ViewpointsExploring international e-commerce opportunities

A PayPal guide

1

International e-commerce is a growth opportunity for small and medium-sized businesses.

In the European Union (EU) alone, the business to consumer e-commerce market was worth €91 billion in 20102 according to European Commission research. A more recent estimate suggests that Europe’s total online trade is now worth €250 billion annually3. 32% of the EU’s online shoppers say they have bought goods from other EU countries and 18% have bought from countries outside the EU4.

E-commerce as a whole is growing and increasingly confident consumers are attracted by the wider range of goods – and potentially better prices – they can find when shopping internationally. As a result, international e-commerce is creating opportunities for buyers and sellers alike.

The international e-commerce market is still at an early stage but growing quickly. Businesses that can meet shoppers’ demand for trustworthy, reliable and simple cross-border retail have the opportunity to develop a new source of revenue from a wealthy and well-informed customer base.

This white paper looks at six critical areas of planning as you take your first steps across international borders. It contains tips, useful information and pointers to further sources of information to make the transition as easy as possible.

Introduction

Across Europe, a third of online shoppers have purchased from other EU countries1

2

Cross-border e-Commerce, a Growing Opportunity The EU plans to double e-commerce

levels by 2015 by removing obstacles to cross-border trade.

The Market OpportunityGlobal business to consumer (B2C) e-commerce exceeded $1 trillion in 2012 according to eMarketer, a specialist in e-commerce5.

Consumers are becoming confident with international e-commerce: domestic shoppers are increasingly venturing to sites in other countries and experienced cross-border shoppers are increasing their activity, spending more money in more transactions across more sites in more countries.

Cross-border shoppers represent a particularly attractive demographic, as industry analysts Forrester found: they’re young, well-educated and experienced online shoppers with a high disposable income who tend to out-spend domestic shoppers across a number of categories6.

Overall, it’s the larger markets with strong domestic e-commerce that attract the most cross-border trade. For example, Germany attracts 27% of cross-border shoppers, whilst UK attracts 24%. Consumers from smaller markets such as Luxembourg tend to be the ones looking beyond their own borders7.

International e-commerce is heavily influenced by proximity, linguistic and cultural ties: 90% of Austrian cross-border shoppers target Germany; 74% of Irish shoppers and 93% of Maltese shoppers target the UK. From Belgium, 42% of cross-border shoppers target French sites and 38% target Dutch sites8.

Nevertheless, more shoppers from across the world are looking at European markets, and this represents a further growth opportunity. The British Retail Consortium recently reported that the number of overseas shoppers conducting Google searches for UK brands in the first quarter of 2013 grew by 16% overall. Searches originating from the US grew by 75%9.

The Consumer PerspectiveConsumers are becoming increasingly confident with shopping across borders. However, they still mention some concerns as listed in the chart below:

• Concerns about fraud or non-delivery of goods (62%)

• What to do if a problem arises (59%)

• Concerns over delivery (49%)

• Uncertainty about their consumer rights (44%)10.

That said, in recent EC research, 1 in 7 consumers intended to spend more on cross-border purchases in the coming year11. They are motivated by:

• Lower prices – driven by lower taxes and exchange rate differences

• Exclusivity and access to products not available in their own market

• A wider range of products12.

Business ConcernsDespite the growing market opportunity, many EU retailers aren’t actively pursuing cross-border opportunities because they’re unsure about:

• Delivery costs

• The complexity of handling returns

• National regulations and taxes

• Accommodating locally preferred payment methods

• The need to build local brand awareness13.

3

“Going international” used to be a daunting prospect requiring you to establish a physical presence in the target market. You might have appointed agents or local representatives, established a subsidiary and taken on considerable financial risk.

International e-commerce brings opportunities to help you:

• Find new markets for your products (think of Italy and Japan’s appreciation of British fashion labels)

• Leverage your business’ existing infrastructure to generate more sales (the same warehouse can process sales to more customers in more countries)

• Spread your risk across different markets; if the UK is slow, perhaps China or USA is more buoyant.

Today, e-commerce enables you to trade internationally with less risk than before. With access to online marketplaces such as eBay and with online tools that support search engine optimisation, markets can be tested, products trialled and a virtual online presence established with relative ease.

The following six areas divide into two groups. Points one to four discuss how you can make the most of the cross-border opportunity using your existing web-site. The final two points start to consider steps you can take to target and encourage new customers with a dedicated web presence.

Your first steps across the border Across the EU, 36% of payments are

made using an online payment service like PayPal, Smart2Pay or iDeal14

Try these websites for useful information:

• Gov.uk: www.gov.uk/browse/business/imports-exports

• eBay.co.uk: http://internationalselling.ebay.co.uk

• Local Chambers of Commerce: www.britishchambers.org.uk/business/international-trade/

• UK Export Finance: www.ukexportfinance.gov.uk

4

1. Planning your entry into a new country

Before you start, research your target market thoroughly.

