Key Takeaways

Asia Is Increasing In Importance When It Comes To Brands’ Digital Offerings

Despite many companies’ desire to establish a global eCommerce footprint, many international expansion efforts are still at an early stage. Today, however, a growing number of eCommerce brands are prioritizing the markets of Asia given the size and growth potential of many markets in the region.

Brands Tend To View The World Through A Similar Lens

Global brands tend to prioritize the same set of markets and follow similar global expansion paths. eBusiness leaders tend to evaluate top-tier markets, then move onto the second wave, and finally look at markets in the wait and see category.

eCommerce Companies’ Approach To Global Markets Has Shifted

Today’s international expansion efforts look decidedly different than those in the past. Brands across a wider variety of categories are selling online, and brands looking to expand globally today are more likely to use international shipping or marketplaces as part of their approach to new markets.

Brands are Looking to Boost Their Global Footprints

International expansion is top of mind for many eBusiness executives, yet in many ways, most companies are at a very early stage of global expansion. For the majority of brands, international eCommerce revenues are limited today but growing: Few large retailers see the majority of their revenues coming from countries beyond their borders.

Brands Tend To Take A Similar View Of eCommerce Markets Around The World

When we take a high-level look at how digital businesses expand internationally, we see that they tend to follow a similar path and prioritize the same list of countries. Indeed, eCommerce leaders often see countries falling into three broad categories (see Figure 1):

• Top-tier markets. These markets tend to top the list of countries for global expansion by brands. They include the large, developed eCommerce markets like the US, UK, China, and Japan as well as smaller ones that can be served relatively easily with existing infrastructure such as the Netherlands. We include other markets in this category like South Korea and Australia that are not often the first or second international market pursued by brands, but still factor among the markets high on brands’ lists.
• Second wave. The second wave of markets includes those that brands prioritize after tackling their first few markets. These markets often come with bigger hurdles for brands than those in the top markets category: They may be at an early stage in terms of eCommerce development (e.g., India, Indonesia, Mexico), have complex domestic regulations to contend with (e.g., Brazil) or require brands to launch digital offerings in an entirely new region of the world (e.g., UAE, Saudi Arabia). They may also be very digitally advanced countries with good infrastructure but small in market size (e.g., Sweden, Switzerland).
• Wait and see. This group includes several countries of significant interest to brands, but where the political situation presents hurdles to investment (e.g., Russia, Argentina) as well as those emerging eCommerce markets with long-term potential but where infrastructure issues remain a challenge (e.g., South Africa, Nigeria). Some brands with particularly broad global footprints have taken the plunge with eCommerce in these “wait and see” markets, but the majority are keeping an eye on them to see how political environments shift and how infrastructure develops (see Figure 2).

Figure 1 Global Brands Often View The World Through A Similar Lens

Illustrative examples of countries in each category

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Figure 2 Brands Like Adidas Operate eCommerce Sites In Markets Across All Three Categories

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Europe Still Tends To Be The First Move Overseas For North American Brands

Brands often view the same list of eCommerce markets as priorities — in addition, they often follow a similar path when it comes to which markets they enter first. For North American brands, for example, the typical global expansion process involves moving into Europe first — just as European brands typically move into the North American market first — and then subsequently into other regions of the world. However, the size and growth rates of countries in other regions of the world, especially China, are starting to eclipse these two formerly dominant regions, resulting in brands increasingly prioritizing the markets of Asia (see Figure 3).

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In terms of how brands tend to move from one top market to another, we see that:

