Chapter 11: GOING ONLINE: E-EXPORTING TOOLS FOR SMALL BUSINESSES

In This Chapter

  • E-commerce defined
  • Your company’s readiness
  • Steps to going online

Global Web use is booming, and millions of new buyers are logging on each year. Electronic commerce, especially business-to-consumer (B2C) e-commerce, reflects this growth.

The Internet’s global reach is a cost-effective means for marketing products and services overseas. Companies that establish a corporate Web site publicizing their products and services are able to create an electronic mechanism for safe and secure electronic transactions, to track orders, to provide customer service interface, and to list products’ technical specifications. Small and medium-sized companies can broaden their market presence internationally by adopting e-commerce or electronic business practices that are user friendly for non-English-speaking users.

What is electronic commerce? It is buying and selling online through the Internet. The transaction is completed through an electronic network featuring computer systems—the vendor’s, a Web host’s, and the buyer’s—all of which are linked to the Internet.

USE OF ELECTRONIC COMMERCE FOR INTERNATIONAL BUSINESS AND TRADE

Using the Internet to transact business in the global marketplace offers significant advantages to the small or medium-sized company seeking new outlets for its products and services. More than 1 billion people throughout the world have access to the Internet. This presence offers a tremendous potential customer base for the entrepreneur. At the same time, business-to-business (B2B) e-commerce has also surged. Corporations in Africa, Asia, Europe, and Latin America are increasingly migrating many of their marketing programs online to seek new business in regions and countries that they had previously thought to be beyond their resources. They also seek new supply sources and services to meet their internal needs and partners to share manufacturing and marketing responsibilities. Some companies, such as GE, have migrated all their sourcing and bidding processes to the Internet.

For certain industries, products, and services, going online reduces variable costs associated with international marketing. Handling tasks such as order processing, payment, after-sales service, marketing (direct e-mail), and advertising online may lower the international market development costs that an enterprise would incur had it used conventional “brick-and-mortar” market penetration strategies. You should be aware of one important caveat: although English is spoken in many countries, it is still important to consider using the languages prevalent in the countries targeted in your company’s e-business strategy. Your Web site should be designed to reach the widest audience in the languages of that audience.

In the context of the Internet, electronic commerce needs to be viewed beyond the traditional commercial arena. E-commerce affects marketing, production, and consumption. Information gathered from customers through Internet stores can be used to customize products, to forecast demand, and to prepare business strategies. Consumers not only pay online for products and services but also search for information about products, negotiate with vendors, and reveal their preferences through their purchasing patterns.

E-commerce offers much promise to U.S. firms interested in using the Internet as another vehicle for exporting. However, you should be familiar with the steps necessary to make your firm’s Web site e-export capable. Many U.S. companies have a Web site that fulfills one or more marketing functions tailored to their business specialties. These sites feature at least one of the following characteristics:

  • Transactional site. A transactional site may be an electronic storefront for a brick-and-mortar retailer or a catalog business, or it may be a showroom for a manufacturer wishing to sell directly to the public. Transactional sites conduct full “end-to-end” transactions through the Web site, allowing customers to search for, order, and pay for products online, as well as allowing them to contact the company for after-sales service. The most sophisticated sites create efficiencies by integrating the transaction process with back-office systems such as accounting, inventory, service, and sales.
  • Information delivery site. This kind of site generates sales by promoting corporate awareness rather than facilitating online transactions. Its function is similar to a brochure that provides information about the product or service and gives contact information on how to proceed with a purchase. Because such a site is often static and doesn’t require the software systems necessary for online transactions, it is less expensive to design and maintain than a transactional site. An information delivery site is ideal for companies that market products and services that cannot be provided online or goods that cannot be sold online. A modified version of this kind of site permits the buyer to shop online for the best price from competing vendors providing the identical product—for example, authorized car manufacturers. Information on options available for a particular model allows the buyer to visualize the configuration and obtain an estimated price for the vehicle.
  • E-marketplaces. These sites are market-makers because they bring buyers and sellers together to facilitate transactions. Participation in a brokerage often provides an efficient way of finding a customer without the expense of building a proprietary transactional Web site. Types of brokerages include auctions, virtual malls, and matching services.

