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While uncertain international market conditions have impacted the ecommerce playing field, savvy business owners are mapping out their global expansion game plans in a bid to reach new customers.
The phrase ‘global expansion’ may sound overwhelming. But, with the right market research, the right financial tech stack and the help of this guide, you’ll be well-set to begin your cross-border growth.
What are the benefits of global expansion?
Researchers at Morgan Stanley predict the ecommerce market could increase globally from $3.3 trillion in 2022 to $5.4 trillion in 2026, with purchases made via ecommerce platforms reaching 27% of total retail sales worldwide. In context, two years ago, only 17.8% of sales were made from online purchases, showing that borderless ecommerce is becoming an profitable option for online retailers.
The factors driving this enormous global ecommerce growth, represent a permanent change in how people shop after the COVID-19 pandemic. From ever-increasing internet connectivity, to rapid urbanization and the increased acceptance of digital transactions, shoppers all over the world have never been more willing to make their purchases online.
Some advantages of pursuing global expansion for your ecommerce business include:
- Increasing your sales and profitability
- Low barriers to entry
- Quickly opening to new markets, including China and the Asia-Pacific region
- A distinct competitive advantage
Increasing your sales and profitability
The bigger the audience, the larger the potential. This one is simple, and is the obvious draw for every ecommerce business looking to expand globally. Launching your product or service internationally will bring new sources of revenue for your business, helping you to secure long-term success. If you’re experiencing revenue gaps in the U.S., turning to the international stage might close these gaps and help you secure more funds that you can reinvest in your business.
Low barriers to entry
The barriers to entry into global marketplaces for ecommerce companies are relatively low, as long as you’ve conducted proper market research, are aware of that country’s laws and regulations, and you’re up to speed on the economic and political landscape of the market you’re targeting.
Scaling at speed
The beauty of the global marketplace is that you don’t necessarily need to have a large presence in a region to successfully sell your products there. In a survey of 33,594 consumers across 40 countries conducted by the International Post Corporation, 32% said they made more online purchases in 2020 from retailers in foreign countries due to the pandemic, and 51% plan to do more cross-border online shopping in the future.
You can forget about needing to have a brick-and-mortar store before building a successful online presence in a new region. Instead, a strong digital advertising campaign can be the ideal testing ground for reaching new markets.
China and APAC marketing expansion
One of the world’s largest economies, China, holds significant revenue opportunities for ecommerce businesses looking to expand internationally. By 2024, retail ecommerce sales in the APAC region are set to be greater than the rest of the world combined, with China claiming 33.3% of the global total of digital buyers and producing $2.779 trillion in ecommerce sales. It’s a massive opportunity for U.S.-based ecommerce businesses
A competitive advantage for your ecommerce business
If your ecommerce company has stiff competition in the U.S. and you’re struggling to increase sales, expanding internationally can develop your brand’s reputation and generate more revenue by bringing a new product or service to a cross-border demographic. Avoiding market product saturation opens fresh new paths for generating revenue, which can then be reinvested into your ecommerce business to help you become more competitive in all the global marketplaces you operate.
What are the financial implications of global expansion?
If you’re a U.S.-based ecommerce business wanting to put time, energy and money into global expansion, then it’s crucial to recognise the financial implications of your proposed international move.
These include:
- The need to establish a local banking presence
- Global compliance management and tax ramifications
- Currency volatility
Establishing a local banking presence
Global ecommerce businesses needed to establish a local banking presence to be able to receive payments from customers, make payments to local suppliers, or process payroll in a local currency. However, opening a bank account in a foreign country can be a time-consuming and frustrating process.
Airwallex offers a solution to this problem. With an Airwallex Global Account, you can open multiple foreign currency accounts online in a few clicks. No bank branch visits or excessive paperwork needed. By opening these foreign currency accounts, you can establish a local banking presence in each of the markets you operate in. This means you can easily pay suppliers and staff, accept payment in your customers’ local currency, and save yourself from having to pay unnecessary foreign exchange fees.
Having a global financial solution like Airwallex in your tech stack supports you in effectively managing currency translation, cash management and inter-company transactions, potentially meaning the difference between a successful and unsuccessful international expansion.
Managing foreign taxes and compliance needs
Every country has its own set of business rules and regulations, and as an international ecommerce store trading in these marketplaces, you’ll need to abide by them.
For example, businesses in the U.S. wanting to expand to the UK will need to prepare for GDPR compliance. U.S.-based online businesses selling to international customers in the UK will also need to make PAYE tax and National Insurance contributions for any employees hired in the region.
