Craig Reed of Avalara: How to Scale Cross-Border Commerce to Build Your Global Competitive Advantage
Written by: Satta Sarmah Hightower
“Ecommerce has boomed. It doesn't show any signs of slowing down. Cross-border demand is increasing [as a result], so there's a huge opportunity out there for the folks that can figure it out.” — Craig Reed, SVP of Global Trade at Avalara
With retail ecommerce sales increasing 16.5% worldwide in 2020, according to Insider Intelligence, online shopping will continue to grow. That means millions of people will continue to shop across borders, too.
However, brands will have to navigate an increasingly complex regulatory landscape and balance their bottom line with efforts to deliver the best cross-border customer experience.
Craig Reed, senior vice president of Global Trade at Avalara, who has worked in this space for 20 years, says although the complexities keep increasing in cross-border commerce, so do the opportunities.
Reed says 20 years ago many companies weren’t focused on cross-border commerce.
“We had a big challenge just getting folks to be interested in cross-border business and getting them to see the opportunity relative to some of the domestic opportunities they had,” Reed says. “There has been a massive shift and it's not a backwater anymore. It's not an afterthought. It's really being thought of as a huge opportunity.”
The pandemic has accelerated this shift, but so have advances in shipping and supply chain services, the rise of dominant online marketplaces like Amazon, its industry counterparts, and the increasing prevalence of global sellers. Reed says any brand that wants to have a viable business today needs to build up its cross-border capabilities.
Navigating Regulatory Challenges
Despite the opportunities that cross-border commerce presents for brands, there are still challenges.
From Brexit and rising tariffs to shifting de minimis rates in countries like Canada, the pace of change has been head spinning. Due to the huge influx of cross-border traffic, governments want to protect domestic businesses and level the playing field, so duties and taxes also will continue to climb.
Governments will be more aggressive about enforcement and collecting the taxes that are due on cross-border goods, Reed says.
“There was one report where 20% of the goods arriving at the Canadian border had an improper classification code,” he says. “That was an underpayment of about $42 million to the Canadian governments, so the Canadian government and governments globally are paying attention to that.”
B2B vs. B2C Cross-Border Business
Both business-to-commerce (B2C) and business-to-business (B2B) companies need to make sure they have the correct classification, or HS code, for each country. This code tells the country what goods or products are being shipped. However, Reed says there are other differences in cross-border commerce between B2B and B2C brands.
“From a B2B standpoint, it's very much about compliance, about making sure that your goods aren't getting stopped at the border, and that you're not getting assessed penalties because you're declaring correctly,” Reed says, adding that B2B companies also should pay close attention to anti-dumping laws, per the U.S. Customs and Border Protection, and have a strategy in place for taking advantage of any preferential tariffs between countries.
Though compliance also is important for B2C brands, these companies don’t have to be quite as worried about antidumping laws. But B2C companies still have to accurately declare what goods they’re shipping into a country and must know whether or not those products or goods are restricted.
“There are certain things that can't be imported in certain countries — leather goods into Italy is a famous one. Chewing gum in Singapore and camouflage clothing to Saudi Arabia are other good examples. You have this common compliance thread that you must be able to solve,” Reed says. “The difference, really, in a B2C situation is that you have a buyer on the other end of the transaction, and they want to know how much it's going to cost them.”
“That’s what’s really important from a B2C standpoint. You have to make sure that your customer has a good experience. They expect a good experience, even if it's cross border … That means you need to tell them how much it's going to cost them, so you need to calculate the duties and import taxes and let them know what those are going to be.
Innovations in Cross-Border Commerce
Between determining when to charge duties and taxes and what goods countries allow, brands that want to increase their cross-border competitiveness will need to automate and fine-tune many of their processes. This is where technology can play a crucial role in helping companies manage this complexity at scale.
Reed says the best way for companies to approach this kind of complexity is to focus on “people, process, and technology.”
“There have been huge advances in the technology available to do things automatically at scale. We're certainly big proponents of that, and we invest a lot in technology and artificial intelligence,” Reed says of Avalara’s approach. “If you go back to HS codes, it’s figuring out the HS code from the incoming payload of an item, an item description, value and where it’s going, we can figure out a lot automatically and that allows us to create economies of scale.”
However, if there’s not enough information available via the HS code, a company will have to fall back on its people’s expertise — with an assist from artificial intelligence- (AI) driven automation — to come up with the right answer in a very time-sensitive and cost-effective way.
“It's this combination of people and technology that creates a really interesting approach to dealing with the complexity and doing it at scale,” Reed says.
The Future of Cross-Border Commerce: The Good, Bad, and the Ugly
“Something you have to consider is what consumers want. They want a good experience. They want that cost transparency. They want delivery in a reasonable timeframe, so that puts more pressure on the seller to provide a good experience, calculate the duties and taxes, and create a clear shipping path and visible tracking.” — Craig Reed, SVP of Global Trade at Avalara
When it comes to the future of cross-border commerce, Reed says there’s “the good, bad, and the ugly.”
“The good is that ecommerce has boomed. It doesn't show any signs of slowing down. Cross-border demand is increasing, so there's a huge opportunity out there for the folks that can figure it out,” he says. “The bad and the ugly are more about the figuring-it-out- part.”
Reed says brands will need to figure out how to deliver a frictionless cross-border customer experience.
The ugly involves all the regulatory change companies will have to contend with going forward.
“That's only going to accelerate. There's going to be a lot more interest from governments,” Reed says. “It's important to make sure you understand what those regulatory changes are, and then keep pace with them and ensure you’re collecting and remitting the right amount of money to the governments.”
That sounds like a good go-forward strategy brands can follow for cross-border success.
Listen to the full podcast episode to learn more about the complexities and the innovations that make it possible to sell globally at the scale that’s right for you.