Webinar: How To Expand Into Foreign Markets In 2023
February 16, 2023
Supply chains have gone through a tumble dryer of disruptions in the past few years. The free flow of goods across international borders, long taken for granted, was repeatedly impeded. Now that things are gradually returning to normal, expanding into foreign markets is becoming a more reliable and overseeable investment.
What Should Sellers Consider Before Expanding Internationally?
Before entering foreign countries, sellers should use free tools, such as Google Analytics or Google Trends to better understand their clients’ purchasing behavior, according to Emma. You might see a pattern, such as an uptick in traffic to your store from a certain country, which should be looked into.
Next, it is essential to weigh if you can sustain entry into a certain market. Can you process payments? Would there be a language barrier? How would you provide customer service across different time zones? Emma recommended taking a deep look at these factors before any action is taken.
Understanding the intricacies of the market you are looking at is also important. Is it very competitive? Would you enter through Amazon or Shopify? Curtis highlighted that some sellers think the UK is the best place to go since there is no language barrier. However, it has the second- and third-most competitive Amazon and Shopify markets, respectively, meaning it might be wiser to look elsewhere.
You should explore if people in the market you are looking at are likely to buy your products. Research if there is a real interest and demand or not. If you can, try to run a test with a small batch of products instead of diving in head-first. This can be done in several markets simultaneously to get a taste of their viability. A product that does well in Italy might not sell in France. Curtis also suggested that you build a good understanding of what the competition looks like.
For Bryce, before opening a store abroad you need to understand your logistics. Would you store goods locally with a 3PL (third-party logistics) provider or Amazon FBA (Fulfillment By Amazon) center? And then there’s the major hurdle of compliance. Whichever market you plan to enter, you need to ensure you follow all regulations with great attention to detail. Each market has different rules and you need to remember details like the fact that the UK is no longer a part of the EU and now has different requirements. Similarly, Australia, Canada, and Japan all have their own procedures when it comes to eCommerce; no two markets are alike.
Bryce also stressed that you can’t expect to establish yourself in a country overnight. Getting registered in the UK takes 1-3 months, versus around three weeks in the Netherlands and Germany. Product compliance takes anywhere between 1-6 months. However, these figures strongly depend on the country, your product, your partners, and their relationship with tax authorities.
What Are Some Common Misconceptions About Expanding Into New Markets?
Many eCommerce sellers think they have to handle this whole process on their own. Bryce disagrees. He has found that virtually every step in an eCommerce operation can be automated. You can hire consultants and experts or find courses and videos that walk you through each step. Additionally, it’s not always necessary to set up a local entity in a country, which he sees as a common misconception.
An importer of record is a third-party importer that takes legal responsibility for your goods at customs and gives you a local presence without having to set up a full-on entity. Or you can also use a merchant of record, who buys the goods from you and then takes care of taxes and processing payments from customers. Finally, there is drop shipping, which means delivering products straight from your supplier to customers in another country. To Bryce, this last option may not be ideal for customers as they become liable for paying duties and taxes at the border, which can harm their experience with your brand.
Here Curtis added that he knows several merchants from all over the world that start their eCommerce business in the US. It works because they outsource much of their operation, such as shipping, logistics, accounting, and marketing. This means even a small team can earn millions in revenue.
Curtis also brought up that there are many benefits to setting up an entity in a foreign country, such as the ability to easily process customer payments and reduce costs. For example, US merchants on Shopify selling locally pay a 2.5% processing fee. If they want to sell to the UK, Shopify charges them 3.8% plus currency exchange fees. Alternatively, if they set up an entity in the UK that processing fee drops to 1.5% with no currency exchange costs. Bryce added that while these benefits speak for themselves, establishing an entity comes with administrative paperwork and costs, which only increase with each additional market you enter this way.
Audience question: Is there anything else I can do to protect my brand and IP in international markets besides tax and import registrations?
From an IP perspective, Bryce recommended trademarking a brand. There are many entities in eCommerce that specialize in legal and copyright matters for brands launching in new markets. Curtis suggested getting a lawyer to help you secure your IP, which he finds to be the best way to protect yourself.
