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November 16, 1998

Internet Opens Markets Abroad

Global companies still need to overcome cultural obstacles

By Nick Wreden

E-Commerce:
The Next Step

Selling Overseas

Beyond Transactions

Billing Via The Web

E-Business Roundtable

'Where's the other bottle?'

he question from Japanese customers perplexed Virtual Vineyards Inc., which markets wine and specialty foods over the Internet. These customers had only ordered one bottle of wine, so why were they asking for another?

Virtual Vineyards, a privately held firm in Palo Alto, Calif., eventually determined that the problem resulted from shipping single bottles in two-bottle packages. While this simplified Virtual Vineyards' shipping, it confused Japanese customers, who consider packaging an intrinsic part of a prestige product.

A Web site automatically opens a company to a global marketplace, but that doesn't mean it's easy to conduct business internationally. Cultural, business, and infrastructural differences among nations complicate marketing, sales, and the development of business-to-business relationships.

In addition to the usual technical problems associated with E-commerce, companies also must wrestle with issues such as logistics, regulations, currency conversion, and languages.

Still, the Internet's potential to increase sales globally is undeniable. Although the United States and Canada account for more than two-thirds of all Internet users, increasing use of the Web in other countries will soon lead to a global online audience larger than North America's. In fact, the market research firm eMarketer projects the non-U.S. share of worldwide E-commerce revenue will increase to 23% by 2002 from 11% in 1998.

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Selling globally through the Internet requires more than transferring U.S. practices to international markets. Companies also must be knowledgeable of U.S. and foreign regulations. For instance, European countries with strict privacy regulations can potentially shut down sites that profile or collect personal information. And Dell Computer was fined $50,000 by the U.S. Department of Commerce last year for shipping computers ordered online to Iran, because it's illegal to export goods to countries involved in terrorist activities.

But there are great opportunities for companies to conduct international business over the Internet--if they think globally. For starters, an English-only Web site isn't going to attract international users who speak other languages. Indeed, providers of English-only sites stand to repeat the mistakes made by American automakers a generation ago. They failed to sell cars abroad because, in part, the drivers' manuals were printed only in English. English-only sites lack cultural and linguistic sensitivity and may have a negative effect on a company's image, says Terry Erdt, president of Multimedia Production Services in Cincinnati, which develops multilingual Web sites.

Erdt cites a customer who increased sales of language immersion programs 40% in Japan by having a Japanese site and registering with Japanese search engines. Visitors can view information in Japanese, German, Spanish, French, and English at the Web site of Recreational Equipment Inc., named by Fortune magazine as one of the top 25 business sites. The Seattle outdoor sports retailer finds that international sales are growing faster than domestic sales. For similar reasons, the Microsoft Network will be available in 30 languages by year's end.

When companies establish a global E-commerce infrastructure, they also have to consider logistics, national customs and regulations, and currency conversion. In addition, there are few regulatory and financial safeguards protecting global commerce.

These hurdles keep some online companies out of global markets. For example, Softwareland.com Inc., a privately held online software retailer in Leesburg, Va., is holding off on international expansion be-cause of time-consuming complexities, including compliance with U.S. software export regulations.

Limited Net Uses
Other companies embrace the global market in a limited way: They use their Web sites to attract international distributors and agents. For example, P&D Creative Inc., a $1 million manufacturer, primarily uses its Web page to attract international distributors and agents for its line of environmentally safe cleaning products. The Hagerstown, Md., company promotes its site in search engines and internationally oriented newsgroups, and provides pricing, product, and other information of interest to international distributors on its site. Three distributors have been signed based on Internet leads, and international revenue accounts for 20% of sales. President Paresh Shah cites an additional benefit of eliminating routine information fulfillment for tire-kickers, which is slow and expensive for international prospects.

Virtual Vineyards, which gets about 10% of its business from overseas, is considering the pros and cons of various international expansion strategies. On one hand, Virtual Vineyards could establish a presence with local representatives who understand the cultural and other business requirements and often have the relationships that can open doors quickly and boost sales. At the same time, the wine and food merchant has a unique corporate culture backed by a large software investment that supports its business model. That advantage of having direct ties with its customers via the Internet would be lost in any indirect sales relationship established overseas, says chief operating officer Robert Olson.

