A cross-border business is any business, company, organization that practices the selling of goods and services to customers in different countries. This type of business can also be referred to as "International Commerce."
It is an engagement in business across national borders, which can include exchanging goods and services, investing in international markets, or establishing facilities like production plants or service centers in various countries.
However, it's important to note that there are two types of cross-border business:
- Cross-border E-commerce (CBEC)
- Cross-border Commerce (CBC)
The CBEC involves selling goods, products or services to international customers via an online store or ecommerce platform like Shopify. The CBC is the general name called cross-border business. It involves selling overseas to international customers via any sales channel including online stores or physical store.
The internet and digital technology have made it much easier for businesses to become cross-border. You can decide to establish a physical office in your targeted country, and you can also decide sell directly to your targeted customers without the need of establishing a company in the country.
As a cross-border business owners, there are two ways to manage cross-border e-commerce shipments to customers: (i) direct shipment from the exporting country once the order is made; (ii) direct shipment from a warehouse in a bonded zone in the customer's country.
Cross-border business allows businesses to expand beyond their home country for the purpose of accessing new customers, diversifying their operations, and potentially benefitting from lower costs or different regulations. The global cross-border business has been estimated to worth $16.4 trillion by 2032.
Meanwhile, it's important to let you know that doing business across borders isn’t without its complications. Companies often face hurdles such as adapting to unfamiliar legal frameworks, understanding diverse cultural expectations, dealing with currency volatility, and staying compliant with various international regulations.
Regardless of all these challenges, the lure of reaching a wider markets and unlocking new growth opportunities keeps global expansion into cross-border business an appealing strategy for many organizations. Consumers also enjoy the cross-border business in sense that it allows imported products to be sold in a more rapid and cheaper manner.
Methods of doing Cross-Border Business
1. Cross-border E-commerce
Cross-border E-commerce (CBEC) Business is the process of selling goods, products or services to international customers via online channels including setting up an e-commerce stores or via social media platforms. Examples of popular cross-border e-commerce businesses are Temu, Amazon, and Shein.
The 3Xs
Cross-border E-commerce business has 3Xs: Expand, Explore, and Export. These are the objectives of any business going into cross-border e-commerce. The first thing you'll think of is how to expand your business beyond your home country. Then you'll need to explore the new markets and their buying trends, and then think of how to export your services, goods or products to them.
The exportation part of it is relatively simple because it's usually via online store which is quite different from cross-border commerce that might involve having an established entity in foreign land. Cross-border E-commerce business is best for sellers that are into dropshipping as their physical present in the country is not needed.
Unlike e-commerce companies like Temu, Amazon, and Shein, they have physical stores in almost all countries where their customers resides. They either engage in direct shipment from the exporting country once the order is made or get the shipment from a warehouse in a bonded zone in the customer's country.
Benefits
- CBEC expands your business beyond it home country, giving it the exposure it needs to thrive in the global market and among global audiences.
- CBEC helps grow brand's popularity among the competitors or rivals in the international markets.
- By giving business the exposure to large audience, the number of customers and potential customers your business has will begin to grow, leading to an increase in demands and sales.
- Products that don’t sell well at home may be more popular in other countries, making cross-border ecommerce a smart way to move slow or unsold stock.
Disadvantages
While cross-border e-commerce business has many benefits, it's also important to know how challenging it can be. Here are the challenges of cross-border ecommerce for business that wants to venture into it:
1. Payment Fraud
Aside the fact that you must research about the common payment methods the consumers will prefer, you'll also take precautions against fraud. Card payments are the most common payment methods for anything online shopping.
Meanwhile, card payments method comes with a fraud called card charge back fraud. Card chargeback fraud is when someone makes a purchase with their credit card, then falsely claims they didn’t receive the item or didn’t authorize the payment, to get their money back while keeping the product.
