerations and decision points that business leaders face as they expand beyond the border.
By Christopher Langway, VP , eCommerce Business Strategist at Optaros

Introduction
With 96% of the worlds population living outside of the United States, and global commerce projected to reach $1 trillion by 2016 (i), its no surprise that many domestic companies are more than dreaming of global eCommerce expansion. Many international markets such as Asia Pacific are projected to be larger than the U.S., and along with Europe and Latin America are projected to grow at a faster rate. As such, global expansion is either already underway for many organizations or one of their top priorities for 2013 and beyond. As enticing as globalized eCommerce sounds, its not exactly a build it, and they will come proposition. While its true that opening an eCommerce store is not as physically resource-intensive as opening an international brick-and-mortar store, expanding beyond geographic borders is still a significant undertaking. It is important that you fully understand the scope of your initiative, and take the all the steps necessary to avoid any major setbacks or showstoppers. In the following paper, youll learn some of the common pitfalls, key considerations and decision points that youll face as you look to expand your eCommerce business beyond the border. They have local brand awareness Many brands have tried to establish themselves in new countries via eCommerce, assuming that the sales will simply start rolling in the minute they open up distribution. In some cases this has worked. More often than not, however, these companies are left wondering where all the customers are. So instead of using eCommerce as the pioneering entry into globalization, it may be easier and more effective to launch where you already have some sort of brand presence, whether thats through retail, wholesale or distributor relationships. They have local distribution In the past, distribution and logistics were major barriers for e-retailers looking to expand internationally. And while there are many different options to help overcome these barriers, one thing is clear; companies that leverage local distribution to fulfill direct-to-consumer orders have a significant head start.

Identify Where You Stand Today

While the lure of global riches can be enticing, the road to success is not quite as smooth you might think. Sure your competitor may have figured it out, but that doesnt necessarily mean that your company is equally equipped for such a move. The best way to gauge if your company is ready for expansion is to take a look at the infrastructure of companies in your market that have recently completed a successful global transition. Do you have what they have? Can you do what they do? If youre ever going to be successful, youll need to have the proper infrastructure in place from the start. And while there are no hard and fast rules to doing so, those who achieve the greatest success share some of the following characteristics: Theyre Already Strong at Home A good first step is to evaluate the current state of your domestic eCommerce business. After all, you cant expect to win an international battle with fundamental weaknesses back home. In fact, these weaknesses are almost guaranteed to be amplified as you add the complexities of languages and currencies. For example, if you already have a complicated product set-up process, imagine what it will turn into as you add more segmented assortments and tailor translations and pricing to an international market. Even if you have the financial and operational resources to wage the battle on both fronts, you should first fine-tune your domestic marketing, merchandising, customer service and technology operations to build a strong foundation for growth and expansion.

www.optaros.com | contactus@optaros.com

2013 Optaros Inc. All Rights Reserved.

Establish Your Product Assortment Strategy

Product offering is at the core of eCommerce. So as you expand globally, there are several key decisions you need to make. Do you simply take your US assortment and offer it abroad? Do you narrow your assortment down to offerings less available in other markets to create choice for that customer? Do you create unique products to meet the needs and taste of your new markets? Some companies answer these questions by leveraging direct-to-consumer eCommerce to eliminate perceived fashion and taste barrier fears and expand their existing brick-and-mortar assortments. By positioning U.S. products as online exclusives on international websites, brands and wholesalers can prove their products demand and viability to distributors and bolster the argument to expand a buy. Regardless of the product, there is one key piece of assortment planning that should never be overlooked: communication and coordination with channel partners. Its quite common for companies to plan a product assortment only to encounter channel conflict issues with existing brick-and-mortar retailers, not to mention any exclusivity agreements with distributors in certain markets. Poor channel communication and coordination is a very common, yet preventable, pitfall that should always be considered prior to going global. In countries with one dominant language, its always best to try and offer the local language. In some cases, however, thats pre-determined as a mandate rather than an option by local customs or regulations. For example, Italian authorities are stringent that all site labeling be done in Italian. If you are launching in a multi-lingual country, you may be able to do so without providing the local dominant language. For example, 90% of Dutch adults speak English. So you may be able to launch a successful eCommerce site in the Netherlands without incurring additional translation costs. Translations: Say what you mean to say Once you settle on languages, its time to implement translations. This step should not be approached lightly - it could very likely be one of the most taxing operational and marketing expenses for international efforts. Manual Translations The manual process involves building multiple language slots into your CMS, and then manually translating and uploading your copy. This may be best for lower-volume sites launching a finite number of languages and for those that distribute site operations to local teams around the globe. For more centralized models, this method can become more difficult to scale as a business expands. Automated Translations Automated translations can proxy your website and serve the appropriate language in near real time. Of course, this comes with an added cost. MotionPoint and Translations.com are two leading providers. In the end, you have to consider your resources and run the business case to see which option works best.