• North American and European businesses still often look at each other’s regions first. In both North America and Western Europe, eCommerce ecosystems are well developed. Channel conflict tends to be a lesser issue than it is elsewhere in the world and the paradigm of brandsselling direct is well established. Additionally, the geographic proximity of European markets to each other makes it relatively easy to serve multiple markets from a centrally located warehouse — even those markets in Central Europe. US and UK online retailers are also prone to expanding to each other’s countries given the common language; UK eCommerce players such as Asos, Boden, and Topshop made the US a big component of their early international expansion efforts.
• China leads as the behemoth of eCommerce in Asia Pacific. The countries of the Asia Pacific region have rocketed onto brands’ global expansion lists. For some, such as luxury brands, launching eCommerce in the region is a particularly high priority; at Coach, for example, eCommerce sites are available in China and Japan but not yet in Europe. And while the early evolution of Japan’s eCommerce market made it brands’ top priority in Asia for a number of years, today many companies are considering a China-first approach to the region (often through the launch of a Tmall store), followed by offerings in other markets. However, brands increasingly realize that the size and complexity of China merit a highly focused approach: Flash sales site Gilt, for example, did a comprehensive assessment and relaunch of its offering in China in late 2014 prior to the 11.11 Singles’ Day shopping sale.
• Latin America is rising in importance. Latin America is increasingly hitting the radar of global brands selling online. In 2014, for example, US-based retailers Costco, Home Depot, and Lowe’s all launched eCommerce sites in Mexico, while other brands such as Nikon and Calvin Klein launched eCommerce in Brazil. Amazon expanded into selling physical books online in Brazil in 2014; the company’s expansion in Mexico is rumored to be in the works for 2015.2 Indeed, digital business leaders tend to prioritize Brazil and Mexico as the two regional powers, yet they are also starting to take notice of other markets in the region such Colombia, Chile, and Peru. Argentina’s economic situation and import restrictions have presented hurdles to global brands over the past few years, but there is optimism that the country may start to reappear on priority lists after elections in 2015.
• More brands are eyeing the Middle East and Africa. While technology giants like Dell and Microsoft have operated websites in these areas for years, companies in later-stage categories such as apparel are taking greater notice of the eCommerce opportunity in these two regions. Most companies interested in the Middle East target the rapidly growing and wealthy markets of the Gulf states first. Burberry, for example, now operates eCommerce websites for the United Arab Emirates (UAE), Kuwait, and Qatar; online jewelry retailer Blue Nile recently launched an Arabic-language website aimed at shoppers in the UAE. Many brands, however, have not yet made the leap to offering localized sites for the region, due largely to the relatively small markets in the region and the complication of shifting site navigation to right-to-left languages such as Arabic and Hebrew. In Africa, South Africa and Nigeria tend to be the two eCommerce markets of interest to global brands, although most brands continue to launch in the Middle East first.

Figure 3 Markets Like The US, UK, And China Are Top Of Mind For Brands

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Markets Become More Attractive To Brands As eCommerce Ecosystems Mature

Technology developments such as increased broadband and mobile penetration drive more consumers online. Yet a mature eCommerce ecosystem is equally critical to making companies willing to explore and invest in new markets. The following developments are now driving more businesses to expand into newer, developing eCommerce markets.

• eCommerce platform providers are extending their capabilities in emerging marketsstrong>
. Leading eCommerce platforms have aimed to stay one step ahead of global brands’ expansion efforts. Not surprisingly, many of these platforms first focused on Europe and North America, with only a handful establishing a strong presence in emerging markets early on. Over the past few years, however, a presence in markets such as China and Brazil has moved from being a nice-to-have to being a must-have for leading eCommerce solutions. As a growing number of platforms accommodate local needs, they are better able to help global brands compete with local retailers that offer such services. Vendors such as Demandware, Digital River, hybris, IBM, and Intershop have all made global capabilities a key component of their offerings.
• Payment service providers are streamlining the addition of new payment types. In addition to eCommerce platforms being able to support a wider variety of markets, a growing number of payment service providers are helping retailers ensure they offer the payment types that online shoppers prefer. Consumers’ payment preferences vary greatly, with a number of unique permutations: For example, a number of alternative payment types dominate in emerging markets, ranging from Alipay and Tenpay in China to others like Qiwi, WebMoney, and Yandex.Money in Russia. In Brazil, the preferred alternative payment method is the boleto bancário, a printable, bar-coded invoice, although adoption of digital options like PagSeguro and MercadoPago are growing. Vendors such as Adyen, CyberSource, Digital River World Payments, and GlobalCollect are helping retailers streamline the addition of a wide variety of new payment types.
• Logistics providers are building out networks. As well as using the existing logistics infrastructure, it’s now quite common for leading retailers to own their own logistics networks, especially in fast-growing eCommerce markets like those of China, India, and Russia. Increasingly, retailers are also looking to leverage these networks to launch logistics services for others. Those retailers that have taken the time to invest in their own delivery networks are well aware of what a valuable asset these networks are, particularly in emerging eCommerce markets where it can be challenging to reach consumers in remote areas of the country. In China, players like JD, Yihaodian, and Amazon operate their own networks; in India, players like Flipkart, Jabong, and Amazon do the same. In Russia, a similar model is employed by the likes of KupiVIP and Ozon, among others.

