What is cross border e commerce, the current market size (globally and by major market), and what are the consumer behaviors and drivers for

FACULTY OF BUSINESS ADMINISTRATION GROUP 12’S MID-TERM ASSIGNMENT REPORT Topic What is Cross-Border E-Commerce, the current market size globally and by major market, and what are th

FACULTY OF BUSINESS ADMINISTRATION

GROUP 12’S MID-TERM ASSIGNMENT REPORT

Topic

What is Cross-Border E-Commerce, the current

market size (globally and by major market), and what are the consumer behaviors and drivers for this channel, and which areas provide the greatest potential in the next 2-3 years?

Instructor: PhD Jeffrey Williamson

IV CONSUMER BEHAVIORS AND DRIVERS FOR THE CHANNEL 7

1 CONSUMER BEHAVIORS LH SH TH TH HH HH H1 ng ru 7

1 Introduction

Nowadays, the population growth in the middle classes of populous countries like China, India, and Brazil offers an opportunity for Cross-border e-commerce (CBEC) to grow CBEC has changed the way businesses and international trade work, by giving customers a more accessible channel to online shopping and services across the globe, not just in their own countries The boom of online shopping, with the support of logistics, technology development, and online payment led to the growth of CBEC As a result, to capitalize on this new dynamic change, companies need to understand the current market landscape and consumer behavior This essay will provide an overview of CBEC, discover the driver of this dynamic change, and examine countries with the most significant development opportunities

II Definition of Cross-Border E-commerce

CBEC is defined as an online marketplace between customers and businesses in different countries, allowing international trade without physical stores (Lopez et al., 2022) In 2023, the CBEC market reached $1220.5 billion in value, with the Asia-Pacific region taking up the most with about 45%, followed by North America and Europe (Statista, 2023) In this online marketplace, sellers compete in price, product availability, and consumer satisfaction to attract customers The development of CBEC is driven by the advancement of technology, effective logistics practices, and the ever-growing demand of customers for products and services (Kumar

& Singh, 2023) It is predicted that areas where the number of internet and smartphone users is

increasing, such as Turkey, Brazil, India, and South African countries are the most potential

markets for businesses to tap into to widen their consumer base

1 Global market

The global cross-border e-commerce (CBEC) market has seen exponential growth in recent years, fueled by advancements in internet accessibility, logistics infrastructure, and

increased consumer trust in international sellers

© Others 28%

@ China 37%

e France 4%

@ United Kingdom 8%

In 2023, the CBEC market was valued at approximately US$1,220.5 billion and is projected to surge to over US$8,071.1 billion by 2032 This robust expansion, at a compound annual growth rate (CAGR) of 23.36% between 2024 and 2032, underscores the increasing importance of cross-border transactions in the global economy (IMARC Group, 2023) The digital landscape, coupled with the globalization of commerce, has made it easier for consumers

to purchase goods from foreign markets, further driving demand

The Asia-Pacific (APAC) region plays a dominant role in the global CBEC market, with China leading the charge In 2023, China's cross-border e-commerce transactions accounted for nearly 40% of global activity, with its import and export volume reaching RMB 2.38 trillion

(US$331 billion), reflecting a 15.6% year-on-year growth (Statista, 2024; China Briefing, 2023) Major platforms such as AliExpress, JD Worldwide, and Tmall Global have been instrumental in

this rise Beyond China, other APAC countries like Japan, South Korea, and Southeast Asian

nations, including Indonesia, Thailand, and Vietnam, are experiencing rapid growth This is driven by increased internet penetration, a burgeoning middle class, and rising demand for

luxury goods, cosmetics, and electronics

In Europe, the cross-border e-commerce market stands as the second-largest globally,

with key players like Germany, the UK, France, and the Netherlands driving growth The

European market achieved a significant turnover of 237 billion euros in 2023, a 32% increase

from the previous year Consumer demand for fashion, luxury items, electronics, and health

products continue to fuel growth, with German retailers leading the market, boasting 43 billion euros in cross-border sales (Ecommerce Europe, 2023) This strong demand for international products ensures that Europe remains a critical player in the global CBEC landscape

2 Major market

Marketplaces play a central role in driving cross-border eCommerce, especially in the B2C segment, which has experienced significant growth recently Modern e-commerce marketplaces cover a wide range of products, frequently generating large cross-border merchandise volume (GMV), mainly in the categories of apparel, electronics, and personal care

(Davis, 2023).