Global Partnerships
Other companies use the Internet to establish new relationships with business partners overseas. National Semiconductor Corp., for example, uses the global reach of the Internet to find new distributors and customers, improve distributor communications and support, simplify business procedures, and hold down costs.

National Semiconductor, the $2.5 billion chip manufacturer in Santa Clara, Calif., publishes data on some 30,000 products on its Web site. Customers can order product samples without charge, which not only avoids many tax and customs issues, but also accounting conundrums such as where and when revenue is recognized. In areas such as Eastern Europe, the free components help to kick-start projects that lead to increased sales.

National Semiconductor's Web site also serves as a central procurement conduit for its 50 distributors. Customers can order products directly from distributors, substantially increasing National Semiconductor's global market reach.

When National Semiconductor relied primarily on call centers, representatives handled as many as 25,000 inquiries monthly. In contrast, inquiries from 600,000 to 750,000 individuals are handled through its Web site.

National Semiconductor is also saving money. A call-center inquiry costs $5 a call; an Internet contact costs 12 cents. In January, visitors averaged one transaction a visit, such as placing an order or downloading a document. That average is up to three transactions a visit.

"That's not how we measure return on investment," says Phil Gibson, National Semiconductor's director of interactive marketing."ROI is best measured in terms of exposure to customers and ability to reach new customers. The sales force is overjoyed at the way we're helping to build demand."

But its international Internet operations uncovered problems. In many countries, the Internet infrastructure is less robust than in the United States, which hinders consistent performance. To deliver consistent Internet performance, National Semiconductor turned to Digital Island Inc., which serves 16 countries through a network that bypasses the congestion points of the Internet. Using a distributed-star architecture that links four data centers worldwide, Digital Island directly connects into local markets--providing the performance and reliability of a global WAN supporting mirrored servers. This allows National to cut expenses by about 90% compared with installing mirrored servers in 10 different countries on the Internet. National had forecast an annual budget of $4 million a year for a global mirrored-server program. By comparison, Digital Island's fees are about $400,000 a year to reach the same number of countries.

Using the Digital Island network, National Semiconductor transmitted a 500-Kbyte document--about the size of an average data sheet--in 15 to 20 seconds. Transmitting the same data over the Internet took, on average, two minutes.

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Faster Pace
Benn Konsynski, a professor who teaches international E-commerce at the Goizueta School of Business at Emory University in Atlanta, warns that the pace of transactions can overwhelm existing controls. Because of this new dimension, companies are moving to eliminate the fulfillment and other lags common to international business, either by taking advantage of outsourcing services from the major air express carriers or by building international distribution networks.

Air express carriers such as DHL Worldwide Express, Federal Express, and United Parcel Service offer door-to-door services that leverage their own substantial Internet investments with faster customs clearance and E-mail shipment notification.

DHL, the $5 billion privately held air express carrier, has created private Web sites for a few select customers in the United States and Britain. The sites let them better protect sensitive information, such as which products are going to what countries.

For companies looking to outsource international fulfillment and customer support, the air express companies offer extensive knowledge and expertise concerning international commerce. DHL has seven express logistics centers and more than 45 strategic parts centers worldwide. The logistics centers offer complete services ranging from warehousing to inventory management and shipping, while the parts centers offer same-day delivery of parts and other supplies from in-country stocks. Dispatch, ordering, and other activities are handled through a worldwide private IP network that is linked to country-specific Internet service providers that customers access.

DHL calculates that its E-commerce infrastructure saves between 75 cents and $1 per international air bill when information can be relayed electronically to customs agencies, overseas customers, and dispatch centers. "The upside potential is tremendous, since we process more than 100 million air bills annually," says Alan Boehme, director of business planning for DHL, in Redwood City, Calif.

Companies that don't want to take advantage of services offered by major air carriers can build their own international distribution networks. For example, QVC Inc., the $1.8 billion televised shopping service, is building distribution centers in Britain, and eventually Germany, to take advantage of a European audience of 28 million Internet users and to more quickly fulfill sales generated by its Web site, as well as its European television programs.

Whether or not a company decides to build its own or outsource global distribution, fulfillment, and customer support systems, the Internet changes the nature of business. "The instantaneous interactivity users experience on the Internet adds an urgency factor to international business," says Kevin Langston, director of international trade at the Georgia Department of Industry, Trade, and Tourism.

For companies willing tofit the pieces required to build a global E-commerce infrastructure, a huge market is only a click away.