Demand for product

Is there demand, or a gap in the market, for your product?

Local infrastructure

Is the internet, payment and delivery infrastructure in place to enable you to do business effectively?

Customers

How much do you know about the consumers in your country of interest? You may need to do further research to identify their pattern of spending. Online shoppers from smaller countries are most likely to make cross-border purchases (Malta, 94%; Luxembourg, 88% etc.)15. Further, they are most

likely going to spend it in the 3 biggest markets in the EU, which are UK, Germany and France16. If the country you’re targeting has strong cultural links with your country or shares your language, then it may be more open to buying from your site.

Competition

Who are your biggest competitors? How will your offering compete with a local champion?

Routes to market

Consider whether it’s best to use your existing, domestic, website (perhaps offering a translation and local currency options) or an established online marketplace. Established sites like eBay can often give you better reach for lower cost. They allow you to test demand for your products and experiment with different offerings before committing a large sum to re-developing your existing site. Also, consider other online marketplaces that may be popular in your target market.

6 Steps to consider when taking your business across borders

Planning your entry

Acceptingpayment

Shippingservices

Taxes, laws and regulations

Setting up your in-country presence

Great customer service

Maximise existing traffic

Reach new buyers in international markets

5

Cultural differences

Are there local cultural issues you should be aware of? For example, some markets rely heavily on brand-names, whilst others don’t.

Promoting your presence

Once your website or marketplace is set up, how do you plan to promote it? You may want to invest in search engine optimisation and paid search for your new market. You may also want to explore the social media platforms that are most popular in that country and find ways to promote your presence on those.

2. Accepting paymentsThe point of payment is when most transactions are abandoned. Customers need confidence that their payment will be handled securely and they need the comfort and convenience of paying in familiar currency using their preferred method.

Preferred payment methods

These vary significantly depending on the country, and it’s important that you find out how best to do what’s best for your market. For example, in the Netherlands, 60% of payments are by direct debit; in the Czech Republic, more than 50% of payments are Cash on Delivery while in Germany, 46% of payments are by online bank transfer17. Check that you can offer a payment method that customers will be comfortable with.

Local currency

People prefer to pay in a familiar currency, ideally their local currency but possibly an internationally recognised one like US dollars. If not offering

payment in local currency, make sure you give a currency conversion so that customers can see what they are paying.

It is important to check local variations and offerings before selecting a payment processing provider. To give yourself flexibility with room to expand into new countries, consider a payment provider with global reach. For example, PayPal allows you to accept payment in 24 currencies across 190 local markets and lists locally accepted payment methods on its site18. PayPal also accepts Switch/Solo cards and Direct Debit in the UK; wire transfers in Germany and Discover cards in the USA.

3. Shipping Services (outbound and return)

Potential customers need to have confidence that the goods they pay for will be delivered, and that they can easily return them if there is a problem. If you address these concerns proactively, then customers will be more likely to buy.

Delivery

Make sure that your delivery policy is clear and easy to find on your website. Include charges and estimated delivery times for the country you are selling to. Many delivery companies now offer services dedicated to the needs of small and medium-sized businesses delivering to consumers at reasonable prices. Often, this includes online tracking, label-printing and guidance on required documentation. If your delivery service offers customers online tracking, remember to mention this as it gives added comfort to your customers.

• Ensure that all costs are clear in advance. Offering a total price that includes delivery costs plus any likely duties will help to enhance customer trust.

• Encourage even more sales by offering free delivery once the order reaches a certain threshold.

Check international payment options and offerings before selecting your payment provider.

6

Returns

You should set out a clear policy for returns and a “no questions asked” returns policy. Offering free delivery will give an enormous boost to customer confidence. At a minimum, your returns policy should cover the following:

• Local consumer laws and the EU Distance Selling Directive19 - Your policy must comply with these laws and it will give added confidence if you state this within your policy.

• Refunds – Set out the circumstances when a refund will occur, and what the nature of the refund will be, e.g. full money back or shop credit. Ensure this complies with the law.

• Time limit – Set out the period when returns will be accepted, e.g. within 28 days of the item being delivered.

• Restocking, return delivery or other fees – if there are restocking fees or return delivery charged, this should be specified clearly.

4. Taxes, Laws and RegulationsYou must comply with local laws when trading across borders and you should research this aspect thoroughly. Important areas to consider are:

Duties and taxes

Duty and tax may be levied on different items by different countries. These will be the responsibility of the buyer to pay. You should investigate if this will impact the items you sell, in the market you are entering. If so, ensure that the customer is aware of the likely amount and that it will be their responsibility to pay these before taking possession of your shipment. Even though it is the customer’s responsibility, failure to notify them may lead to unhappy customers. In addition to customer duty or taxes, if the items you ship are for a commercial purpose, you may need to deal with quotas, duties

or paperwork. Again, research this area thoroughly before you begin trading. The links under Customs and Documentation below will help.

