Retailers considering whether to enter a new market via cross border with third-party logistics partners or with an in-country presence should consider factors like their cost of capital and inventory carrying policy, as well as what existing assets can be leveraged in that country, two experts told Multichannel Merchant.
“There has to be a compelling reason to launch in country in a market that has lots of available resources,” said Bill Spaide, a partner at operations and fulfillment consultancy Spaide, Kuipers & Co. “It’s much easier to start cross-border, shipping from the U.S. You could start out with things like a localized website and currency conversion capabilities.”
“It depends on where it’s cheaper to house and store inventory,” said Michael Lamia, vice president of global network operations and ecommerce for Pitney Bowes. “Inventory on hand is a cash killer. In many cases retailers should do what they can to reduce it, and to move it as close as possible to the consumer to shorten lead times and reduce costs.”
The complexity around clearing shipments through customs is another important factor to consider, Lamia said. “Some goods aren’t allowed into certain countries, and others are easier to clear in some countries than others,” he said. “That plays into the equation. Sometimes you need to have an import license for shipments to be approved.”
Sometimes two shipments of the same product into the same country can be handled differently, Lamia added. “One shipment can go through fine, while the next time an agent can decide to inspect it, based on an incorrect interpretation of health regulations,” he said. “In those cases we work with a local broker and after a discussion, the product is released. That kind of thing happens frequently.”
Countries can also change their import regulations without much notice, Lamia said, as was the case in January when Russia began requiring buyers to show passports or passport IDs on all imported parcels – just ahead of the Winter Olympics in Sochi. Previously this requirement was limited to purchase over 200 Euros.
And in April, Lamia said, Russia suddenly began enforcing a longstanding regulation that limited monthly imports per consignee to 1,000 Euros or 31 kg. Until then the regulation had been loosely enforced, he said, as Russian customs authorities didn’t have a process in place to monitor the thresholds accurately.
“We were fortunate that in both cases our Russian partner was not impacted by this and had solutions already in place to address them,” Lamia said. “But certain countries are very unpredictable in terms of changes to their customs regulations.”
For a retailer that’s launching cross border into a new market today, Spaide said they typically should continue under that operating model for at least three or four years before they get to a scale that warrants the type of investment and risk of transition to something in country.
He also said retailers should look beyond the usual types of requirements and checklists when seeking out a global or local 3PL in a new market, to determine if they’re the best fit.
“When you’re dealing with a 3PL, the fit is more than just the statement of work or the RFP, because you’re building a three-to-five-year relationship in the region,” Spaide said. “People might say fulfillment and customer care are tactical, but when you’re in a region with a direct-to-consumer business, that partnership is strategic because they’re delivering your customer experience. The fit has to be right for both the retailer and the end customer.”
He said it’s also important to make sure a 3PL has experience in a particular country or region, and not just a presence there.
“We worked with a large online retailer with partners all over world, and they wanted to go into China, so thought it would be easy to leverage their partner in China,” Spaide said. “But when we got there, we found out the partner was new to China and didn’t really understand the market – they just had relationships with Alibaba and related delivery services. So the lesson learned is, when you’re leveraging a 3PL in one region, know what the next one is going to be and make sure they’re established there as well.”