This blog is a guest post from ChannelAdvisor partners WorldFirst. Find them at Catalyst at booth #13 in the Catalyst Pavillion!
As the technology for online purchasing becomes more widely accessible and consumers became more comfortable with online transactions, e-commerce will continue to grow rapidly. The National Federation estimates double-digit growth for e-commerce this year, and we expect much of this growth to come from international markets. Already, 24% percent of global online shoppers purchase from overseas websites, and half of those purchases are on US sites.
In short: the era of international expansion is upon us, and if you aren’t at least considering expanding your business overseas, you could get left in the dust. But before racing into a new market, take stock of the transactional differences between a domestic and an international operation. It’s much more than a few translations. Going abroad will take time and money — but can certainly be a worthwhile endeavor.
As the head of a company with offices in the US, Australia, Hong Kong, Singapore, U.K. and Netherlands, I speak from experience when I say that preparation is critical. To help you, here are a few key, and too-often underestimated, considerations for developing a business abroad.
A value-added tax, typically called a VAT, is a commerce tariff that’s triggered when your transactions pass a defined threshold. Countries in the UK and EU have a VAT system in place, so it’s very likely that you’ll grapple with this during international expansion. Outside of these two areas, it’s important to consider other factors like sales import taxes, GST, state taxes, etc.
Depending on the country, VATs can be anywhere from 10% to over a quarter of the sales price, and they vary widely even within the same continent. For instance, Malta’s VAT is 18%, while fellow European country Hungary is 27% (most European VATs hover in the middle of that range).
Because VAT regulations differ extensively, you’ll want to consult a tax attorney before making any decisions. Navigating multiple tax codes can be an incredible challenge for even the well-versed, so make sure to choose an attorney that specializes in international tax law.
During your conversation, be sure to ask about the threshold level for the country you’re considering. If you do not meet this level, you won’t be subject to the tax. For the UK, this level is £83,000, but this, like the tax level itself, varies widely between countries.
Bringing Revenue Back to Your Home Country
Once you have your international operation up and running, it’s time to bring home the cash. To do this, you’ll need to convert your overseas revenue into US dollars, exposing you to transaction fees and the fluctuations of the currency market. Without a strategy in place, the same revenue in a foreign market can translate into widely different sums once the money has been repatriated.
Don’t fret — as with tax regulation, there are specialists who can help in this regard. A currency exchange specialist can break down how and when you’ll need to pay a transfer fee and can talk you through strategies that minimize currency risk. Solutions like forward contracts allow you to lock in a foreign exchange rate in advance, which can help with annual or even monthly planning. Better yet, currency transfer specialists nearly always offer significant savings over the marketplace default solution (banks).
Back to VATs for a moment: be sure to pay your VAT before you repatriate your funds. Otherwise, you’ll pay associated charges converting the funds both out and then back into the foreign currency.
Just because you are selling the same product overseas does not mean you should price it in the same way. If you aren’t familiar with competitor pricing or buying personalities in a foreign market, consider enlisting a consultant who is. In many cases, product scarcity in an international market allows e-commerce sellers to price their products at a premium.
Even if you decide to keep the base product pricing the same, the added cost of VATs and transfer fees will impact your bottom line, so be sure to factor this in when determining your pricing strategy.
Preparation and Partnerships
VATs, currency exposure, and pricing strategy can chip away at your bottom line, so strategic planning is critical. We encourage you to enlist experts to help with these challenges as you grow your business internationally. While this assistance may cost a little more upfront, a reliable partnership can make the difference between success and failure in the international marketplace.
Blog post by Mike Ward, CRO, WorldFirst