MARKET DEVELOPMENT ON THE WEB

As with brick-and-mortar enterprises, market development is an essential ingredient for all types of Web sites and must be an integral part of your firm’s e-business presence on the Internet. Your company should consider and evaluate the advantages of advertising online as an extension and a component of your corporate growth strategies. Advertising messages often appear on portals or on other Web sites that draw viewers with content (e.g., news and information) and services (e.g., e-mail, chat, and forums). You may seek to advertise on search engines that attract high traffic volume or to target a specialized demographic. Some portals sell favorable link positioning or advertising keyed to particular search terms in a user query. Companies may also consider using an advertising network that feeds ads to a network of sites, thereby enabling large marketing campaigns. These options are available in the United States and internationally in English or in other languages.

Direct e-mail is an inexpensive and efficient way to reach thousands of potential customers. Direct e-mail can be used to promote and enhance Web presence, depending on the market, product, or service. However, several countries have legislation affecting unsolicited commercial e-mail that direct marketers must be aware of. The Direct Marketing Association suggests that direct e-mail messages should have (a) an honest subject line; (b) no forged headers or technological deceptions; (c) the identity of the sender, which includes a physical address; and (d) a visible opt-out clause that is easy to use. Before using direct e-mail to promote Web presence, your company should be aware of the potential for backlash against unsolicited e-mails by consumers who feel overwhelmed by the number of such e-mails they receive. Companies should consult the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act of 2003 to ensure full compliance with the law (see Box 11.1).

TOOLS TO ASSESS YOUR FIRM’S READINESS TO GO ONLINE

Companies that have decided to have a Web presence must assess whether they have the most efficient information technology (IT) solutions to execute their online exporting programs and objectives. IT embodies a range of computer systems and software applications for managing a firm’s Web site. With more and more cyber attacks on government and corporate sites, your company should consider investing in security technologies to protect you and your customers from identify theft and denial of service.

An IT assessment should answer the following questions:

  • What is your firm’s current IT usage? Is it at capacity, and what are the plans for additional IT investment to upgrade existing systems?
  • What business applications are best suited to move online for B2B or B2C e-commerce?
  • Have you done a cost-benefit analysis of all possible projects involving IT?
  • Have you identified current and future security issues, and do you have an action plan for correcting problems?

Once the questions have been answered, the eScan Security Assessment tool produces a detailed report on how well an organization scores in all of those critical security areas. The tool recommends specific steps to correct uncovered security holes, thus enabling companies to build a more secure business model for future Internet strategies.

STEPS TO GOING ONLINE

You must lay the groundwork before your company can transact business on the Internet (see Box 11.2). Potential customers must know who you are and how to reach you. Then, if they want to buy what your company has to sell, you have to facilitate the exchange of money for your product.

Selecting a Domain Name

A key component to establishing a Web presence is choosing a uniform resource locator (URL) and a domain name. As with URLs aimed toward the domestic market, a URL for an online exporter’s Web site should be short, simple, descriptive, and memorable to customers in the target market. URL registration is concurrent with domain name registration. Every country (plus a few territories) has a reserved, two-letter country-code domain (e.g., the United Kingdom has the domain “.uk”). An online exporter may choose domain names localized for the target markets. Locally branded domain names may increase brand awareness and Web site address recall, and they may even influence brand sales and loyalty. In addition, most local search engines display only locally relevant content by filtering the search results to include only local country-code domains. If your company wants to have a local domain name, you must research the rules for the particular country, as registration requirements vary.

If your company is seeking foreign customers, you may also consider an internationalized or multilingual domain name. Such domain names are Web addresses written in characters other than the Roman alphabet. For example, a company called Bright Light Bulbs that wishes to sell in China could have a domain name that would use the Chinese characters for Bright Light Bulbs in its Web site address. Internationalized or multilingual domain names allow customers to search and access sites in their native language.