Customs and documentation

All deliveries must clear customs in the destination country. To help customs officials understand the contents, value and purpose of your package, you must attach the appropriate customs forms to the outside of the package. For further information on customs requirements specific to your market, visit:

• The World Customs Organisation: www.wcoomd.org

• The European Commission: http://ec.europa.eu/taxation_customs/index_en.htm

• HMRC: www.customs.hmrc.gov.uk

• Gov.uk: www.gov.uk/browse/business/ imports-exports

• Your local Chamber of Commerce: www.britishchambers.org.uk/business/trading-internationally.

Distance selling regulations

All businesses in the EU must comply with the Distance Selling Directive20 which gives specific rights to customers buying online. The UK’s Office of Fair Trading provides a useful guide for businesses at: www.oft.gov.uk/shared_oft/business_leaflets/general/oft698.pdf

Data protection

If you collect and reuse customer data via your website, then you will need to comply with Data Protection legislation in your own country and in the country where the data is collected. You also need to be aware of where that data is stored (for example, if your website is hosted by a third party). Across the European Economic Area (EEA), personal data is covered by the Data Protection Directive and national commissioners cooperate across the EEA

7

to ensure that laws are consistent. To learn more about data protection across the EEA (including contact details for national bodies), see: http://ec.europa.eu/justice/data-protection/index_en.htm.

As always, you should seek specific legal advice for your particular situation.

5. Setting up your in-country presence

Although many customers are experienced online shoppers, they have a general concern about online fraud that is heightened when they notice something unusual about the website they are on. Things as simple as a spelling mistake or a broken link can damage the customer’s confidence and could lead them to abandon the transaction. This concern is even greater for cross-border buyers. Whether you have decided to optimise your own website or to use an established marketplace, the following points are critical.

Build confidence and credibility

Pay scrupulous attention to detail, especially with translated text; issues with spelling and grammar damage trust. Use customer testimonials, professional affiliations and trust marks like Verisign, Verified by Visa or PayPal to assure visitors of your legitimacy. In a recent PayPal study, 26% of UK buyers surveyed said they would not have made the purchase if PayPal had not been offered as a payment method21.

User testing

Test your site or marketplace thoroughly for bugs, broken links and errors. Do text translation and currency conversion work seamlessly? What about calculation of delivery costs?

Make your website easy to use

Ensure your site is easy to use by having clear navigation and information that is easy to find. A general rule is to try and make every page on your site no more than 2 clicks away.

6. Great Customer ServiceThe first step to great customer service is to proactively address the main concerns customers might have - preferably in their local language. Make sure that your polices on shipping, returns and payment are easily found on your site.

The next step is to make it easy for customers to contact you, whether by telephone or by email. Having this information prominently displayed helps to give them confidence that any unexpected problems encountered with their orders will be easily resolved.

Email address

At a minimum, you should prominently display an email address that customers can contact with any concerns. Any emails you receive should be dealt with promptly.

Telephone helpline

Specify if you offer a telephone helpline, and whether it’s available in local language (ideally) or in English. If you can afford it, a 24 hour, local-language customer helpline is ideal.

Skype or instant messaging

Offering a “live chat” solution to help resolve questions can reduce cost for the customer and for your business.

8

PayPal accepts a wide variety of payment methods, making it easier for you to sell overseas and meet local expectations and preferences. For example, PayPal accepts Switch / Solo cards and Direct Debit in the UK; wire transfers in Germany and Discover cards in the USA.

PayPal accepts 24 different currencies across 190 countries allowing merchants to receive payment from 110 million active accounts worldwide.

PayPal is also recognised worldwide as a means of secure payment, boosting customers’ confidence in your site and helping convert them to buyers.

Example: ASOS.com

The UK’s largest independent online fashion and beauty retailer was looking to attract international customers and found that PayPal helped drive sales:

PayPal and eBay

PayPal Inc. is owned by eBay, the world’s largest global marketplace. With 112 million active buyers around the world, eBay provides a unique opportunity to test new international markets with limited capital investment.

PayPal and Cross-Border Payments

“[PayPal] enables you to access an extensive user base, both in the UK and globally, and helps drive sales – we’ve been really pleased with the results.” Nick Beighton, Financial Director, ASOS.com

9

Cross-border e-commerce is still at a relatively early stage but is growing quickly. Already, nearly one in four online shoppers across the EU also makes purchases across borders.

Those cross-border shoppers tend to be younger, better educated and bigger spending than the average consumer and represent an attractive market for those merchants who can meet their demand for trustworthy, simple and risk-free retail.

