By Alex Baulf, Senior Director of Global Indirect Tax at Avalara
Expanding your online retail business across borders often presents you with a huge range of new opportunities. An important example is access to a huge marketplace full of new customers, and therefore the potential to massively increase revenue. However, before your business expands abroad, you could ensure you have a robust plan in place for scaling your business internationally.
There are new challenges to overcome as an international business, so you might start to make plans to overcome them. For instance, not planning for the increased pressure international deliveries can create for your shipping department can lead to significant delays and customer dissatisfaction. Similarly, neglecting your cross-border tax compliance can mean incurring financial and legal penalties, which can jeopardise your expansion as a whole.
In Avalara’s latest Step-by-Step Guide to Going Global guide, you’ll find information on what you should prioritise when expanding abroad: important issues like tax, customs, and the necessary infrastructure. In this article, we’ll look at why expansion is a good choice, and how automation can help you expand successfully.
The rewards of cross-border trade
Why trade across borders? For the most part, brands want to expand their customer base. Selling internationally as an ecommerce brand can get your business in front of the approximately 2.14 billion consumers worldwide who shop online.
If you’re solely a retailer (i.e., you don’t manufacture your goods, and instead sell products from branded manufacturers), breaking into new markets can be difficult, but not impossible. A big part of succeeding internationally as a retailer is offering products that consumers can’t purchase in-country. As such, consider your products carefully — expanding abroad might mean focusing your marketing on certain goods, or introducing a new offering for the international market.
Retailers may also face lower margins when selling internationally, due to increased expenses within their supply chain. However, the costs will likely be balanced by the increased overall revenue they’ll earn by selling in a larger market with many more customers.
Getting your finance team on-board with an expansion may require some persuasion — they will likely ask why the business should spend a considerable amount of money to sell across borders. The simple explanation is that there’s a lot of potential in overseas markets. There are more customers, there’s more money to be made, and there are more opportunities to build your brand’s story.
Testing the water in new markets
If you’ve investigated the many benefits of expansion, but you’re not convinced that expanding abroad is possible, you can always test the water as an online marketplace seller before attempting a full cross-border initiative. By selling through an online marketplace, your business will likely take on less risk.
As well as allowing hesitant businesses to try out cross-border trade, acting as a third-party retailer in an online marketplace can help those who are already dedicated to international expansion. Becoming a marketplace seller allows you to check the demand for your products in a foreign market before you begin trading there in earnest.
Keep in mind that selling through a marketplace comes with its own challenges, such as dealing with specific tax obligations. The charging and remitting of VAT are entirely the seller’s responsibility, even when selling is done through an online marketplace.
In the U.S., marketplace facilitator laws reduce some of the difficulty of having nexus in multiple states. To ensure taxes are collected for marketplace sales, most states have made it the marketplace’s — in this case, Amazon’s — legal responsibility to calculate and apply the relevant sales tax rates for a purchase. The seller must always register for sales tax and file reports, however, which is a considerable challenge.
If you like the idea of investigating cross-border trade through an online marketplace, check out Avalara’s tax guides on the practice. There are separate guides for both the EU and the U.S.
Using automation for your cross-border initiatives
Automating cross-border tax compliance
If you’re set on trading internationally, working out how to stay tax compliant might form a core part of your planning. Automation can help immensely in this task. In its most basic form, having an automated tax compliance system means having a software tool that can calculate international tax rates, then automatically apply them to a customer’s total when they’re making a purchase.
When investigating how to automate your compliance processes, be sure to look into how easy it is to implement into your existing tech stack. You can read more on how automation can support multinational business.
Automating customs compliance
One particularly important role automation can play is in the application of HS codes (a Harmonized System tariff code is a six-digit code used to calculate tariff rates for all internationally traded products) onto your goods prior to shipping. Global customs authorities require tariff codes for the classification of goods and services traded across the world. So, if you are selling internationally, you might want to know how to use the right HS codes to pay the correct duties and taxes.
For instance, an item with an incorrect code may be delayed while customs identify it, leading to late delivery and an unhappy customer. Even worse, items with the wrong HS code are charged the highest possible customs duties, so incorrectly labelling your goods can cut into your profits.
If you frequently ship a wide variety of products in large amounts, it’s a smart idea to automate the process instead of relying on human employees. More often than not, there are savings to be made.
Make international expansion a success
With Avalara’s help, you can make any international expansion a success. Whether your business needs a little help with tax calculations or you’re looking for a full suite of digital solutions to support your international sales, we’re here to help.
That’s why we’ve created our Step by Step Guide to Going Global. If you’d like more advice, contact us to speak with one of our experts today.
Published 21/10/22