Registering at Search Engines

Most people use search engines to find information on the Internet, so Web site registration with multiple search engines is key to visibility. Search engines range from those that are global in scope to search tools that are focused on small areas of information. Online exporters should register with search engines that are popular with the target audience in their target markets.

Choosing a Web Host

A Web host is a company with a server that maintains the files of Web sites. A variety of free and subscription-based Web-hosting services are available, including those offered by many Internet service providers. Web-hosting services often go beyond Web site maintenance to include domain name registration, Web site design, and search engine registration. For some online exporters, it may be most feasible to use a Web host in their target market to take advantage of all the localized services the host offers. The location or nationality of the Web site host does not affect accessibility of the site; however, when choosing a host, your company should ensure that the host’s servers reside within a stable infrastructure and are maintained for optimal reliability.

Localizing and Internationalizing Web Site Content

Companies seeking foreign audiences with their Web sites will want to either localize or internationalize their sites. They may also provide a mixture of both processes. Localization consists of adapting one’s Web site to meet the linguistic, cultural, and commercial requirements of a targeted market. Internationalizing a Web site enables a company to be multilingual and sensitive to cultural conventions without the need for extensive redesign. Localization or internationalization must be part of the online exporter’s corporate strategy for Web site and business development. Among the features that your company should consider are the following:

  • Language
  • Cultural nuances, such as differences in color association and symbols
  • Payment preferences
  • Pricing in the appropriate currency
  • Currency converter
  • Metric measurements

Promoting Your Site

Setting up shop is no guarantee that customers will come flooding in. If you want a successful site, you can’t wait for people to stumble across it. There are a number of ways to promote your site without spending a lot of money:

  • Consider purchasing an ad for a nominal cost on BuyUSA.gov, a network of Web sites operated by the U.S. Commercial Service and targeted at foreign buyers.
  • Depending on the business you are in, send brief stories about your company and Web site to trade publications that serve the larger industry or business sector in the country market you are targeting.
  • Put your domain name on business cards, letterheads, envelopes, packaging, and promotional materials of all kinds.
  • Ask foreign visitors if they’d like to receive occasional “opt- in” ads, which are essentially e-mails promoting upcoming sales or new products. Encourage those visitors who consent to receiving the opt-in ads to e-mail them to a friend or relative. People who agree to receive opt-in ads tend to purchase up to seven times as frequently as other visitors.
  • Consider sending people who visited or registered on your Web site but didn’t buy anything a follow-up e-mail with a coupon for a discount on your products and services.

EXECUTING ORDERS AND PROVIDING AFTER-SALES SERVICE

Guidelines for order execution and after-sales service are similar for offline and online transactions. Therefore, companies planning to export through the Internet should be knowledgeable about the topics discussed in previous chapters. Companies engaging in e-commerce should also consider the following pertinent issues:

Payment Modes and Terms

Companies that use the Internet to reach overseas customers frequently use their Web site to process orders and accept payments. Payment practices vary from country to country. It is important that you identify and incorporate the prevalent payment mechanisms into the order-processing component of the Web site:

