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Financial Solutions
05 Sep 2018

Online to new markets?

Despite the mixed financial performance of high street stores, e-commerce continues to expand with many companies looking to increase their presence in European markets and beyond. Some will succeed better than others, but what factors come into play when expanding into new markets?

In the last decade or so the way we all buy goods and services has been transformed. The retail landscape has changed beyond recognition with the new reality bringing both opportunities and challenges to retailers. For online retailers – whose marketplace, theoretically, is unlimited – strategic expansion into new markets is often seen as the key to growth and profitability. But while the internet may be effectively ubiquitous, localized market considerations often present challenges to do business effectively.

Let’s take it from the consumers’ perspective first; here, product availability, price, delivery and payment options are the obvious variables that potential buyers consider. Added to that are other factors that differentiate online retailers; how easy and transparent the buying process is, the functionality of the website, and availability of support. From the merchant’s perspective though, the scene is significantly more complex. Even within a relatively harmonized environment as the European Union, sales tax, payment preferences and legal requirements vary from country to country. Beyond this there is the need to handle the specific risk, data management and fraud parameters within each specific market. Of these elements, perhaps fraud is one of the most demanding to handle across multiple markets. Each market will have its own trends and challenges relating to fraudulent activity that have evolved well beyond establishing the credit worthiness of the potential buyer. Fortunately, today, risk management can also counter developing threats such as identity theft.

Main drivers

But what are the main criteria businesses use when planning entry into new markets? At Arvato Financial Solutions, we commissioned research with 200 major e-commerce merchants with responsibility for European retail.

The research showed that 29% of those questioned named growth potential as the key motivation, with “following the company strategy” as the second most common reply, cited by 22% of those questioned. Establishing/expanding online presence to support physical store expansion, and analysis of market/consumer needs were cited by 18% of respondents.

On the other side of the coin, what holds companies back from expansion initiatives? The two main reasons given in our survey were uncertainty over market demand, followed by lack of in-house knowledge of the potential market. An often under-appreciated example of the importance of local knowledge is payment preferences related to each specific market. In some European markets we have identified trends towards increased pre-financing, whereas in others, demand for flexible repayment terms is on the rise.

Partnering solution

Once a decision has been made to enter a new market, the good news is that online merchants don’t need to hold back because of the complexities of payment regulations, consumer preferences and fraud risks.

As a provider of platforms that can handle the entire order to cash process, optimized for buyer conversion across multiple markets, we have the experience and tools to support expansion, so our clients can focus on their core business. For more insights into payment localization and business growth in Europe, download our report here.

 

 

 

Jan Florian Richard

Director BPO Finance | Arvato Financial Solutions

 

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