If you are considering cross-border sales, you should look at 6 steps:

Maximise existing traffic

1. Planning your entry into a new market

2. Accepting payments

3. Shipping Services

4. Taxes, laws and regulations

Reach new buyers

5. Setting up your in-country presence

6. Great customer service

A little forethought in each of these areas will encourage overseas visitors to convert into buyers.

PayPal accepts locally preferred payment methods and 24 different currencies in 190 countries around the world. As an internationally recognised and trusted processor of payments, PayPal can help build your international business.

A Final Thought

10

1. Planning your entry into a new market

a) Demand for product

b) Local infrastructure

c) Customers

d) Competition

e) Routes to market

f) Cultural differences

g) Promoting your presence

2. Accepting payments

a) Preferred payment methods

b) Local currency

3. Shipping services

a) Delivery

b) Returns

4. Taxes, laws and regulations

a) Duties and taxes

b) Customs and documentation

c) Distance selling regulations

d) Data protection

5. Setting up your in-country presence

a) Build confidence and credibility

b) User testing

c) Make your website easy to use

6. Great customer service

a) Email address

b) Telephone helpine

c) Skype or instant messaging

Stepping Across Borders – A checklist

Taking your first steps across the border trading has never been easier but it still requires careful planning. Here is a handy checklist for the six critical areas to consider:

11

References1. Source: Consumer Market Study on the Functioning of e-Commerce and Internet Marketing and Selling Techniques in the Retail of Goods, page 32 (September 2011); http://ec.europa.eu/consumers/consumer_research/market_studies/docs/study_ecommerce_goods_en.pdf 2. Source: Bringing e-Commerce Benefits to Consumers (January 2012); http://ec.europa.eu/internal_market/e-commerce/docs/communication2012/ SEC2011_1640_en.pdf 3. Source: EMOTA Report 2012, EMOTA is the European Multi-channel and Online Trade Association; http://www.emota.eu/images/EMOTA_Report_2012_2013.pdf 4. Source: EC Consumer Market Study (as referenced above). Page 35 of this report contains a table detailing source and target of cross-border e-commerce across the EU27: http://ec.europa.eu/consumers/consumer_research/market_studies/docs/study_ecommerce_goods_en.pdf 5. Source: Ecommerce Sales Topped $1 Trillion for First Time in 2012, e-marketer.com (February 2013); http://www.emarketer.com/Article/Ecommerce-Sales-Topped- 1-Trillion-First-Time-2012/1009649 6. Source: Targeting the European Cross-Border Buyer, Forrester (September 2009) 7. Source: Consumer Market Study on the Functioning of e-Commerce and Internet Marketing and Selling Techniques in the Retail of Goods (September 2011); http:// ec.europa.eu/consumers/consumer_research/market_studies/docs/study_ecommerce_goods_en.pdf8. Ibid. 9. Source: British Retail Consortium (April 2013); http://www.brc.org.uk/brc_news_detail.asp?id=2429 10. Source: http://ec.europa.eu/consumers/strategy/docs/5th_edition_scoreboard_en.pdf 11. Source: http://ec.europa.eu/internal_market/e-commerce/docs/communication2012/SEC2011_1640_en.pdf 12. Source: IPC Cross-Border E-Commerce Report 2010: http://www.ipc.be/en/Intelligence/~/media/Documents/PUBLIC/Markets/IPC%20Cross-Border%20 E-Commerce%20Report.ashx 13. Source: Targeting the Cross-Border Buyer, Forrester, September 2009 14. Source: http://ec.europa.eu/internal_market/e-commerce/docs/communication2012/SEC2011_1640_en.pdf 15. Source: Consumer Market Study on the Functioning of e-Commerce and Internet Marketing and Selling Techniques in the Retail of Goods (September 2011); http:// ec.europa.eu/consumers/consumer_research/market_studies/docs/study_ecommerce_goods_en.pdf16. Source: EMOTA, the European Multi-channel and Online Trade Association; http://emota.eu 17. Source: http://econsultancy.com/uk/blog/9387-7-tips-for-global-ecommerce 18. See: https://www.paypal.com/uk/cgi-bin/webscr?cmd=xpt/Marketing/general/LocalPaymentsMethodsWithPayPal-outside 19. See: http://ec.europa.eu/consumers/cons_int/safe_shop/dist_sell/index_en.htm 20. See: http://ec.europa.eu/consumers/cons_int/safe_shop/dist_sell/index_en.htm 21. Survey conducted by Northstar Research Partners, Q2 2011. Based on retailer-level data for 19 UK mid-market business retailers, representing 3,411 PayPal users.

Legal disclaimer: This article has been provided for your information only, and no legal, business or financial advice is being offered by PayPal nor should it be relied on as such. PayPal has no liability for any use of the information in this article beyond its use as information and reference by the reader.