Attempting to open a physical store overseas to acquire overseas customers or expand new sales channels involves significant costs. However, with cross-border e-commerce, transactions can be conducted over the Internet, making it possible to expand business while reducing costs and risks.
We will explain in detail the merits and demerits of cross-border EC, which is now attracting attention, as well as points to note before starting cross-border EC.
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What is cross-border EC?
Cross-border EC refers to electronic commerce (EC) in which products are sold from Japan to foreign countries via the Internet. Currently, it is a transaction method that is attracting a lot of attention because of its rapidly growing market size.
The impact of the new coronavirus infection (COVID-19), which has made tourism and travel more difficult, is one of the reasons for the growth in the size of the cross-border EC market. This is because inbound demand has shifted to cross-border EC.
Why Cross-border EC is attracting attention
There are several reasons why cross-border EC is attracting attention. The ever-increasing Internet penetration rate year after year is one of the first, but let’s take a look at other reasons as well.
On the corporate side, the main reason is that there is a large market for new customers. For companies that are widely recognized domestically, rather than developing new customers, they must anticipate future growth and demand from other markets and acquire customers. If the company is overseas, it can start by expanding its recognition and then use the know-how gained in Japan to expand its business.
Of course, there are advantages on the user side as well. They include the availability of rare items that are not available in their own country and the ability to purchase globally reliable made-in-Japan products. Fake products are rampant in China, and there is a marked tendency to “buy products you can trust.
Market size of cross-border EC
Source: International Economic Survey Project for Building an Integrated Domestic and Foreign Economic Growth Strategy for Fiscal Year 2022 (Market Survey on Electronic Commerce)
According to the ” International Economic Research Project for Building an Integrated Domestic and Foreign Economic Growth Strategy for Fiscal Year 2022 (Market Research on Electronic Commerce)” published by the Ministry of Economy, Trade and Industry, the global cross-border EC market is estimated to be worth US$912.3 billion in 2020, and is expected to grow to US$4.856 trillion by 2027. The market is expected to show significant growth to US$4,856.1 billion by 2027.
The average annual growth rate is about 27%, indicating that cross-border EC has a high future potential.
Four types of cross-border EC
Cross-border EC can be divided into four main types. Each method has its own merits and demerits, so it is a good idea to compare several methods to see if they are suitable for your products and services, and if they can achieve your objectives.
Operate your own company
This is a method of building and operating your own cross-border e-commerce site.In recent years, it has become easier to create one’s own e-commerce site, as there are numerous services for building and managing such sites.
The advantages are that the site design and system can be freely constructed, making it easier to operate and brand the site. However, there are also disadvantages such as the time and effort required to build a payment system that meets the needs of consumers in the target country or region, and the cost of attracting customers.
Use overseas e-commerce malls
Another option is to open a store in an international e-commerce mall, where multiple stores are gathered.When using an overseas mall, choose one that allows cross-border EC sales.
In addition to the major Western malls “Amazon” and “eBay,” “JD Worldwide” and “Tmall Global” in China offer cross-border EC sales.
There are two types of EC malls, “marketplace type” and “tenant type,” with the following differences
| marketplace type | Sell products in the form of “exhibiting” on the mall’s platform. |
| Tenant type | Sell products in the form of “opening a store” on the mall’s platform |
Sell on behalf of
Another option is to have a company that sells on your behalf overseas purchase your company’s products.The advantage is that you do not have to go through the hassle of building your own cross-border e-commerce site, or pay fees for listing or opening a store in an overseas mall.
However, there is a disadvantage in that the agent will add shipping and handling fees, which will increase the price of the product. In addition, it will be difficult to obtain customer information since the transaction is conducted through an agent.
Utilize the bonded area
Cross-border EC utilizing bonded zones is a method used for cross-border EC to China, which has been rapidly expanding in recent years.We store goods in bonded areas in China (areas where goods can be stored without being subject to customs duties and other taxes at the time of importation) and ship goods to customers from bonded areas.
Although warehousing is costly, it allows for quick delivery of products to customers and lowers transportation costs. This method is suitable for selling products that sell consistently, such as popular items.
Advantages of Cross-border EC
First, let’s look at the unique advantages of cross-border EC.