To help prevent credit card fraud, many online retailers use address verification systems (AVS) to confirm the billing address matches the one on file with the card issuer. Although this adds a layer of protection against fraudulent transactions, it can also block legitimate buyers from countries where AVS isn’t supported.
In addition to that, managing different currencies and regional payment methods can lead to technical issues or failed transactions.
2. Shipping Complication and Costs
Shipping products within the same country is usually simple because taxes and regulations are consistent. But when selling internationally, things get more complicated due to different laws, taxes, and import/export rules.
This can lead to challenges like high shipping costs that reduce profit margins or legal restrictions that prevent certain products from being sold in specific countries. In addition to that, international deliveries often come with steep shipping fees, making it less affordable for customers.
3. Longer Delivery Time
Deliveries often take longer, which can frustrate customers if they’re not clearly informed about expected timelines. On top of that, orders may face unexpected delays or added costs due to customs checks, import duties, and various local taxes in the destination country. If the customer needs to return a product, the process becomes even more complicated—international returns are usually more expensive and time-consuming, which can discourage shoppers from buying in the first place.
4. Language and Communication Barriers
Miscommunication due to language differences can impact customer service, marketing, and overall user experience. In order for an ecommerce seller to support international users, their website should be able to support international languages as well as currencies.
However, because it's not feasible to support every language and currency, cross-border e-commerce businesses often limit their options. This can create difficulties for customers in regions where their native language or local currency isn't available, making it hard or even impossible for them to complete a purchase.
2. Cross-border Commerce
Cross-border Commerce is another word for Cross-border Business. This is an international way of doing business. It involves offering your goods and services beyond your home country.
Cross-border Commerce or Cross Business, as explained earlier, can be done through different ways including dropshipping, owning a physical retail stores in another man's country, having warehouses internationally, and through online stores.
Cross-border Commerce is the general sense of doing business across borders. Examples of cross-border commerce are:
- E-commerce Businesses
- International retailers: Examples are well-known e-commerce companies like Amazon, Temu, SHEIN, and Alibaba.
- Niche marketplaces e.g Etsy.
- Financial Businesses
- Cross-border banking and payments
- Cryptocurrency
- Blockchain and Web3 transactions
- Educational Businesses
- Online education platforms: Some well-known examples of Edutech and E-Learning platforms are Coursera and edX.
- International student recruitment e.g., universities and colleges targeting global students. Example are Harvard Business School.
- Supply Chain and Manufacturing Businesses
- Outsourced manufacturing: These are companies that develop their products in one country but produce them in another, often to benefit from lower labor costs and specialized manufacturing capabilities available abroad. Popular example is Apple Inc—maker of iPhone.
- Automotive industry: These are major car manufacturers like Toyota, Honda, Mercedes Benz, Volkswagen e.t.c. These manufacturers often operate production facilities—such as assembling cars—in multiple countries.
- Professional Services
- Consulting and legal services e.g., McKinsey, PwC, international law firms.
- Digital Services
- Software-as-a-Service (SaaS): Examples are Google, Microsoft, Oracle, Cloudflare, Salesforce, Meta e.t.c.
- Content streaming: Examples are Netflix, Moviebox, YouTube, and Spotify.
- Tourism and Travel Businesses
- Booking platforms: Examples are Booking.com, and Airbnb.
- International airlines: Examples are airlines that operate globally.
Final Notes
Expanding your business across borders can create many benefits for the business. However, it's important to also understand the challenges surrounding each methods of selling across borders. For instance, cross-border e-commerce businesses are usually challenged with payment frauds and currency differences.
The cross-border commerce businesses, on the other hand, are also challenged with regulatory compliances, logistics and shipping, payment processes, cultural and language barriers, taxation, market entry and competitions, economic instability, inability to protect intellectual property across borders, and many more.
These are the major reasons you need to do market research and ensure that you have the resources—including financial resources, human capital, and local partnerships—necessary to enter and sustain operations in those markets.