Determine Your Country, Region and Locale Structure

Once youve identified your expansion locations and assortments, youll need to determine how to best serve these countries. Will it be through a single country-specific website or a multi-country regional site? This decision cannot be taken lightly, as it will likely impact technical architecture, organization setup, merchandising and operations. So how do you decide between a regional or country-specific site? The key factors to consider are assortment, price, content and promotion. Regional Site: A regional site is single site capable of shipping to multiple countries. These work best when countries share a common assortment, currency, pricing and promotions. A language toggle will allow you to speak to customers in their native tongues. Country-Specific Site: If any of the above items (assortment, price, etc.) vary, your best bet is to either build separate sites, or incorporate some logic to dynamically enable variable content. If you decide to go with separate sites, see if you can share common commerce components (carts, profiles, etc) across locales. For example, if a customer adds to cart in the U.K. and then visits the Spain site, would they still see that same product in their cart? If so, what currency would be displayed? Would the customer expect to be able to log in with the same user ID and Password? As you can see, it can get complicated if you dont think through all the little details.

Establish a Currency, Pricing and Payment Strategy

While customers may fluctuate on language preference, they will always expect to shop for products in their local currency. So if you want to compete with the locals, youll need to meet this fundamental expectation. And while you might think that its easy to accept local currency by region, like most things in globalization, its not as simple as it seems. Currency Conversion A simple approach to global pricing is to simply maintain an existing US Dollar price list and convert the price to local currency online. This approach works best for brands and companies without inmarket channel conflict issues to worry about. Otherwise, if your converted price ends up less than the local retailers, youll surely be hearing from both your sales force and your customers. Market-Based Pricing Some companies choose market-based pricing to optimize sales based on what the market will bear. For example, a necklace selling for $90 USD would go for roughly 69 in a straight-up currency conversion scenario. However, based on market conditions and consumer expectations, that same necklace might be listed for 80 MSRP in France and 75 price in Germany. This scenario is fairly common in the brick-and-mortar world. But when you take this approach online, its much more transparent to customers, retailers and distributors. And it could cause some tension. So if you do move forward with market based pricing, you should have multiple price lists, and anticipate any potential customer experience challenges. For example, would you allow a customer living in France to order from the German site because it had a lower Euro price? If not, then youll need to restrict shipping within a locale.

Nail Down the Language

So youve selected your product assortment and identified your target countries and region structure. Now its time to decide which languages to support. Ideally, youll want to support all the native languages in all the countries you serve. But thats not always financially or operationally feasible. After all, there are close to 100 languages spoken in Europe alone. ealistically, youd need to support at least 10-20 of them just to cover one international area the size of the United States.

www.optaros.com | contactus@optaros.com

2013 Optaros Inc. All Rights Reserved.

Payment Methods eCommerce customers in the U.S. typically use predictable/stable payment methods like credit cards, debit cards. In fact, 80% of their online purchases are processed via debit and credit cards. The only dominant alternate is PayPal. However, thats not the case in other countries (ii) : In India, only 2% of the population holds a credit card. FlipKart, which enables Cash on Delivery (COD), is the dominant payment method. In Germany, 66% of eCommerce transactions are handled via alternate payment methods, such as Elektronisches Lastschrift Verfahren (ELV), a direct debit option that handles 28% of all transactions. In China, 60% pay with Alipay, a service that holds payment until the consumer has indicated they are happy with the product(s). In Russia, 75% of online shoppers prefer using COD. In the Netherlands, 81% of Dutch online shoppers use iDeal real time bank transfers. 54% prefer it as their primary payment mechanism.

Reliability is a Concern Shipping concerns are one of the dominant reasons for international cart abandonment. Delivery is inconsistent at best. In fact, many locations wont deliver anything that cant fit into a traditional mail slot. Failed and missing deliveries are commonplace in many countries, resulting in lost consumer confidence. Alternative Delivery Options Based on this lagging consumer confidence, alternate delivery methods are becoming more prevalent around the world. In France, Kiala is a popular service that lets customers ship products to common retail locations. In the U.K., customers have their items shipped to code-protected boxes in train stations. But in order to offer these payment options, youll first have work with these individual providers, and your technology team will need to account for the integration and testing efforts.