  • Credit cards. For B2C transactions, many overseas customers use credit cards for online purchases, but credit cards are not a universally common method of online payment. To offer credit card payment services, a company must establish a credit card merchant account with a bank. The bank will process the transactions in exchange for a fee. Companies should compare the fee structures of banks to determine which works best for the size and number of transactions expected. The transactions may be fast, but credit cards carry their own risks. Chargebacks can be very costly for online exporters. Common chargeback reasons are fraud, dispute over the quality of merchandise, non-receipt of merchandise, or incorrect amount charged to the card. If your company accepts online credit card transactions, you should be knowledgeable about the credit card issuer’s and your bank’s policies toward chargebacks and how to avoid them.
  • Account-to-account transfers. Account-to-account (A2A) transfers, in which money is transferred electronically between the customer’s and merchant’s banks, are popular in many countries. A2A transactions offer the advantages of occurring in real time and of reducing the potential for fraud and chargebacks. Unfortunately, because A2A transactions are rare in the United States, few U.S. banks offer this service.
  • Person-to-person transfers. Many companies offer person-to-person (P2P) transfers, in which funds are sent electronically to a third party, which in turn deposits the funds in the merchant’s account. An example of a P2P service provider that conducts cross-border transactions is PayPal. PayPal lets anyone with an e-mail address securely send and receive online payments using his or her credit card or bank account. PayPal will also conduct currency exchange, allowing the customer and merchant to operate in their preferred currency. Google Checkout offers similar service. Other P2P providers, such as Western Union’s BidPay, accept a credit card payment from the payer and send a money order to the payee.

Shipping and Pricing

The process of shipping and pricing goods purchased over the Internet is identical to the process for goods purchased by other means, except for digital products (e.g., music, videos, games, or software) that are downloaded from a Web site. See Chapter 12 for information about shipping and Chapter 13 for information about pricing, quotations, and terms.

Customer Service

As with offline exporters, online exporters must have an effective customer service program to build and maintain a customer base. Online business poses unique challenges and opportunities for customer service. Customer service should be integral to Web site design and overall business strategy. Online exporters should consider providing the following information and services:

  • A list of frequently asked questions (FAQs)
  • An online interface for customers to track orders
  • Clearly posted contact information (e.g., address, phone number, and e-mail)
  • Delivery of timely (e.g., four hours), personalized response s to customer inquiries
  • Customer testimonials
  • Contact information fields to collect foreign address contact information
  • Toll free phone numbers that include Canada
  • Information presented in languages other than English

Taxation

Taxation is as relevant to online merchants as to brick-and-mortar businesses. In general, for most overseas markets, a company must have a permanent establishment in a foreign country before that country can subject the company to its general tax jurisdiction. Thus, an American online vendor of digitally or physically delivered goods that does not have equipment or personnel in Japan would not be subject to Japanese taxation. However, there are important exceptions to this general rule. On July 1, 2003, the European Union (EU) member states began taxing sales of electronically supplied goods and services from non-EU firms to customers located in the European Union. Non-EU providers of electronic goods and services are now required to register with a tax authority in the member state of their choosing and to collect and remit value added tax (VAT) at the VAT rate of the member state where their customer is located. Although the EU countries have been the first to move toward a system of taxing electronic sales according to customer location (regardless of where the vendor is established), other countries may soon follow suit. Therefore, if your company exports online, you must know about the tax requirements of your target market. You can find more information about online taxation at the Web site for the Department of Commerce’s Office of Technology and Electronic Commerce at web.ita.doc.gov/ITI/itiHome.nsf/(hotNews)/HotNews.

OTHER IMPORTANT SALES CONSIDERATIONS

For an international Web site, there are a number of additional factors to consider, particularly as they relate to foreign legal and regulatory requirements.

Privacy

U.S. organizations that collect personally identifiable information online should display their privacy policies prominently and offer choices to their data subjects (e.g., customers, employees, and other business contacts) about how their personal information is used. Customers should have the opportunity to refuse having their personal information shared with others or used for promotional purposes. Many countries have privacy laws, and organizations should take care to comply or they may face prosecution. For example, the European Union prohibits the transfer of personal data to non-EU nations that do not meet the EU “adequacy” standard for privacy protection. The U.S. Department of Commerce, in consultation with the European Commission and the private sector, has developed a safe-harbor framework that provides U.S. organizations with a streamlined means to comply with the EU requirements. Companies may self-certify to the safe harbor through the safe-harbor Web site at www.export.gov/safeharbor/.

Security

Consumers often cite security concerns for not placing orders over the Internet. Compared with other forms of consumer purchasing, the Internet is safe as long as the online merchant takes prudent business precautions. If your company operates a transactional Web site as part of its exporting business, you should post a security statement to reassure customers.