When expanding into global marketplaces, unfamiliar legal policies can affect how you manage your data, labor, marketing and tax, with these new requirements needing significant financial outlay to get up and running. Before you decide whether global expansion is right for your ecommerce business, it’s worth conducting an in-depth cost-benefit analysis to understand what legal, tax and compliance obligations you’ll be exposed to in each new market and whether there will be financial implications for managing these on an ongoing basis.
Currency volatility
Hedging currency risk is a must when considering overseas expansion, as dealing with currency fluctuations can be one of the biggest challenges when expanding into international markets. This is especially the case when the global economic environment is volatile and interest rates and inflation are a concern.
There are three ways that U.S.-based ecommerce businesses that trade internationally can protect themselves against the risks posed by foreign exchange market volatility:
- Pass on the risk to your suppliers and customers by operating in USD only or increasing your prices.
- Use forward contracts to hedge against currency fluctuations when paying suppliers.
- Operate through a multi-currency account.
The drawback of the first two options is that they are unfavorable to customers and suppliers and could have a negative effect on your sales and supplier terms.
The third option allows businesses to collect, hold and send money globally without being forced to convert currencies when the market is unfavorable. This way businesses can hedge against fluctuations in the foreign exchange market and only convert currencies when it suits them.
The financial tools that enable expansion
Ensuring your business has the right ecommerce tech stack supporting it is key when it comes to successfully selling in new international markets. Many SMEs around the world realize that moving money and making payments across borders using traditional systems (such as SWIFT) can be costly and slow. With this in mind, the migration towards digital global ecommerce solutions and innovative fintech is on the rise.
Here are tools ecommerce companies can use to effectively manage their cross-border financials.
Online payments software
When expanding to new markets, it’s important that you provide a localized checkout experience for your global customers. In other words, you need to let them pay you the way they want.
Airwallex offers a world-class payment processer which integrates seamlessly with Shopify, WooCommerce and Magento. Plug Airwallex into your online checkout, and you’ll be able to accept payment in multiple currencies directly into your Global Account, without being forced to convert those currencies to USD.
You’ll also be able to offer 70+ local payment methods including ApplePay, Klarna and Alipay, in addition to MasterCard, Visa and American Express payments. By offering the payment methods your customers know and trust, you’ll reduce friction at your checkout and increase global sales.
Accounting software
Whether you’re selling your products or services through Shopify, Etsy, Amazon or another ecommerce platform, having the right accounting software in place will do wonders when it comes to managing your finances as you start selling internationally.
Choosing the right accounting software has a wide variety of benefits for your business.
- It’s the foundation for a strong and reliable international business, giving you clear insight and transparency into how you’re operating at any time. This means you can get in front of any cash flow issues or discrepancies month-to-month before they become major issues.
- It can help you to forecast your business accurately, increasing the likelihood you’ll make the right decisions when it comes to further expansion opportunities. You can create projections that essentially predict your business’s future, meaning you can make better plans for your ecommerce site.
- It makes a world of difference come tax time. By maintaining your financial records properly, you’ll be in a better position to act in accordance with the several sets of international laws and sales tax regulations you’re now having to abide by.
Accounting software, like Bench, is an expert financial solution for ecommerce businesses, as you’ll get access to a team of small business experts that provide you with real human financial support. You can access financial insights in real-time, receive a package at tax-time with everything you need to file, and best of all, you don’t have to worry about the complex bookkeeping of your international transactions day-to-day.
Applications like Xero can also streamline your online business finances, helping you to automate tasks like categorizing and reconciling transactions in multiple currencies. If you have an Airwallex Global Account it gets even easier, as you can sync it directly to Xero and automatically reconcile global transactions in your chart of accounts.
Transfers and FX
With global expansion comes the need to make fast, cost-effective international money transfers when paying suppliers, staff or customers. Use Airwallex to send payments in as little as one business day, with the full amount on delivery guaranteed.
You’ll also enjoy access to market-beating exchange rates, regardless of how much (or how little) you’re transferring—perfect for the day-to-day running of a successful ecommerce business.
Multi-currency accounts
An Airwallex Global Account propels your ecommerce business’s finances towards seamless operation, no matter where in the world you’re trading. It’s an online business bank account that allows you to quickly open both domestic and foreign currency accounts in minutes, without visiting a bank branch.
No longer will your online ecommerce business be bogged down and delayed with tedious processes that slow your global expansion and inconvenience your customers. Instead, you’ll be able to easily collect ecommerce sales funds from your cross-border customer base, and send payments to international suppliers and staff in their preferred currency.
Scale your business with Airwallex
With Airwallex, you can build an end-to-end financial tech stack for your business that supports your global expansion. We know you’ve worked hard to get your business to where it is today, and expanding internationally is a major next step. With financial solutions for the new generation of online businesses, we’re here for you every step of the way on your journey to becoming a major player on the global stage.
To see what Airwallex could do to optimize your online business today, sign up free online.
