Considering the benefits and challenges of cross-border EC

EC Column

Introduction

Hello. My name is Saito, and I am a consultant.
Cross-border e-commercerefers to selling goods in other countries or buying goods from other countries beyond one's own borders. The cross-border e-commercemarket continues to grow rapidly, and according to a study by the Ministry of Economy, Trade and Industry, its size is projected to grow to US$4.82 trillion by 2026.
Consider how you can take advantage of the cross-border e-commerceby understanding the challenges and taking effective countermeasures, while reaping its potential and benefits.

Advantages of cross-border EC

One of the greatest benefits that cross-border EC brings is "market expansion. This is especially important for Japanese companies, which face the problem of a shrinking population and the resulting market contraction.

Japan's population is declining year by year due to the absolute fact that the birthrate is declining and the population is aging. According to the Ministry of Health, Labor and Welfare's Vital Statistics, the number of births in Japan will finally fall below 800,000 in 2022, a record low, and the total population of Japan will decrease by 556,000 (-0.44%) from the previous year, marking the 12th consecutive year of decline. This trend is expected to continue, and it is not hard to imagine that the declining birthrate and aging population could have far-reaching effects on the Japanese economy as a whole and become a barrier to sustainable economic growth.

However, cross-border E-commerce allows you to offer your products and services to customers around the world without being restricted to the domestic market. This means a significant expansion of where products can be sold. This market expansion leads not only to higher sales volumes but also to new business opportunities and perspectives. This is because feedback from customers around the world can provide insights that lead to new product development, improvements, or modifications to marketing strategies. In short, cross-border E-commerce is a powerful way for Japanese companies, faced with a declining population and declining market, to expand their markets and increase their business potential.

Cross-border E-commerce also puts brands on the international stage and serves to amplify their visibility and credibility. When a company sells its products globally and enables purchases from diverse geographies, it provides strong proof that its products are accepted by consumers worldwide. This allows a company to give its customers the impression that its brand has a global reputation. And this will have the effect of symbolizing the reliability and quality of the brand and creating a sense of trust for new customers.

Challenges in starting cross-border EC

However, there are several challenges associated with cross-border EC.

First of all, sending goods across borders involves shipping costs, taxes, duties, and delivery times. These can increase costs and cause delivery delays.

In addition, cross-border E-commerce requires compliance with different laws and regulations in each country where the products are sold. This includes tax laws, consumer protection laws, data protection laws, etc., all of which can be very costly and time-consuming to understand.

Finally, there is the understanding of language and cultural differences. However, with the dizzying development of AI (artificial intelligence) in recent years, the communication barrier due to language differences is lower than before. On the other hand, understanding cultural differences affects every aspect of business, from the selection and pricing of products to be sold, to marketing strategies, selection of promotion methods, and how to communicate with customers, and is considered an important factor for success in cross-border EC.

What to look for when considering cross-border EC

When considering the development of cross-border EC, there are two aspects to focus on: expansion into frontier markets and the use of AI (artificial intelligence). Expansion into frontier markets and the use of AI can be factors that will greatly influence the future for companies that are considering cross-border EC in the future.

  1. Frontier Markets
    Frontier Markets are even smaller than Emerging Markets and are countries or regions that are just beginning to develop economically. These regions are experiencing rapid population growth and, as a result, rapid consumer market expansion. In addition, while the Internet and e-commerceare not as widely available today, rapid digitization, especially with the Internet and smartphones, is increasing the likelihood that consumers in these regions will take advantage of online shopping, which has the potential to become a large market in the future The market for online shopping is growing rapidly, but it is also rapidly becoming a digital market. Entering these markets requires understanding and adapting to cultural differences, region-specific business practices, and regulations. However, if you can overcome these challenges and enter the market quickly, you will be well positioned to take advantage of significant business opportunities.
  2. Use of AI
    On the other hand, the use of AI is a key element for the further development of cross-border e-commerce. AI can be used in various areas of e-commerceoperations, such as product recommendations, pricing, inventory management, and flow detection, contributing significantly to its efficiency and optimization. Of particular note will be overcoming language barriers, customer service, and rich data analysis.
    Advances in automatic translation and natural language processing through AI will overcome language barriers and enable products to be deployed globally. In addition, AI chatbots will enable cost savings, as well as provide customer service that is available 24 hours a day, 7 days a week, 365 days a year, at any hour of the day. And it can also leverage AI to deeply analyze large amounts of data from the e-commercesite; AI can analyze consumer buying patterns, behavioral trends, search history, etc., and provide personalized product recommendations and promotions to individual consumers based on that analysis. This can deeply contribute to increased customer satisfaction and sales.

Summary

Cross-border E-commerce offers many benefits, but at the same time faces challenges such as logistics, compliance with laws and regulations, and language and cultural differences. However, with the development of digital infrastructure, the growth of emerging markets, and advances in AI, the possibilities are ever-expanding. For the future development of cross-border EC, it will be necessary to understand these advantages and disadvantages and develop appropriate strategies.

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