The Localization vs. Cross Border Debate: Not a One-Size Fits All Approach
The 6 P’s to consider while assessing the right strategy for your business.
Aside from the 6 P’s, businesses should also weigh the benefits of both localized and cross-border approaches to logistics. Choosing the wrong strategy can negatively impact a brand’s reputation, decrease margins and ultimately put commerce operations to a halt before the business can flourish. This is why it is vital for ecommerce players in Southeast Asia to think about whether to localize their logistics and fulfillment or adopt a cross-border approach by for example, using Singapore as a hub. The common ambivalence between strategies is due to a multitude of factors:
Localization or Cross Border Strategy, what about both?
There are cases where a ‘phased approach‘ would benefit a company’s growth – the company starts with cross-border delivery to determine if demand exists in a certain country and scale volumes before switching to a localized ecommerce strategy. Starting with a cross-border approach means that the business wouldn’t need to invest heavily in inventory and a local team to run the warehouse. If the business is unsure of the demand for its product, a phased approach is a good way to test the waters without full commitment thereby allowing time for calculation of the business’s scalability factor.
Case Study: Businesses in Indonesia
Indonesia is a promising landscape with the largest economy in Southeast Asia and internet penetration numbers making it an obvious market for overseas brands. The difficulty lies in logistics as the country’s remote islands and weak infrastructure make it tough to deliver products. According to A.T. Kearney’s report, ‘Lifting The Barriers To Ecommerce In Southeast Asia’, bottlenecks also lie in warehouses that have not kept up the pace with the country’s rapid economic growth, leaving plenty of room for more investments in automation.
Fortunately, developing countries such as Indonesia and Vietnam have invested in projects to enhance the local supply chain such as road and rail network upgrades. President Jokowi Widodo’s administration has also pledged to complete 30 infrastructure projects within the next 4 years, making improvements to strategic roads and ports and ultimately improving local logistics for overall customer satisfaction.
Before deciding on the best strategy for your business, here are some key facts to consider:
- Cash On Delivery (COD): still the preferred payment method in Indonesia where credit card penetration is less than 15%. Companies should offer cash-on-delivery if they wish to reach a wide consumer base.
- Complications for cross-border COD: Cross border COD could potentially cause complications in regards to how the cash is reconciled to the bank and to the company HQ, which prolongs the entire cash flow process.
- Transportation Lead Time: Being able to deliver within a short time frame improves customer satisfaction. Indonesia is made up of various different islands with poor road links in certain areas. For a large global brand, partnering up with a local logistics provider may help cut down complications in transport and delivery.
- Duties and Taxes: Businesses should consider that an online shopper would pay on average an additional one-third of an item price in duties and taxes (see fig.1) if shopper is ordering online to another ASEAN country.
The points above do not necessarily mean that companies should choose localization over cross-border strategy.
“Ultimately, the right approach would depend on the business model and scalability potential, there is no ‘one size fits all‘ approach to choosing the right logistics strategy” – aCommerce’s Regional Chief Logistics Officer Mitch Bittermann