How Cross-border Shipping Can Take Your Business Global (Part 1)
Cross-border shipping offers flexible ways to expand into new markets. Here’s how to achieve faster time-to-market and low set-up costs.
In this article, we will briefly go through Southeast Asia’s e-commerce opportunities and why you should consider cross-border shipping to meet the region’s growing demand.
The southeast Asian opportunity
These trends lead them to look for a wider variety of higher quality of goods and services online. People also prefer overseas online stores for better service such as free shipping and product return services. This can be seen in countries like Indonesia and Vietnam.
Indonesia has the largest population in Southeast Asia, estimated at 269.4 million people in 2019, of which fifty percent of them are connected to the internet. Out of this, 28.07 million Indonesians purchased US$ 7.05 billion in e-commerce sales in 2017. McKinsey predicts that e-commerce sales in Indonesia will grow up to eight times to reach US$ 55 – 65 billion in 2022.
Vietnam has an estimated population of 97.4 million in 2019, of which sixty-seven percent are connected to the internet. Out of this population, there are 35.08 million online shoppers who purchased US$ 2.26 billion in e-commerce sales in 2018. This number is expected to grow to over US$ 4 billion in 2022. Vietnam’s opportunity lies in its high conversion rate with fifty percent of online shopping searches resulting in a sale.
Considering the size of the opportunity, finding a way to fulfill demand from overseas markets is worth considering. In order to fulfill this demand, we will look into cross-border shipping and local distribution models.
Cross-border shipping or local distribution?
As an alternative to cross-border shipping, creating a traditional local distribution model involves setting up warehouses and managing fleets to manage deliveries in the destination country. Often, this is done to reduce shipping when orders arrive as the inventory is kept closer to the country. It is vital to estimate demand carefully to prevent stock-outs or oversupply.
Inventory exposure and initial investment required
While it is tempting to keep inventory closer to your customers, creating your own local distribution model requires a lot of initial investment. Setting up and maintaining offices, import licenses, and warehousing to handle your inventory is an expensive investment. In addition to this, each component mentioned could lead to higher operating expenditure compared to cross-border shipping. This could be risky if demand for your item turns out lower than anticipated.
In addition to the high initial investment, each component mentioned could lead to higher storage costs and operating expenditure in the target country compared to cross-border shipping. This results in inventory exposure in that market, which is risky if demand for your item turns out lower than anticipated.
With the cross-border shipping model, your inventory exposure will not be as high as a local distribution model if you run a centralized logistics model. This is because storage costs are incurred only in the origin or hub country with a centralized logistics model.
On top of that, shipping costs are only incurred when sales have been made when using a cross-border shipping model. Therefore, you’ll have guaranteed revenue on each parcel that you ship to the target country. This makes cross-border shipping a cheaper and more flexible logistics option when initially entering new markets.
Your inventory will run the risk of becoming obsolete with either model, so it is vital that you have strong data to estimate demand in your target country. It could be a good idea to test demand via cross-border shipping first before making any heavy investment commitments when you are expanding to new markets.
Speed of deployment
Existing cross-border shipping partners have logistical infrastructure, licenses, and expertise already in place. This can reduce logistics set-up time to that of researching the right partners and registering with them, improving the time-to-market for your products which is key in a fast-paced environment.
By using cross-border shipping, your goods can reach even rural parts of various target countries depending on how extensive your cross-border fulfillment partner’s network is. By registering with the right partner, you will have access to multiple countries with relatively short set-up time.
A good way to test demand in new markets
This article was originally posted on Janio Asia ’s blog.