The 4 Biggest Headaches of a Cross-Border Business
The internet doesn’t solve all hassles for cross-border startups. Here one founder with offices in Bangalore and New Jersey outlines her four toughest challenges.
By Meghana Rao (Co-founder, Aniika.com)
Does the Internet solve all problems for online cross-border businesses? Definitely not! It greatly improves access to customers but opens up a whole new set of challenges that businesses need to manage over time and with the right expertise.
My company, Aniika.com, was launched in 2012. Aniika.com is an ultra-curated online destination that provides emerging independent designers in India an online platform to reach customers in the United States. We operate as a cross-border business with offices in Bangalore, India and New Jersey. Therefore, I am intimately familiar with the challenges faced by such a business. What are they?
Shipping and Logistics
The cost of shipping and related logistics can break a business model. When importing goods using commercial shipping, you encounter a number of roadblocks from delivery time to customs formalities. Both the source and destination countries usually have their own rules and it takes time for a startup to figure out what process works efficiently. Further more, finding the right shipping partner involves trial and error.
Find a logistics partner who is reliable, cost effective, will work around the fluctuating volume of your business and is responsive. In our experience, larger shipping companies do not want to work with startups or are very expensive. Owing to this, many retail websites based outside the U.S. charge customers a shipping rates that are often equal to the cost of the product itself!
At Aniika.com we talked to more than a dozen companies and a process of trial and error before finding the right shipping partner. We are now able to provide very reasonable international shipping and duties to customers (under $8 a package). A reasonable shipping price ensures that customers do not think twice about purchasing from Aniika.com. Most importantly, this gives us a positive margin on every sale.
In India where most of our designers are located, there are very few payment gateway options to receive foreign currency. Most options force customers to the gateway website, which is usually not well received by U.S. customers, and provides a sub-par shopping experience. Companies such as PayPal are governed by local banking rules and in our experience customers either love or hate PayPal – in the latter case it means we lose a sale. So it is always good to have an alternative. Companies such as Authorize.net do not work with Indian banks.
Despite Aniika.com being headquartered in India, we worked hard to set up our legal entities in so that we could collect payments directly on our site. This has brought down our cart abandonment rate by over 80%.
Managing an Offshore Team
Running a cross-border business means managing a team working in a different physical location. This introduces a new set of complications as startups do not have big travel budgets and new hires are required to start performing from the get go. Dividing responsibilities clearly between locations and having a clear roadmap of goals is essential to smooth functioning.
At Aniika.com, we received seed funding almost as soon as we decided to start the company. This helped us set up two offices – one in India (where our designers are located) and the other in the U.S. (where our customers are located). My co-founder, Shamim, manages the India office and I manage the U.S office. In addition to being able to understand the two markets deeply, this also helped with several other areas like managing product returns, being in the same time zone as our respective customers (the buyer and seller). Most importantly, the company runs 24/7 as someone is always available to answer queries and handle issues.
If your buyers and sellers are from different countries like in our case, then chances are that you will encounter some unique problems while raising capital. Investors like to provide more than just the money – they like to bring their network and experience to you (which they absolutely should). In a cross-border businesses, investors on based where the sellers are located (in our case India) expressed concern over not having complete knowledge of the buyer market (which is where the revenue comes from) and investors located where the buyers are based (in our case U.S) are not completely well versed with the seller market (India). Having a very strong USP for your business (be it product, business model or IP) and finding investors who invest in cross-border businesses is vital.
The fact that products sold on Aniika cannot be found anywhere else in the U.S along with our unique business model made raising capital a lot easier than we expected. In addition, we have raised both our rounds from seasoned Angel investors who have funded companies in both the countries we operate in. They understand the niche we operate in, the huge potential it has and can very closely relate to our vision.
Do you do business internationally? What struggles do you face?
About the blogger: Meghana Rao is the co-founder of Aniika.com, the only online destination for shoppers in the U.S to buy unique, limited-edition, India inspired jewelry, accessories and home décor. Founded by Shamim T and Meghana Rao, the women-led angel funded startup has been named as one of the top new sites for India inspired finds by People StyleWatch, InStyle, OK!, Time Out NY and many more.