World of Difference

With one week to go until Christmas, Meg Wozny wasn't happy. Her e-mail box was filling up with messages from an online retailer of health-care products, one of the thousands of Web-based businesses that advertised heavily and promised an easy solution to gift giving. Wozny, a resident of Wellesley, Mass., decided that e-commerce would be the best way to send presents to her parents in Poland. She dutifully clicked away, entered her credit card number and other information, and got an e-mail confirmation of her order. Then those other e-mails began to arrive. Certain items were out of stock and the order would be delayed. No, it would be partially shipped. Wait, the items were now in stock. But would they be shipped separately? Would everything arrive by Christmas? She called customer service. The answers were conciliatory, but uncertain. "I've bought products from many online sites," she says, exasperated, "but this is the first time I've tried to send things overseas. It may be the last." Welcome to global e-commerce, where the Web sites seem willing but the results often fall short. Last Christmas many companies -- and consumers -- found out the hard way that while a Web site may reach the world, the products it advertises often don't. "There's a great myth out there," says Stacie S. McCullough, an analyst with Forrester Research Inc. in Cambridge, Mass., "that you can tap into global markets just by putting up a Web site that anyone can access. To actually fulfill international orders, you have to address a huge number of issues that are far more complex than most companies realize." In fact, Forrester found that only a small percentage of companies, one in 10, are doing true global e-commerce from their Web sites. Many online retailers state explicitly that they will not ship to overseas destinations, or that customers overseas must bypass the Web site and conduct business over the phone or by some other method. A host of challenges, from the logistics of delivery to the complexities of taxes, tariffs, regulatory requirements, methods of payment, and other hurdles -- including significant cultural differences between various countries -- are limiting the global reach of e-commerce and in some cases blocking it entirely. That may not be a crisis in the short term. The U.S. market dwarfs the rest of the world's, and many companies just beginning to find their way in the rapidly evolving world of e-commerce are content to focus solely on the domestic market. But most analysts say that when it comes to going global, patience is not a virtue. International Data Corp. (IDC), Framingham, Mass., estimates that global e-commerce will grow from $80 billion in 1999 to $1.1 trillion by 2003. While North American sales will continue to account for about half the total, other markets are coming on so strongly that companies can't afford to ignore them. For example, IDC says that Western Europe will see online sales explode from $5.6 billion in 1999 to $430 billion in 2003. The picture is more murky in the Asia/Pacific region, where Internet access varies widely (18.1% of Australians have access, for example, versus 7% of Japanese and a mere 0.1% of Chinese). But experts say that as the overall economy improves in that part of the world, e-commerce will quickly accelerate. There are other reasons to address global issues now. For one, the minute a Web site goes live it attracts visitors from overseas. "The Internet is an international phenomenon," observes John Fontanella, an analyst at AMR Research, Boston. "You need to decide how you'll respond to international inquiries from day one." Those doing business online agree. "As soon as we launched our site," says Kent Anderson, CEO of macys.com, "15% of our traffic was international." Macy's does not yet handle international orders, nor does it market its site outside the U.S., but Anderson says that any company with a significant brand can expect instant interest from consumers in every part of the world. Macy's is currently developing a strategy to extend its e-commerce efforts around the globe. For large companies that operate around the world, restricting their e-commerce activities to the domestic market is virtually impossible. Major manufacturers want to use e-commerce to augment what they already do globally, says David Andrews, senior director of e-commerce products for Broadvision Inc., a software maker in Redwood City, Calif. "It doesn't make sense to have your e-commerce reach fall short of what you're doing in the rest of your operations," he explains. Unfortunately, many large manufacturers find themselves in that situation. "In some ways these companies have a big advantage," Andrews says, "because their business processes are already global, so a big part of their e-commerce strategy has already been determined." But that doesn't mean it's easy. Enron Corp. is a perfect example. In December the Houston-based energy giant (electricity, natural gas, and energy facilities) began handling transactions on www.enrononline.com, its EnronOnline site that seeks to replicate via the Web the complex work that takes place at its global trading desks. Enron is both the top buyer and seller of natural gas in the U.S. and the No. 1 wholesaler of electricity, and it is a global force as well. Launching a limited Web site was never an option. "The energy market is global; all of our customers are global," says Louise Kitchen, a vice president who directs EnronOnline. "Our goal is a global transaction system, which we will achieve this year." With EnronOnline, customers can purchase hundreds of different products from Enron -- natural gas and electricity, of course, but also coal, petrochemicals, pulp and paper, and related financial products such as emissions credits and weather derivatives. Prices are posted in real time, and transactions can be handled in a number of different currencies. Offering customers an electronic option, however, has not come easily. "I don't want to mention the number of lawyers we consulted with," Kitchen laughs. "It hurts too much!" Enron contended with a host of regulatory issues from one country to