One of the greatest benefits of selling online is that it can bring a retailer to a whole new international audience. An online portal transcends physical borders and boundaries, opening up opportunities beyond the immediate, domestic market and encouraging expansion overseas into new countries and continents.
The statistics speak for themselves. Experts predict that globally, up to 50% of online consumers will purchase products across borders by 2020. In the US, the average online spend stands at over $1,000. In China, one of the most lucrative global markets, 10% of transactions occur online, and this is set to increase to 30% over the next few years. This is clearly fertile ground, with significant and, if utilised effectively, huge potential for online retailers.
Nevertheless, selling overseas is not always straightforward. Cross-border trade entails currency exchange, a process fraught with complexity and that can cause the unlucky (or careless) retailer to lose money if left unmanaged.
Here, Alex Edwards, a currency expert from UKForex, a firm specialising in international payments for online retailers, shares his advice for anyone looking to sell overseas.
1. Getting set up
Before deciding to sell overseas, it’s crucial to identify which markets are hungry for your product, and what competition you’ll face there.
With so many players in the U.S. market for ecommerce, it might be a good idea to investigate selling in mainland Europe, Asia, and even Australia, where there may be less competition. Many British sellers have been taking advantage of the international market, making over £1 billion in sales in continental Europe last year alone. India and China, meanwhile, are expected to have the fastest-growing markets as their economies continue to pick up speed.
When you’re trying to assess the viability of overseas expansion, look for populations that are underserved by your product offering, with low levels of competition and growing adoption of buying goods online.
2. Managing your cash flow
Managing your flow of income and revenue is critical to reinvesting capital, upgrading your service, and calculating your bottom line. To manage your money effectively, you need access to it at all times.
It’s important to be aware that some marketplaces can be inefficient when it comes to paying their sellers – and that the exchange rates they offer by default can be very costly to your business, when taking international payments.
If you’re ready to take control of your overseas revenue, look for a specialist payments provider that can plug into your online selling platform. With a specialist, you’ll have access to better exchange rates, as well as a variety of payment options to help you manage your exposure to currency risk. Most digital store fronts and online marketplaces simply don’t offer this kind of flexibility.
3. Choosing a payment provider
The key questions to consider when deciding on a specialist payment provider are: do they trade in the currencies and markets you need, and are they competitive on price?
The currencies you’ll need will depend on where you’re trading but will be likely to include American dollars, the pound and the euro. Since all of these currencies currently face numerous political dilemmas, such as Brexit and the US presidential election, they are subject to fluctuation in the coming months. Using a payment provider that can provide your business with an effective strategy to deal with these turbulent times is therefore crucial. Remember, there is nothing ‘normal’ about the current political and economic climate, and the effect this could have on currency.
Pricing models vary between firms, so shop around for the best deal. Beware of sign-up fees, monthly subscriptions and transaction fees however, since they will eat into your return.
4. Building a robust currency strategy
There are two tools that can help you protect your business from currency risk, and secure the best available exchange rates: forward contracts and limit orders.
Forward contracts provide security by locking in today’s exchange rate for a future date, so you know exactly what you’re going to get and can thus plan business around this. With the currency market in a constant state of flux, these contracts can help to manage risk and avoid the volatility that can make or break businesses.
Limit orders are an automated service that allow you to maximise your returns by setting a target exchange rate for your overseas funds. Once the target is reached, your exchange specialist will transfer the money as agreed – this way, you never miss out on your ideal rate when it arises.
5. How to deal with currency shocks
The majority of online sellers operating from the UK make international sales in US dollars. As a result, they could be exposed to significant currency risk around this year’s US election, the result of which is likely to heavily impact the dollar.
Keep track of the campaign as it enters its final days, as pre-election polls have also been known to affect currency, and make sure you consider how any surprises might impact your currency dealings. A robust currency strategy can prevent the dollar’s movements from having an adverse effect on your business, so it is well worth investing some time in getting this right.
Alex Edwards is head of the corporate desk at UKForex, where he manages the currency exposure of a number of online sellers.