What Shipping and Freight Considerations Are Important as I Expand Globally?
Emma pointed out that global supply chains have not been reliable recently, going through many disruptions. She highlighted that 71% of companies report that the increased cost of raw materials is their biggest supply chain issue and that the average shipping time from China has increased by 74 days. Meanwhile, 68% of consumers will still buy essentials online, meaning the eCommerce world faces strong issues with supply while demand continues to grow.
Online sellers need to understand the challenges that await in a new market. When you expand into a foreign country, make sure you have a proactive supply chain; this means having multiple vendors so you can adapt to disruptions quickly. It also entails ensuring that your shipping process is streamlined so customers don’t experience delays. Perhaps, if you already have a good supplier in China, consider setting up shop in a country nearby to take advantage of that asset.
Bryce noted that Amazon has implemented stock limits on vendors, which can cripple a supply chain and cause stockouts, which hurt a store’s customer experience and Amazon rating. He proposes that Amazon sellers use an FBA prep provider. Shipping to them in bulk and then sending small shipments to Amazon locations whenever stocks run low is a great way to maximize your flexibility in a cost-effective manner.
Regarding the question of whether a seller should use a freight forwarder or a courier, Bryce suggested that sellers whose weight of goods is above 500 kg (1102 lbs) should go with the former and vice versa. Couriers offer an express delivery service but are more costly, especially when the goods are on the heavier side. Bryce also recommended checking road, sea, and airfreight prices, as they offer further flexibility when planning and managing your supply chain.
Ultimately, planning ahead and shipping in bulk is the most cost-effective option. Having a strong freight network and many relationships with providers can be leveraged to compare and contrast their pricing offers and get the best bang for your buck. Freight shipping often depends on your priorities: is speed or pricing more important to you?
Curtis: How should people think about inventory and planning in the very beginning of entering a new market when demand might be very low?
Emma explained that during uncertain market times, in her view, sellers should lean into their best-selling products. You might have some ideas for secondary products in new markets, but doubling down where you’re already seeing success is probably the best choice. Once you’ve established a good foothold you can start experimenting.
Bryce advocated analyzing the performance of best-selling products with tools like JungleScout, Helium10, or ZonGuru to see what competitors offering similar products are currently doing. Analyze the market, and look at median product sales and sales per month. It is important to be able to at least somewhat estimate where you fit in and how your product would do on a monthly basis. Then you can plan your inventory around your findings.
How can I increase my margins as I expand into new markets?
In this section, Curtis took a close look at the financial metrics involved when a US Shopify retailer sells in the UK internationally or from a local entity, and how Shopify’s different plans affect their margins. He found, using Shopify’s own data, that sellers who set up a local entity in the UK save significant amounts on foreign exchange and payment processing fees. Those margins only expand as the volume of monthly sales goes up. Another alternative is to use a virtual bank account in the country you want to operate in, which will also reduce currency exchange costs.
Bryce emphasized the importance of margins when expanding into foreign markets. Shipping bulk into a 3PL, where it’s D2C (Direct To Consumer) or an Amazon FBA prep center, the larger your freights, the better pricing you will see. If Amazon’s stock limits are an issue you can use FBA providers to hold your stock and drip-feed them to Amazon warehouses. He also brought up that in the EU certain countries don’t require you to pay import VAT until you make a sale, which is a great cash-flow save.
Starting a big project like expanding abroad can help a business establish itself and grow, but it’s not a small task. Setting up a supply chain that stretches across borders takes significant planning, not to mention capital. This is where many eCommerce sellers turn to 8fig, a growth and funding platform that specializes in helping optimize supply chains. Its software allows you to plan your freight shipments and inventory, oversee sales analytics, set benchmarks, and more. 8fig also provides continuous and flexible funding to support your business plans and help you thrive as a company. Sign up today and launch your store into new markets.
Julian writes about the ins and outs of eCommerce at 8fig. He is passionate about exploring and covering the dynamic and fast-paced world of online retail.