Make Nice with the Locals

As companies expand beyond their borders, they quickly learn that a one size fits all strategy will only take them so far in markets where tastes, motivations and market conditions vary greatly from what we see in the US. Thats why its so important to cater your brand and product messaging to your new market. You want your new customers to feel like youre there to serve them, not just take their money. Products Its important to remember that the products you highlight in the US may not be the ones that sell best in a different country. Even within Europe, what sells in Germany can be dramatically different from what drives business in France. Its all about product positioning - presenting the right products to the right audience with the right messaging. Even if your product assortment doesnt vary much by country, choosing the right products to highlight in each country can make all the difference in the world. Photography As companies expand globally, they often try to leverage/reuse their existing creative assets. However, this may prove problematic later when the imagery fails to resonate positively with the new market youre trying to enter. For example, your photography of blonde and blue-eyed beauties on SoCal beaches may not play so well in some international markets. In fact, there are some countries that wont even allow you to show a bikini model online. Brand Content While surely impressive here at home, your domestic event sponsorships, and the local athletes that endorse your products might be completely irrelevant to a customer in South America. The ideal approach is to customize and optimize content to drive deeper brand relevancy and higher conversion rates. Depending on the number of locations, this may require significant manpower and budget. So youll have to think carefully about your plan. Make sure you are aligned on your global brand positioning and what it stands for. If you are positioned as an iconic American brand, then your All-American imagery may very well be appropriate no matter where you sell. But if not, just focus on what truly matters for customers. Start by presenting the right products to the right customer base and then consider how much brand content you want (or need) to include, and whether or not it needs to be localized.

Learn About International Delivery

Delivery is another fairly predictable element of the U.S. market. Chances are, UPS, FedEx, or the USPS will deliver your product anywhere at any time. And if the customer isnt home, they might even leave it outside the front door. But again, things arent always the same case abroad.

www.optaros.com | contactus@optaros.com

2013 Optaros Inc. All Rights Reserved.

Breakdown Distribution Barriers

Distribution can often be one of the most significant challenges for US companies expanding abroad. As a result, companies with local distribution already in place to serve brick and mortar retail are at a significant advantage. However, even they face some key issues that need to be addressed. Direct to Consumer Optimization Its likely that your Distribution Center (DC) is optimized to ship larger volume orders to retailers and distributors. As a result, youll probably need to work through some modifications and process changes to account for individual direct to consumer orders. This may include smaller, more frequent pick waves, consumer friendly packing slips and one-off returns. Inventory Management If youre introducing new product not traditionally carried in that DC, youll need to make sure you have room for pick faces. Depending on your sku count, that can become a real issue. If youre in a fashion or seasonal brand, youll have to ensure that the DC will commit to carrying product well into the selling season. For a wholesaler used to clearing out seasonal product early in the season, that too can become an issue. There are still some options out there for companies without local distribution. One is to work with a local 3PL provider who can handle inventory and warehouse management for you. Many companies are looking to fully leverage their US operations and work with companies that consolidate orders in the US, handle customs and duties and ship the product to overseas customers. Some of these companies can also help with currency conversion and fraud detection to get you to market more quickly. FiftyOne is one of the leading providers in this space.

Get Help with the Legalese

The complexity around compliance with international regulations and legal policies can be overwhelming for U.S. merchants entering global markets. Unfortunately, its unreasonable (and nearly impossible) to try and become an expert on the laws and regulations in each and every country you enter. So youll probably need to have experienced legal counsel or rely on your key partners to help guide you through the constantly evolving landscape that is international eCommerce law. Taxes In Europe, retailers must send a VAT invoice to all consumers itemizing product cost vs. VAT. This can get complex because depending on the product type and your sales volume in a particular country, you may have to register in that country and pay their VAT rate vs. the country from which you ship. Privacy Privacy is also becoming more complex in international markets. In the EU, make sure your opt-in box is unchecked and closely follow directives on cookies. Most sites are now required to identify which cookies are used on the site and soon, may require an explicit opt-in. Language As it is in Italy, there may be language mandates that require the site (and any notices) be in the local language. Marketing Make sure youre following the rules in all your marketing materials. Some countries have more restrictive regulations around pricing policies, advertising and sales guidelines. Operations Some countries mandate that you must automatically refund outbound and inbound shipping on returned product if returned within a certain time period.

