Opinion

Traditional exports are at risk. Is cross-border e-commerce a remedy?

e-commerce

Cross-border e-commerce has seen a boom during the Covid-19 pandemic. Governments need to capitalise on this to support the post-pandemic economic recovery.

In the movie Skyfall (2012), James Bond is not convinced by his new Quartermaster’s (Q) expertise in innovatory solutions. But Q’s witty answer ended up being an overture to their friendship and a new chapter in the use of technical innovations by Agent 007.

James Bond: “And youth is no guarantee of innovation.”
Q: “Well, I’ll hazard I can do more damage on my laptop sitting in my pajamas before my first cup of Earl Grey than you can do in a year in the field.”

Innovation in international trade

The e-commerce market has exponentially grown due to Covid-19. Online shopping has become the latest trend as we all spend more time at home and avoid public spaces due to health concerns. Central and Eastern Europe (CEE) is no exception.

During the pandemic, Google gathered location-based mobility data that tracks the places people are visiting. According to this data, as of October 16, 2020, people in CEE spent on average 16 per cent less time in retail and recreation venues (such as shopping centres, restaurants), compared to the baseline (median value for corresponding day of the week during the five-week period from January 3 to February 6, 2020).

This shift creates an opportunity for our region.

More and more countries are closing their borders, and brick-and-mortar stores are no longer operating or people are avoiding them due to overcrowding and long queues. This leaves cross-border e-commerce as the only method for foreign companies to sell their products internationally.

How has cross-border e-commerce shifted?

Cross-border e-commerce is the online selling of goods to consumers in different countries. As more and more activities are going online, from reading the news to managing a bank account, so is international trade.

According to Eurostat, six per cent of enterprises employing at least 10 people in the European Union in 2011 reported e-commerce sales to other EU countries. This figure rose to nine per cent in 2019.

The biggest market for cross-border e-commerce within CEE is Czechia. In 2019, 16 per cent of enterprises employing at least 10 people reported sales to other EU countries.

Slovenia and Romania experienced the biggest change in this figure between 2011 and 2019: the share of enterprises trading online with other European countries increased by seven and five percentage points, respectively. We can attribute this to the fact that smaller economies pursuing economic growth consider both domestic and foreign markets at an early stage.

People are more and more convinced by the comfort of purchasing online, recognising a greater choice of products and price ranges coming from distant countries. According to eMarketer, online shopping channels in CEE are expected to grow by 21.5% in 2020, the highest increase around the world.

Governments now need to capitalise on the acceleration created by Covid-19.

What should governments do?

Presented with this opportunity, the public sector and governments have a crucial role to play. To take advantage of the situation, governments need to focus on three things: market analysis, development of digital export strategy, and implementation of support instruments.

First, governments need to analyse the ‘as-is’ situation of digital exports (both supply and demand sides) in their country to understand the market potential. Analysing supply would determine how many companies are currently using online channels to propagate their products internationally, what sectors are the most likely to trade internationally through online channels, or what would encourage others to enter the digital export market.

Analysing demand, on the other hand, helps public bodies understand consumer behaviour and the main obstacles they face while making purchases online.

A thorough market analysis requires good quality data. This can be gathered from statistical offices, financial institutions, or the logistics sector, for example. Eurostat has credible data on digital export, financial institutions process online payments and companies from the logistics sector ship goods to buyers. But it’s important that quantifying data on cross-border e-commerce doesn’t just look at country specific information. Knowledge of foreign markets is important for knowing the competition.

Secondly, after identifying market potential and specifics, governments should develop their digital export strategy. The strategy should provide answers to questions such as:

● Which digital export channels – B2B or B2C – require the biggest support?
● What sectors of the economy should we focus on, while implementing support instruments?

Often it is not the lack of money which is the biggest challenge while developing an effective market strategy, but raising awareness of the programmes available for entrepreneurs.

It is also important that the strategy is tailor-made, taking into account different perspectives – some sectors need effective promotion tools, while others need education on how to enter the digital export market with their goods.

The third step is to implement support instruments based on the strategy developed. Analysis of the market should provide governments with answers on how to encourage companies and consumers to trade online.