Electronic Signatures

In legal terms, an online sale is an enforceable contract, a valid and binding agreement. However, in some overseas markets, a contract is only enforceable if it is signed “in writing.” Such jurisdictions do not recognize electronic signatures and, in the event of a dispute, would not enforce an agreement made by e-mail or through a Web site. Although many countries have modified their laws to recognize electronic signatures, online exporters should check to be sure their target markets accept electronic signatures. If they do, the next step is to determine which signatures are restricted and which technologies are legally valid. You can find more information on electronic signatures at the Department of Commerce’s Office of Technology and Electronic Commerce Web site at web.ita.doc.gov/ITI/itiHome.nsf/(hotNews)/HotNews.

Unsolicited Commercial E-Mail

Unsolicited commercial e-mail (UCE), also known as unsolicited bulk e-mails (UBE) or spam, is relevant to international e-commerce because its use is controversial. Many businesses see UCE as a quick and cheap way to promote goods and services to a broad range of potential customers. However, UCE costs individuals and businesses significant amounts of time, money, equipment, and productivity. Many domestic and international jurisdictions have laws about UCE, and violation may result in penalties. (See Box 11.1 for information about U.S. law.) In addition, many e-mail service providers, such as America Online and Yahoo!, have rules of conduct that forbid using their service to send UCE. Visit the Direct Marketing Association Web site at http://www.the-dma.org/ for more guidance on UCE.

Advertising Content

Most countries have laws about advertising content, which may be applied to Web sites, banner ads, and marketing e-mails sent from the United States. Online exporters should research the advertising laws of their target market before initiating a marketing campaign. If you are an exporter of heavily regulated products and services, such as pharmaceuticals or insurance, you may anticipate disclosure requirements and limitations on claims. Companies should avoid the following:

  • Comparative advertising (that is, comparing your company’s goods or services with those of a competitor)
  • Advertising aimed at children
  • Use of images or sounds that may be considered intellectual property and may require the permission of the artist
  • Use of lotteries, competitions, contests, games, and betting as part of a promotional offer

The International Chamber of Commerce has guidelines on advertising and marketing on the Internet that are available at www.iccwbo.org.

Jurisdiction

Online exporters must be aware that they are doing business in a foreign jurisdiction, which means the laws and regulations of the target market apply to the goods and services being sold. For example, an online exporter of medical equipment should ensure that the equipment has been approved for use in the foreign market. Companies should also be aware that the transaction itself may be under the jurisdiction of the foreign market. In other words, the foreign market’s laws regarding contracts may apply.

Good Faith

Dealing in good faith is perhaps more important for online businesses than for brick-and-mortar operations because customers rely heavily on reputation. Moreover, it is illegal in most countries to behave otherwise. If you engage in online business, your company must do the following:

  • Use fair business, advertising, and marketing practices.
  • Provide accurate, clear, and easily accessible information about the company and its goods and services.
  • Disclose full information about the terms, conditions, and costs of the transaction.
  • Ensure that consumers know they are making a commitment before closing the deal.
  • Address consumer complaints and difficulties quickly and fairly.

For more guidance on online good faith commerce, see the Federal Trade Commission’s guide for business at http://business.ftc.gov/documents/bus28-advertising-and-marketing-internet-rules-road.

FACT: The worldwide Internet population equals 1 billion users and continues to grow at about 8 percent per year.

INSIGHT: The Internet allows you to broaden your customer base internationally while reducing many of the costs associated with international marketing.

FACT: Business-to-business e-commerce in China is expecte to increase 81 percent by 2008. India’s predicted growth is even higher at 88 percent.

INSIGHT: As e-commerce grows throughout the world, your company will want to be ready to reap the benefits.

FACT: Web sites that take an international audience into account make more international sales.

INSIGHT: Consider these points:

  • Include a currency converter
  • Use the language of your target audience
  • Make navigation simple and visual

See Also: Case Study