In today’s information society, the Internet and smartphones are widely used, and a variety of services are available with simple operations.
Among the most popular services are those that allow users to make purchases over the Internet. Websites that allow users to conduct transactions over the Internet are called “e-commerce sites.
Here, we would like to explain in detail about cross-border EC, whose market has been expanding among “EC sites” in recent years. We will also discuss the reasons why the market for cross-border EC is expanding, as well as its advantages and disadvantages.
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Why is the market size of cross-border EC expanding?
In the international economy, the market size of cross-border e-commerce is growing significantly. And the economic growth rate in the cross-border e-commerce industry is growing by more than 20% annually.
Cross-border EC has a high penetration rate in developed countries and other nations with large economic power. The number of users of cross-border EC in each nation (2020) is shown below.
- China → 70 million
- U.S.A. → 34 million
- U.K. → 14 million
- Japan → 9 million
Thus, we can see that the number of users of cross-border EC is very large. As a result, a study showed that the market size of cross-border EC will be $912.3 billion by 2020.
So why is the market for cross-border EC expanding? There are three main reasons for the expansion of the cross-border EC market.
- Diffusion of Internet and smartphones
- Development of the web marketing industry
- Corporate Diversification
We will now discuss the above three reasons in more detail.
Diffusion of Internet and smartphones
As mentioned at the beginning of this report, today, the Internet, smartphones, and other IT technologies have developed remarkably, and this is one of the main reasons for the expansion of the cross-border EC market. When smartphones first appeared on the market, few people owned smartphones and Internet usage was not high.
Today, however, the smartphone ownership rate among people over the age of 20 in Japan exceeds 90%. In particular, the smartphone ownership rate among the younger generation is over 95%, and smartphones are becoming a necessity for people today.
In addition, the emergence of low-cost smartphone plans in Japan is likely to increase the rate of smartphone ownership. As smartphone ownership increases, Internet usage will also increase.
Therefore, the mechanism is such that the market size of the EC market (cross-border EC market) will expand as more people use the Internet more frequently and make purchases online.
Development of the web marketing industry
The web marketing industry has developed as a result of the widespread use of smartphones and the Internet. So what are some of the developments in web marketing?
- Increased safety by ensuring security
- Variety and number of products
- Expansion of payment methods
- Video and other advertising on social networking sites
- Sponsors of eSports
- Influencer promotion
In particular, the promotion of products by influencers on YouTube and Instagram has been highly effective and has contributed greatly to the development of the web marketing industry.
Another possible reason for the development is the company’s strategy of creating websites and campaigns that promote consumers’ desire to purchase.
Corporate Diversification
How is the market size of cross-border e-commerce expanding due to the diversification of companies? For example, many companies have limited the sale of their products to online only. This means that they have not set up a single physical store to sell their products.
A possible disadvantage of not having a store to sell products would be that products would not be sold. However, by not setting up a store, fixed costs such as land and labor costs can be minimized.
By reducing fixed costs, products can be offered to consumers at lower prices. This can increase the purchase rate of a company’s products.
Due in part to the above reasons, the market for cross-border EC has expanded due to the diversification of companies.
Advantages of Cross-border EC
The market for cross-border EC is currently expanding, but what are the advantages of cross-border EC business?
There are three main advantages to starting a cross-border EC business.
- You can do business with people from overseas.
- Low-cost management is possible
- Not affected by the domestic economy
From here, the above advantages will be explained in detail.
You can do business with people from overseas.
By starting cross-border EC, you will be able to conduct business with foreign countries. In other words, you can expand your consumer base from Japan to a global scale.
Therefore, higher profitability can be expected. For example, suppose a company sells a product targeting the elderly. In the past, the products would have been sold only within Japan. However, by starting cross-border e-commerce, you can expand your sales target to the rest of the world.
Another advantage of cross-border EC is that it allows businesses to develop in line with overseas demand.
Low-cost management is possible
As mentioned earlier, cross-border e-commerce allows a company to diversify. This allows the company to operate at a lower cost.
By setting up an EC site, you can reduce expenditures by eliminating the need to own a store or pay for labor costs. Therefore, you will find that cross-border EC is an industry in which even small and medium-sized companies and venture businesses with little financial resources can compete.
Not affected by the domestic economy
The advantage of starting a cross-border EC business is that you can manage your business without being affected by the domestic economy. This is because the target region of the business is not Japan, but the entire world.
Even if the domestic economy is not doing well, there will be no decrease in the number of consumers who will purchase products when other countries’ economies are doing well. Therefore, it is a great advantage that the company’s performance is less likely to fluctuate greatly depending on the domestic economy.
Disadvantages of cross-border EC
While cross-border EC has various advantages, it also has some disadvantages. There are three main disadvantages of cross-border EC.
- Different countries have different laws and exchange rates.
- Need to accommodate language differences
- Customs duty is charged when shipping.
The above disadvantages will now be discussed in detail.
Different countries have different laws and exchange rates.
When doing cross-border EC business, it is necessary to understand the laws and exchange rates of the selling country.This is because laws and exchange rates differ greatly from country to country.
For example, we need to know which products are prohibited for import by the laws of the selling country. Also, if the exchange rate differs, the unit price of a product will differ from country to country. Therefore, it is necessary to take measures such as notating products in Japanese yen.
Need to accommodate language differences
When starting cross-border e-commerce, you need to accommodate language differences so that consumers can read your site.Try to increase the number of languages that can be handled in addition to Japanese and English.
Customs duty is charged when shipping.
When goods are traded across border lines, customs duties are incurred for each. Also, different countries have different procedures when customs duties are incurred. Therefore, be sure to check in advance the customs duties of the exporting country and the rules for using international mail.
Some companies also offer to deliver goods on your behalf.You should also consider the option of using a company that offers proxy delivery of goods.
summary
We have given an overview of cross-border EC and the reasons why the market is expanding in Japan, and then detailed the advantages and disadvantages of cross-border EC.
Cross-border EC is a business method with a growing market in Japan. In addition, Japanese products are highly regarded around the world. Therefore, if you are selling Japanese products, you are likely to attract a lot of attention.
However, when starting a cross-border EC business, it is necessary to assess the laws of each country, the rules for conducting trade, and the current needs of the world. You should consider starting a cross-border EC business with an understanding of the above.