MERCHANDISE VOLUME (GM\V), 2023

In billion US$

Shopee EE 57.6

cSay NNN 40.9

MercadoLibre ios] 20.1

o N52

Walmart fis) 11.9

Zalando s4

ECDB

Of the top e-commerce companies in the world, five are headquartered in the United States, three in China, one in India, and one in the Netherlands (Cross-Border Online Shopping

Statistics, 2024)

Amazon, the world's largest marketplace in terms of total GMV, also led the way in cross-border GMV with a staggering $360.4 billion in 2023 24% of global shoppers’ most recent cross-border purchases were made on Amazon (Cross-Border Online Shopping Statistics, 2024) Almost half (49.4%) of its total GMV came from cross-border e-commerce activity, with Japan and the UK being the top contributors, accounting for 9% and 8% respectively The remaining half of its GMV was generated in the United States, its primary market (Fatima, 2024)

In a distant second place was Shopee, with a cross-border GMV of $57.6 billion However, Shopee's cross-border share was significantly higher than Amazon's, with a remarkable 73% of its GMV generated outside of its main market in Indonesia As the eighth- largest marketplace globally, Shopee's leading international markets, including China (17%), Vietnam (15%), and Thailand (10%), contributed significantly to its total GMV (Fatima, 2024)

Shopee's growth highlights the overall strength of e-commerce in Southeast Asia, which saw a

15% increase in GMV in 2023 to over $114 billion (Nguyen, 2024)

Three Chinese-owned marketplaces, AliExpress, Taobao, and Tmall, ranked in the top

ten However, these platforms exhibited divergent cross-border focuses AliExpress stood out, generating an impressive 88% of its GMV abroad In contrast, Taobao and Tmall had modest

cross-border GMV shares, at 3.7% and 2.5%, respectively, with a strong focus on their primary

market in China, where they derived the majority of their GMVs (Fatima, 2024)

IV Consumer behaviors and drivers for the channel

1 Consumer behaviors

From the B2C side, the consumer is often drawn to the services of CBEC because of the

large variety of products it can offer along with the backing of international brands It often gives both quality and lower price offers that cannot be found in the country normally Due to the modern convenience of a world that is becoming more heavily reliant on the internet, it is also becoming easier to use such services

The experience of CBEC in itself is browsing through foreign markets through the internet, ordering the product with ease of upfront payment immediately, then through whatever means of transportation (that either being mail or through the services of a dedicated company that offers such services) the product will arrive into the customers country where it will go through customs and eventually be placed into the care of the buyer

The more the customer does this form of shopping the more they begin to understand the complex system that works to provide him with what he orders Through experience in foreign markets, they come to find it easier to understand how to purchase the product correctly and find

the correct logistics for safe and quick transportation This helps the consumer to be more at ease with CBEC as they would find the risks more bearable

One major starting point when browsing foreign markets is the understanding of the language Often when browsing foreign markets if you cannot understand what the services are even saying it can be quite daunting for the buyer as they have no understanding of its quality or how to logistically and legally have the product enter the country Due to this, having language skills is majorly useful in CBEC

Then there are the major risks that come with CBEC which can affect the purchase attitude These are risks that can harm the consumer if precautions are not taken The 6 major risks of this are financial risk, functional risk, time risk, physical risk, privacy risk, and psychological risk