Today's Global Expansion Looks Different Than in the Past

Successful global initiatives have eluded many companies: Operating in new countries requires companies to understand shoppers with different demands and to navigate new sets of rules and regulations. It’s therefore not surprising that many eCommerce organizations have tiptoed rather than run into new international markets. In just a few years, however, the landscape of global eCommerce has shifted. Just five years ago, the types of companies that sold online internationally were different, as were their approaches (see Figure 4). What has changed in these five years?

• Companies across all categories are now expanding aggressively online. Traditionally, consumer technology companies have had the broadest international eCommerce footprint when it comes to operating localized sites around the globe. The fact that these companies have expanded rapidly internationally — and that their products are often some of the first that consumers purchase online — means that this category has thrived.5 Companies such as Dell, Microsoft, and Symantec offer online stores in dozens of markets around the globe. By contrast, brands in other categories, such as apparel, have been slower to blanket the globe with eCommerce sites but that is changing. Calvin Klein, for example, started its global eCommerce expansion outside the US with sites in Europe, followed by one in Brazil; subsequent expansion in 2015 to 2016 will involve launching many new transactional sites, including a number in Asia.
• Brands are adding a more diverse set of countries to their lists. Brands are increasingly turning their attention to a much broader group of global markets, and it is no longer uncommon to find global brands with eCommerce operations in North America, Europe, Asia Pacific, and Latin America. Numerous brands such as Louis Vuitton and Nike offer eCommerce in countries across all four of these continents, as does Amazon (albeit with different business models that reflect the local environment). Asia-based companies are also tapping into shoppers outside of their home markets: AliExpress, Alibaba’s cross-border shopping offering, is available in English, Spanish, Russian, and Portuguese while Japan’s Uniqlo operates eCommerce sites in markets across Asia, Europe, and North America.
• Businesses are looking for low-cost, low-risk ways to test international markets. Today, a common way for brands to test the international waters and supplement their existing global eCommerce sites is to ship internationally. eBay offers an extensive cross-border shipping program for sellers, while an increasing number of retailers also employ international shipping to reach global online shoppers. A growing number of brands — ranging from Ann Taylor to Under Armour — rely on vendors like Borderfree in the US to manage their global logistics. Other solution providers in the international fulfillment space like Pitney Bowes support the cross-border efforts of eBay and other eCommerce players, while some such as i-parcel and Bongo have been acquired and now enhance the offerings of their respective parent companies, UPS and FedEx.
• Brands are turning to marketplaces as an option to enter new markets. Another shift in brands’ international expansion efforts is an increased focus on marketplaces — either as a market-entry strategy or as a supplement to a traditional B2C eCommerce site. This approach is most common is China, where Tmall’s dominance of the B2C market means it has become a common way for brands to enter the market. Today, many brands have launched stores on Tmall and other marketplaces in China — for many brands, marketplaces generate the bulk of their online sales in the country. In other markets, marketplace options tend to be less frequently used by brand owners but are gaining traction: Options include Amazon, eBay, MercadoLibre, Rakuten, and dozens of others.7 Marketplaces offer brands access to a large online audience and a templated, relatively easy way of selling to international consumers, even though these marketplaces don’t typically provide brands with extensive data on customer shopping behavior.
• Brands have a preferred global platform, but also assess the best option for each market. In previous years, brands tended to take one of two approaches. Early on, it was common for brands to contend with sites built on varying technologies around the globe, especially if sites were built and managed by local licensees. Later, brands tended to aspire to run on a single global platform, often selected for its ability to take the brand into a variety of new markets. However, many brands today look at key markets on a case-by-case basis and assess if their core platform is the right fit for that market. Puma, for example, uses Demandware in many markets but has elected to use Magento in others.8 Additionally, local solutions like Baozun in China and Vtex in Latin America have attracted brands that are interested in a solution tailored specifically to the needs of consumers in a certain country or region.
• Organizations are carefully straddling centralized versus localized control. One final way in which companies have adapted their global strategies is in their approach to staffing their global eCommerce operations. Global companies have struggled to find a balance between centralization and localization: They have tended to either over-centralize, leading to poorly localized global sites, or to over-localize, leading to challenges such as inconsistent brand experiences.9 Today, companies are aiming to maintain some centralized control over global websites while ensuring that their sites are sufficiently localized to resonate with local audiences. Many brands today are moving toward shared services models which place strategic eCommerce accountability with a central team, while embedding execution into local teams.