another, and Kitchen says that due diligence was a time-consuming aspect of the rollout. "Data-protection laws vary from one country to another," she explains, "as do regulations on conducting online commerce, so we had to develop different registration forms and to some degree take a lowest-common-denominator approach." Kitchen believes that the process was far simpler for a company already trading energy products on a global scale. But the real issue, at least in the short term, may be less about size than presence. Many companies that count their revenue in millions rather than billions are already succeeding in global e-commerce, but often it's because they've built an overseas distribution network rather than attempting to fill all orders from the U.S. The clothing retailer Lands' End Inc., for example, has facilities in the UK, Germany, and Japan. In some sense that's counterintuitive: The beauty of the Web was supposed to be its ability to reach the world from a single location. But, largely in the name of expediency, Lands' End and other companies (including Amazon.com Inc.) have decided that a mix of the new and the old is the best way to solve thorny distribution problems. "Shipping products within the countries where we have distribution facilities is easy," says Jeremy Hauser, a Lands' End research and analysis specialist. "But even shipping to Italy from Germany at a low, consistent price poses challenges." Price is a big issue on the business-to-consumer side. Some estimates hold that the international return rate for goods ordered online is as high as 80%. "Someone in France sees that a camcorder is $200 cheaper from a U.S. site," says Perry Ziff, vice president of corporate strategy and business development at New York-based Syntra Technologies, "but by the time it arrives, duties and fees have added $250 to the price. So they send it back." Part of the unfavorable fee structure is the cost of air transport, which is currently the way most products are shipped. Anderson of macys.com says that when his firm goes global it will probably have to establish regional warehouses. "Fulfilling orders by air freight is not economically viable," he says. But for many firms neither is establishing a global network of warehouses. Syntra hopes to provide a technological solution through its "landed cost engine," software that can give customers a much more accurate idea upfront of total costs. The company recently announced a contract with DHL Airways Inc. that will allow DHL, which has 40% of the international air-express package market, to provide customers with a shipping charge that includes tariffs, duties, and other "additive" costs, such as value-added taxes. "A $27 compact disc can end up costing almost $200 by the time it reaches certain destinations," says Mike Comstock, DHL's senior vice president of e-commerce and planning. DHL has licensed the Syntra software as part of a broader effort to provide logistics-consulting help to companies that want to pursue global e-commerce. "Many of these dot.com companies are launched by people with no experience in logistics," Comstock says. "For example, one service we offer is assigning the proper 10-digit tariff-classification code to every item a customer may want to sell online. That's an essential element, but many people don't know about it." Many companies are ready to help with logistics or with technology that can simplify other elements of the transaction, such as different methods of payment. Perhaps more troublesome are the cultural issues that must be addressed if a company is serious about doing business overseas. "You can't just take your U.S. operation and stretch it," says macys.com's Anderson. "You have to either build an infrastructure or find the right partners." Hauser of Lands' End agrees. "We want to be the No. 1 e-commerce site for apparel in the world," he says. "To do that we have to be attuned to local culture." All the talk of economic and logistical hurdles might make one wonder if it's just too much trouble. But even the anecdotal evidence of global success is striking enough to suggest that these problems are worth tackling now. When Hubert Co., a manufacturer and retailer of food-merchandising products, put up an e-commerce site in 1998 it found that 60% of its customers were based overseas. "That compares with 2% normally," marvels Mark Green, the Harrison, Ohio-based company's vice president of information services. "It's leveled off to about 30% now, but we were dumbstruck." Despite the company's small international sales volume prior to its Web launch, Green says the company was able to respond to demand, but it did have to add additional customer-support staff and customer-support functionality to its Web site. "Lots of people had questions during hours when we weren't open," he says. "You have to have different ways of answering those inquiries." Green admits that providing accurate shipping charges has been a problem. "We use different options depending on location," he says, "so it creates a day's delay as we research that and get back to the customer. It's not as cut and dried as domestic orders are." Of course a big advantage that Hubert enjoys is that it is selling to other businesses, not consumers. Orders are generally large enough that duties, fees, and taxes aren't deal-breakers. "The average online order is twice as big as a phone order," Green says. Despite this success Green says that further growth in international sales may require a physical presence elsewhere. Hubert is considering a facility in France. That hybrid approach, often dubbed "bricks and clicks," may be heartening to established companies, including manufacturers. Early predictions that any company could be threatened by a Web upstart appear to be wide of the mark. "It's a matter of having the infrastructure," says Anna Giraldo Kerr, an analyst with IDC. "Between 1998 and 1999, 60% of corporate expenses on IT went to building an Internet infrastructure. Now the pendulum has swung back, and 60% is going for business-infrastructure issues associated with fulfillment and customer service. That's proving to be the key part of the puzzle."