The four biggest challenges of conducting business across the border.

Cross-border trade is one of the biggest trade opportunities today and as a country that is rapidly increasing its manufacturing base, India envisions becoming an exporter of choice. In January 2021, India’s merchandise exports were $27.24 billion - a 5.37% increase from $25.85 billion in January 2020. This number increased to $37.29 billion by the end of the year - the highest ever in the history of India. Outbound shipments during April to December 2021 crossed $300 billion, exceeding the exports of 2020-2021. 

With more businesses jumping on the cross-border trade bandwagon, it is important to observe the biggest challenges while conducting business across the border. 

This article highlights 3 Key challenges of cross border trade and how your business can overcome them. An additional 4th challenge which is most often overlooked by businesses and most often results in the huge monetary losses. 

1. Managing logistics and shipping

Ensuring timely and efficient delivery becomes crucial when you set up a business across international waters. While accepting orders, it is important to maintain transparency with the customer and let them know of any additional international shipping and handling costs. But the purchase cycle doesn’t just end at maintaining transparency. It is important to maintain your business’s professional image. This means your products need to be properly and consistently packaged to facilitate repeat purchases. In order to do so, you need a sound shipping and logistics partner in each country to ensure timely delivery. 

Returns also form a big part of shipping and logistics. If a product does not meet customer expectations, they might want to return it. A business needs to be prepared to handle returns in such a situation. Supply chain optimization solutions are impertinent to the success of a business. Ideally, you might want to opt for a logistics partner with a wide network and enough capacity to handle a large number of orders. Also consider partnering with multiple logistical partners as it will allow a broader reach and improve cost efficiency. 

2. Marketing to suit local taste

For an organization to thrive internationally, it is important to understand the local culture, the local norms and beliefs and local festivals of the region of business. Businesses might miss out on important sale opportunities because of a lack of knowledge of local culture. For instance, a business planning on Valentine’s Day promotions in Asia might benefit from knowing that at least 15 Asian countries celebrate Lunar New Year around the same time. It is ideal to hire talent that has a sound understanding of marketing and sales opportunities in specific regions. Knowing the local culture allows your business to tap into otherwise unknown sales opportunities and establish trust with the customer at the right time.

3. Setting up a payment’s ecosystem

One of the biggest challenges while conducting cross border transactions is setting up a payment system. It is important for businesses to understand that they must set up a payments ecosystem that is suitable for the country in which they are conducting business. An enterprise’s ability to offer a seamless and smooth payment experience could make or break the business. This is true, especially for high growth markets that need several alternative payment methods other than the usual cash or credit card. 

A business needs to set up infrastructure that can accommodate prepaid cards, mobile wallets, bank transfers, cash coupons etc. For instance, Singapore consumers tend to use a NETS ID to make payments using a QR code - both online and offline. On the other hand, customers in Poland prefer real-time bank transfers called pay-by-links. Very often, businesses might lose customers if they cannot deliver a frictionless payments experience. Interoperable platforms that allow customers to shop as per their local currency, offer transparency in shipping, and custom duty charges will lead to fewer abandoned carts. 

4. Dealing with cross-border tax compliance

Very often, businesses tend to disregard cross border compliance as a critical challenge. However, penalties arising out of compliance violations can cut into a considerable chunk of profits. The process of sending goods overseas can be challenging as each country will have its own tariffs and taxes on goods. Cross border compliance laws can differ between regions, countries, states, cities, even jurisdictions. Each tax and compliance jurisdiction might have different tax rates, different deadlines, different tax rules. Additionally, cross border compliance laws are not only complicated, they are also very dynamic and can change from time to time.

For a business to succeed in any region, it is important to comply with all the prescribed compliance laws of that region. A dedicated compliance team can help keep track of changing compliance laws. However, keeping track of differing taxation systems (some countries might operate on VAT, some on GST), different tax rates, amounts, timelines, etc. across several countries can be very challenging. It is recommended that organizations opt for tax technology solutions that will help ease the compliance process. Cross border taxation software allows businesses to meet compliance requirements across different tax jurisdictions and heavily reduces the scope of tax violations with compliance automation. It also notifies businesses of tax holidays thereby allowing them to optimize their compliance operations. Avalara offers cross border compliance solutions that can help your business grow internationally. Know more about Avalara’s cross border taxation solutions

Offering a friction-free purchase and delivery experience is crucial for any organization looking to set up internationally. To grow across borders, it is important to understand that the customer is directly related to a business’s degree of success and their establishment in an international market. However, collaborating with local partners and adhering to compliance requirements form the foundation of a well-established cross border trade system. 

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