- Gain access to overseas customers.
- Easier to open a store than a physical store
- Easy to appeal with added value such as Japanese brands
- Can lead to repeat purchases and fan development.
- Potential for business expansion.
A major advantage of cross-border EC is the acquisition of overseas customers and expansion of sales channels. Another appeal of cross-border EC is that it is easier and less costly to open a store than a physical store.
In addition, even if the cost competition and differentiation from similar products is intensifying in Japan, the history and development story of the product and the added value of the Japanese brand can appeal to overseas customers.
Utilizing social networking services such as Instagram and Twitter, as well as finding product wholesalers overseas and creating opportunities for people to actually experience the products locally, will help to acquire and nurture fans and lead to repeat purchases.
Disadvantages of cross-border EC
While cross-border EC has many advantages, it also has disadvantages.
- Language Differences
- Need to adapt to national and regional laws and regulations
- Higher shipping and handling fees than domestic EC
- Possibly more trouble than in Japan.
The first problem is the difference in language.We have to think about “how to translate the appeal of our products” as well as payment and support services.
There is a famous story that when cod roe was served as “cod roe” in the U.S., it was heavily criticized as “disgusting! However, when the menu name was changed to “HAKATA Spicy Caviar,” it became an explosive hit. We need to develop strategies that meet the needs of each country.
They should also be able to deal with differences in laws and regulations, higher transportation costs than in Japan, and the number of problems such as unauthorized use.
Preparation and procedures for starting cross-border EC
When starting cross-border EC, it is important to be well prepared at the beginning.
- Prepare products and services
- Research markets, business practices, laws and regulations
- Determine Targets
- Ensure budget and staffing
- Selecting and opening a store on a cross-border e-commerce site
The appeal of cross-border EC is that it is less time-consuming and less expensive than opening a physical store, but if you are not prepared, you may run into trouble or not be able to develop your business as you had hoped. Take the time to do your research and preparation in advance.
Points to keep in mind before starting cross-border EC
Here we will discuss some points to keep in mind before starting cross-border EC. Cross-border EC is an attractive business, but it requires solid advance planning to succeed.
Is there a need for your products and services?
When starting cross-border EC, research on the needs of your products and services is essential.Opening a store solely because of its large population or market size may lead to unexpected failure.
Different countries have different cultures and customer needs. Look not only at the market, but also at the culture and social conditions in that country to gather information.
Are our products and services suitable for cross-border EC?
The question of whether the product can really be sold overseas and whether it is easy to sell overseas must also be carefully considered.
Some items, such as furs and leather shoes, are subject to high tariffs. In addition, jewelry, lithium batteries, and food cannot be delivered by EMS, which is frequently used for cross-border EC, so other shipping services should be considered.
Products that are considered suitable for cross-border EC include “digital products” that do not require transportation costs and can simply be downloaded after payment.
Some products are banned or restricted for import.
There are a variety of products and services that can be handled through cross-border EC. Most products that can be sold in Japan can be handled, but some countries prohibit imports or require local verification.
For example, China prohibits the importation of used clothing and requires local verification for the importation of used equipment, among other regulations. Check the customs website of each country for a list of import/export permits.
Different countries and regions have different laws and regulations.
It is also important to note that laws and regulations differ depending on the country or region where the product is sold.Flexible measures must be taken in accordance with the country in which cross-border EC is conducted.
For example, in China, you cannot open and operate an Internet site without a permit; a license called ICP is required, and if you want to do cross-border EC in China, you must first obtain ICP.
If you operate without a license, it is illegal and you may be subject to penalties such as suspension of site operation or fines.
If you do not do a thorough preliminary investigation, you may find yourself in unexpected trouble, so be sure to conduct a careful survey.
summary
Compared to the increasingly competitive domestic e-commerce market, the cross-border e-commerce market, which is expected to grow significantly in the future, has high potential.
Japanese products are trusted around the world, and Japanese culture is highly regarded overseas, so there is great potential for business expansion that goes beyond product sales, such as promoting added value to attract and develop overseas fans.
However, there are significant differences in language, laws, regulations, culture, and people’s attitudes and values in different countries and regions. In order to ensure that your business is suited to each country, please conduct careful preliminary research.