If the problem is low digital literacy, for example, then an educational platform for businesses should be implemented, such as the Spanish eMarketServices. If companies are pointing out the lack of the possibility to promote their products on foreign markets, then an online marketplace should come to aid, such as the Chilean B2B platform.

Governments will still face challenges

Of course, the process is not that simple. Governments will face many risks and challenges while developing their digital export strategy.

First of all, there is a lack of data on cross-border e-commerce. The phenomenon is harder to grasp than traditional export of goods due to constraints in reporting about online shopping.

Currently, most of the data is gathered by conducting surveys among companies and consumers (such as by Eurostat) – but there is not one designated source available for governments to rely on. One possible solution would be to oblige companies selling online to report digital purchases made by customers.

Additionally, one strategy does not fit all. While developing a plan for supporting digital export, public bodies need to take into account the different nature and specifics of various sectors of the economy.

Looking at a clothing company, for example, requires different support measures than businesses selling industrial machines. The former is rather well grounded in a digital environment so a marketplace for companies to sell their products more easily would enhance sales. But this is not the case for the latter.

For businesses selling industrial machines, educational platforms could help to provide knowledge on leveraging digital channels to export their goods.

And last, but not least, digital literacy must be enhanced. To build effective cross-border e-commerce strategy, public entities need to be equipped with knowledge of the digital channel. As the phenomenon is quite new, some public sectors might lack the competency and skills. Therefore, the first step should be to assess the digital readiness of public entities to ensure the best outcome.

What does this look like in practice?

While developing digital export strategy and implementing support instruments for companies to enhance cross-border e-commerce, CEE countries have good examples to follow.

Two examples of best practice come from Spain and Chile.

In Spain, eMarketServices is a digital export support programme which aims at facilitating Spanish companies, especially SMEs, to start and/or develop international e-commerce activities and the sales of their products and services through internet channels.

It is an informational and educational platform and a knowledge base on e-commerce markets of various industries and sectors around the world. The eMarketServices programme offers training courses and webinars in the field of digital export, export readiness test for companies, information and advisory services on foreign markets, access to database of companies offering support in the development of international export activities among others.

Chile B2B meanwhile is a marketplace aimed at promoting Chilean products and services on the internet to be exported. It facilitates cooperation between Chilean sellers and foreign buyers, using tools such as products and services browsers across 15 categories. It enables users to add company profiles and products on sales, negotiate online, and contact through individual and group chat. This online portal has been appreciated by many businesses as an opportunity to invest or trade with Chilean companies and might be a guideline for governments on how to support digital trade.

Public sector priorities

The examples from Spain and Chile provide insights for governments in CEE on what support instruments could look like. While diagnosing the needs of SMEs in the area of cross-border e-commerce, the public sector should be able to prioritise what type of instruments are in higher demand, such as complex education platforms on how to enter online selling channels or more of a marketplace to promote products internationally. And some countries might need both.

The Spanish eMarketServices platform is more comprehensive and horizontal in terms of areas covered and companies it is directed to, it aims to show companies how to export online. Chilean B2B marketplace, on the other hand, is deeper, vertical and focused on one area: it provides companies with a tool to start doing it.

Businesses that traditionally compete on foreign markets have to adapt to the new normal and try to find new ways to export their goods and services. This is where cross-border e-commerce could help, but it must be supported by governments. There are benefits for both companies and individuals. An effective digital export strategy could help companies to boost their online sales and find new channels for continuing business activity in these difficult times, while customers might benefit from a wider choice of products offered. Cross-border e-commerce might play a crucial role in post-pandemic economic recovery in terms of international trade.

Could companies transform export methods from a traditional-oriented into a more digital process?

To remain competitive, instead of staying idle during the ongoing IT revolution, it is rather a “must” for them. And the sooner governments adapt to these changes by introducing new support mechanisms, the better outcome it may have on the economy at large.

Going back to where we began this article, although at first James Bond did not quite believe in Q’s prophetic words about the power of technology, in the end he saw with his own eyes the benefits of innovations and global network of connections.

And as it was he who said “The world is not enough”, maybe he was actually thinking about exports the whole time?

Julia Otwinowska, an advisory consultant at PwC Poland, contributed to this article.

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About the author

Paweł Oleszczuk

Paweł Oleszczuk

Paweł Oleszczuk is an advisory manager at PwC Poland.

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