Its quite common for companies to plan a product assortment only to encounter channel conflict issues with existing brick and mortar retailers, not to mention any exclusivity agreements with distributors in certain markets.

www.optaros.com | contactus@optaros.com

2013 Optaros Inc. All Rights Reserved.

Get Organized
Get Organized Deciding how to organize for international eCommerce is the final challenge well discuss, and there are many different models in practice today. There really is no right or wrong answer, but based on the size of your business, you may choose to start more centrally and migrate to a hybrid model. And if sales grow rapidly, you can always move to a locally managed model. The most common models are: Centrally Managed: Some companies choose to centralize management of their global sites from the US to maintain tight control over brand and to leverage experienced eCommerce resources. The challenge comes in understanding local market differences to optimize business performance. Locally Managed: Other companies build eCommerce teams at the local level and give them complete ownership over their eCommerce experiences. The challenges with this model lie in maintaining global brand consistency, coordination and communication across global locations. Hybrid Model: Some companies hire local marketing, merchandising and customer service teams while leveraging a centralized team for common services such as technology, creative production, and database management. Here they can benefit from the core customer facing local resources while benefitting from the efficiency of the more technical and operational aspects of the business. After all, you need to make sure that when a German customer calls your European toll free phone number that a German speaking customer service agent is ready to take the call.

Good Luck Buona Fortuna Bonne Chance Buena Suerte Noroc yi anslar

Conclusion
International eCommerce expansion can be a long, and at times, difficult journey - even for those who have experienced the process first-hand. More often than not, questions are met with vagaries, answers have ambiguities and conflicting advice creates confusion. No matter what the business, however, there are common challenges and considerations that can be marked as key touchpoints along the way. Following the plan outlined above should help any newcomer enter the world of global expansion with confidence. Clearly, there will be challenges along the way. While there may be frontrunners, we are all entering this new world of International eCommerce together, so there are no unbreakable rules yet. The exception now, perhaps, is to never take anything for granted. Never assume. Always ask questions. Double and triple check that you havent missed anything. Ask colleagues, seek out third-party advice from those who have achieved success. Do everything you can to ensure youre as prepared and equipped as possible before building your site. And then build it right. Because while globalized eCommerce is not exactly a build it, and they will come proposition, if you do take the time to build it right, theres a very good chance the customers will come.

Sources
i Morgan Stanley; Devitt, Scott (Jan. 6 2013). Morgan Stanley Report: Amazon Surges to Record High on Global E-Commerce Growth [Report]. Retrieved from http://www.bloomberg.com/news/2013-01-07/amazon-surges-to-record-high-on-global-ecommerce-growth.html ii Worldplay; (May 9, 2012) Alternative Payments to rise exponentially by 2015; Retrieved from http://www.worldpay.com/media/ index.php?page=archive&sub=worldpay-altpayments&c=

www.optaros.com | contactus@optaros.com

2013 Optaros Inc. All Rights Reserved.

About the Author: Chris Langway

VP , eCommerce Business Strategist at Optaros
Chris Langway brings to Optaros 15+ years of experience in global eCommerce and traditional retail. Most recently, he was Vice President, eCommerce at Wolverine Worldwide, a global marketer of branded footwear. In this role, Langway led the global eCommerce business and operations for the companys Performance and Lifestyle Group overseeing the Sperry Top-Sider, Stride Rite, Saucony, Keds, Robeez and Grasshopper brands across US and Europe. Prior to Wolverine, Langway served as Vice President, Director of Marketing for the Boston-based integrated advertising agency Digitas. While at Digitas, he managed client engagements for American Express, The New York Times and General Motors Pontiac division and was responsible for user experience, CRM and digital marketing. Langway began his career in retail buying with Filenes Department Stores.

www.optaros.com | contactus@optaros.com

2013 Optaros Inc. All Rights Reserved.

About Optaros
Optaros is a global digital commerce service partner focused on helping companies conceive, build and operate eCommerce solutions that accelerate revenue and decelerate costs. With the technical capabilities of a systems integrations company, the UX and creative design of an interactive agency, and the insights of an expert commerce consultancy, Optaros delivers outstanding programs for more than 200 clients in the retail, consumer goods, media, healthcare and financial services industries. For more information, visit www.optaros.com, call (617) 227-1855 or email ContactUs@optaros.com.

www.optaros.com | contactus@optaros.com

2013 Optaros Inc. All Rights Reserved.

Optaros Perspectives Whitepaper Series 2013 Optaros Inc.