Figure 4 Today’s Globalization Efforts Differ From Those In The Past

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For Many eBusinesses, the Biggest Challenges are Internal

Brands looking to expand internationally face the usual litany of external problems to overcome, from stiff competition to infrastructure challenges and regulatory issues. Yet for many businesses, internal hurdles are often the hardest to surmount; they threaten the success of their global businesses even more than external ones. Beyond core issues such as channel conflict are factors that many eBusiness executives can influence. Three key mistakes that threaten to trip up organizations’ global efforts are:

• Building unreasonable ROI scenarios. Perhaps the biggest mistake companies make when preparing for global initiatives is not planning for just how long it takes for these initiatives to be profitable. It is not uncommon for eBusiness leaders to expect to see a return on their investment in new global initiatives within one year — a nearly unattainable goal for most companies launching dedicated websites. By contrast, few companies plan for payback in three to five years, a time frame that many experienced online retailers cite as accurately reflecting their experience. eBusiness professionals must build business plans with assumptions and KPIs that reflect local market conditions, not those of their home market.
• Failing to devote sufficient resources to new global efforts. Another common mistake is for companies to try to enter global markets with small teams or with funds that fail to cover the cost of competing in the new market. In China, many global brands launched websites that resembled stripped-down versions of what they offer in the US or Europe — despite the fact that China is now the world’s largest eCommerce market with sophisticated local players. And many failed to employ localization best practices. For example, some sites did not compensate for the fact that languages with double-byte characters like Chinese and Korean take up less text space than English (or by contrast, that Spanish, German, and Dutch typically take up more) — the result was a poor user experience.11 Companies serious about competing in international markets will need to devote resources in line with the market’s size and potential.
• Not hiring in advance for globalization. Finally, many brands — particularly those with a traditionally domestic focus — are interested in expanding internationally yet have little in-house expertise in markets other than their own. Savvier brands have started to bring in talent from multiple regions of the world. A more global team not only provides more diverse perspectives that can lead to innovation but can also help companies with new market entries. Those companies that have leaders with experience in key new global markets can tap those leaders for insights — they are in the enviable position of not just having market expertise but also being able to combine that with knowledge of the corporate culture.

Plan to be in the Globalisation Game for the Long Haul

Brands today are increasingly realizing that they can’t put all of their eCommerce eggs in one geographic basket: To do so is more risky than diversifying. Yet many are not thinking in the right way about global expansion. To succeed internationally, eBusinesses should:

• Consider assessing the opportunity in a low-risk way first. Companies that already sell offline in global markets have a solid understanding of how their brands resonate and which products sell best. Those companies that have not yet sold to international consumers may want to take a lower-cost, lower-risk route, such as using international shipping or a marketplace approach, to gauge the demand for their products prior to making an investment in a fully localized, direct-to-consumer site. And for many brands, a storefront on a marketplace may end up being the leading digital sales channel in the country. There is a good chance that your online sales in markets like China will be largely generated by Tmall, JD, and others rather than from your own direct sites.
• Build enough time into ROI scenarios. Nothing kills a global business faster than the expectation that the business will pay for itself with new revenues in a short period of time. Brands launching direct-to-consumer websites, for example, will be competing against much more established channel partners selling their products; online retailers launching for the first time in a new market will have to build a brand from scratch. Both of these initiatives will take time. Don’t expect a new global business to be profitable in the first year or two, particularly in emerging eCommerce markets where conversion rates are lower than in mature markets and you may need to make more extensive adjustments to the business in order to compete.
• Extend best practices — and best tools and features — into global markets. Brands are routinely tempted to launch in new markets with little more than the basics. This approach is particularly apparent in emerging markets where it’s challenging enough just to get an online business launched. Yet eCommerce leaders often fail to add features such ratings and reviews or product recommendations to sites — or fail to invest sufficiently in customer insights — translating into a missed opportunity to differentiate their brands from the competition. Take the time to understand local user behavior and ensure that as you expand into new global markets, you bring with you tools and features that can help win over local users and provide an experience that your competitors don’t.