2 Drivers for the channel

CBEC has been rapidly expanding due to several key drivers that have reshaped global trade dynamics The most significant factor is advancements in technology The proliferation of internet access, smartphones, and digital payment solutions has made it easier for consumers and businesses alike to engage in international trade For example, Visa can handle transactions in 25

different currencies, offers fraud protection for consumers, and enables merchants to attract a

broader audience without integrating multiple regional payment solutions In 2020, Cross-border e-commerce accounted for $2.7 trillion, and payment platforms like PayPal have been pivotal in enabling this In 2021, PayPal reported roughly $1.25 trillion of its total payment volume processed, with a substantial portion coming from cross-border transactions (PayPal Newsroom, 2022) Moreover, technological innovations, including platforms like Alibaba, Amazon, Temu,

and eBay, enable seamless transactions between buyers and sellers from different countries, bypassing traditional retail barriers and third parties These platforms would attract users through competitive prices and wide availability of goods products, thus boosting the development of e- commerce

Streamlined Logistics and shipping also contributed to the growth of CBEC

Improvements in global supply chains, shipping networks, and fulfillment services have made it quicker and more cost-effective to transport goods internationally Companies like DHL, FedEx, and UPS have enhanced their services, offering international delivery options that meet the expectations of today’s e-commerce consumers Platforms like Alibaba (with its Cainiao logistics network) and Amazon (with its Fulfillment by Amazon or FBA service) provide sellers with effective supply chains along with warehousing, fulfillment, and even last-mile delivery Many of these platforms also offer international shipping at reasonable rates and transit times, which encourage international sales

Favorable government policies and trade agreements are crucial drivers of CBEC, as they reduce trade barriers, and incentivize businesses to engage in international trade For instance, China has established cross-border e-commerce zones and streamlined logistics as part of initiatives such as the Belt and Road Initiative (BRI) and the Regional Comprehensive Economic Partnership (RCEP) This aims to promote trade by simplifying capital flow and currency transactions (McKinsey, 2019) India has announced free trade agreements (FTAs) that adopted policies such as the Refund of Duties and Taxes on Exported Products (RoDTEP) scheme to promote easier access to global markets (Amazon, 2023) In North America, the US-Mexico- Canada Agreement (USMCA) updated trade rules to support digital trade and e-commerce by streamlining customs procedures for low-value shipments and enhancing customs

information-sharing systems (U.S Trade, 2023) by lowering operational costs and logistical complexities for

businesses

V, Areas that have the biggest potential for growth in the next 2-3 years (loc)

Retail e-commerce sales compound annual growth rate (CAGR) from 2024 to 2029, by country

11.58%

11.56%

11.45%

11.26%

10.95%

10.55%

Source: Statista

The above chart highlights that emerging markets are expected to exhibit the highest growth rates in retail e-commerce from 2024 to 2029 Turkey leads with an estimated sales compound annual growth rate of 11.58%, followed closely by Brazil (11.56%) and India (11.45%) These regions are projected to rise in consumer demand for cross-border e-commerce due to the growing middle class, increasing smartphone penetration, and expanding access to the

internet

The strong growth in Brazil can be attributed to the rising popularity of online shopping among its tech-savvy population Similarly, India's growing consumer base, driven by increasing

10

e-commerce Mexico (compound annual growth rate of 11.26%), Russia (10.95%), and Argentina (10.55%) are also notable regions with significant growth potential South Africa also stands out, with an expected e-commerce sales compound annual growth rate of 10.42%

Retail e-commerce revenue worldwide from 2019 to 2029, by segment

(in trillion U.S dollars)

@ Food @ Fashion DIY & Hardware Store

@ Media @ Furniture @ Consumer Electronics

@ Beverages @ Beauty & Personal Care @ Household Appliances

@ Tobacco Products @ Household Essentials @ Toys & Hobby

Source: Statista

The above chart shows that by 2029, total retail e-commerce revenue is expected to reach

$6.49 trillion, driven by various product segments Among these, food and fashion stand out as the most significant contributors to e-commerce growth, with food seeing consistent growth through 2029 This trend indicates increasing consumer confidence in purchasing essential items like groceries and household products through online channels

The fashion segment is one of the major drivers of e-commerce, as consumers worldwide

continue to seek international brands and styles This demand is particularly strong in emerging

11