How Indian D2C Brands Can Fix Cross-Border Pains Points To Enter Uncharted Territories 

The global cross-border ecommerce market is projected to surpass $2.1 Tn in sales by 2023 and cross the $7.9 Tn mark by 2030, and it is this thriving growth opportunity that the country’s direct-to-consumer (D2C) brands wish to capture.

India is now home to 50K+ digital-first brands — a mix of new-age startups and legacy retail giants going D2C with four unicorns – boAt, Mamaearth, Licious, Lenskart and several deep-pocketed players like Pepperfry, Wakefit, Sugar, Country Delight, and Bluestone, just to count a few.

Admittedly, this explosion of brands and D2C brands has created a feeling that this segment is hitting a saturation point of sorts. As a result, the country’s D2C sector, supported by more than 650 investors, is poised to expand internationally.

According to Zaiba Sarang, the founder of iThink Logistics, the sector will get a significant boost from homegrown brands exporting their products.

The Indian D2C landscape has further evolved with the introduction of dropshipping, effectively lowering entry barriers in foreign markets. Sellers can now send shipments worth up to $800 to the US without incurring taxes or duties.

The implementation of the National Logistics Policy, along with initiatives by marketplaces like Amazon, Flipkart, and Walmart, led India’s merchandise exports to achieve a record-high value of $40.38 Bn in March 2022, a 14.53% YoY jump from $35.26 Bn.

This success has motivated numerous players to explore international markets. According to Inc42’s Q2 2023 ecommerce report, over 20 notable Indian D2C brands have already established their footprints in Gulf Cooperation Council (GCC) countries, the US, the UK, Canada, and Europe. Companies like Bombay Shaving Company, Mamaearth, FreshToHome, Paper Boat, boAt, and Wakefit are some of the examples that have now crossed the Indian borders.

Industry interactions have revealed that the top three product categories Indian D2C players excel in within the aforementioned markets are artificial and fashion jewellery, beauty and personal care products, and handicrafts.

As Akshay Ghulati, the cofounder, Strategy and Global Expansion Shiprocket highlights, GCC countries are the preferred destination of many Indian D2C players, largely due to the Indian diaspora there. While the US holds greater demand, it’s notably competitive, especially in areas like beauty and personal care.

“Additionally, although ethnic fashion wear enjoys popularity, the differing sizes between India and the US pose a challenge for brands aiming to develop products solely for the US market,” he added.

Cross-Border Ecommerce Challenges

Despite securing a significant market share within India, numerous D2C brands witness hurdles while planning their international expansion.

When D2C brands venture into global markets, they encounter challenges like adhering to local regulations, managing payments, handling delivery logistics, inventory management, dealing with returns, effective marketing, and localising their offerings.

Here’s an overview of a typical cross-border ecommerce value chain:

Take the case of FreshToHome, for instance. The D2C brand’s founder Shan Kadavil took more than two years to establish a footprint in the UAE against their projections of six months.

Similarly, the founder of Bombay Shaving Company, Deepak Gupta, took 18 months to establish their presence in markets of Nepal, the UAE, Singapore, Malaysia, and Bangladesh. Each of these markets demanded a distinct strategy to navigate their unique operational intricacies.

“Obstacles like the unfamiliarity with local regulations in various countries – including packaging requirements and market-approved ingredients – coupled with the search for suitable partners capable of managing distribution and comprehending consumer preferences, have the potential to significantly delay the international debut of a D2C brand by several months,” Gupta said.

Here are some crucial challenges encountered by D2C brands:

• Opting between a marketplace strategy and establishing independent operations.
• Weighing the merits of an exclusive online presence versus venturing into omnichannel endeavours.
• Pinpointing the optimal market and ascertaining the flagship products to launch under the brand’s banner.

However, today, D2C brands benefit from a growing ecosystem of technology facilitators in India and worldwide. Here is a quick look at the cross-border enablers that are empowering startups to seamlessly manage their Indian and global operations through unified dashboards and a single point of contact.

While speaking with several D2C brands and enablers, we learned that opting for marketplaces is the easiest and most favoured strategy among D2C players. It serves as a platform for gauging consumer preferences and generating brand buzz. Similarly, it’s advised that D2C brands should venture into offline operations once they’ve built brand recall and generated demand in the region.

However, the most pressing challenges lie in logistics and payments for D2C brands, highlighting the crucial role of the growing cross-border ecommerce enablers ecosystem in addressing these issues.

Cross-Border Logistics Challenges

Two critical challenges for D2C brands in cross-border ecommerce are rapid and affordable deliveries and managing returns.

Traditional players like India Post usually take 15-20 days to deliver to the US. For a small 50 grammes packet, India Post charges INR 139. On the other hand, established courier services like DHL and FedEx may take 5-7 days, but they require a minimum package size of 500 grammes and could charge 10X more than India Post to deliver the same product.

New-generation players like Locus, iThink Logistics, and Shiprocket are bridging this gap while tackling other logistics challenges for D2C brands.

For example, iThink Logistics allows shipments starting at 50 grammes, delivering products to the US in under 7 days at competitive pricing. Shiprocket, on the other hand, may ship 50 grammes to the US at a cost of approximately INR 300 in 8 to 10 days.

Another challenge is that, Presently, many D2C platforms are struggling to provide cross-border returns due to high import duties. Sometimes, sellers refund customers to maintain relationships, yet this results in a loss for the seller. Furthermore, most D2C players are hesitant to store inventory at foreign locations due to uncertain sales projections. Consequently, products are shipped directly from India upon order.

As Shiprocket’s Ghulati points out, setting up warehouses is a pivotal strategy to address these challenges. Shiprocket, for instance, operates a warehouse in the US. In the case of returns, products are directed to the warehouse, enabling swift delivery to other customers within 2-3 days without import duties.

Cross Border Payment Challenges

Just like in the realm of logistics, D2C brands encounter three pivotal challenges in the payments domain when going cross border. These challenges are transaction speed, payment gateway costs, and compliance requirements for international transactions.

In earlier times, players such as PayPal held an advantage in cross-border payment transactions due to their global network and ability to facilitate seamless foreign currency exchange.

Nonetheless, recent years have witnessed a surge in digitalisation and the emergence of numerous fintech startups from India like Cashfree, Razorpay, and PhonePe, among others. These players have been offering an array of features and facilities at affordable rates to support cross-border ecommerce.

“Today, nearly 15% of our overall revenues, and likewise, 15% of our businesses, rely on cross-border payment services. As pioneers in domestic payment services with a substantial network of connected merchants, we’ve come to understand and address a multitude of challenges that merchants face when opting for cross-border sales of goods,” shared Reeju Datta, the cofounder of Cashfree.

Here are key initiatives within the payment ecosystem to alleviate cross-border payment challenges for D2C brands:

Joining Hands With Local Payment Providers: The primary task is to maximise the availability of payment methods even before considering costs. This cultivates global acceptance and reduces payment decline rates. Moreover, ensuring seamless interoperability among payment partners enables merchants to view payments on a single dashboard, irrespective of the chosen payment platform by the customer. Various regions have their own local payment methods that tend to be more cost-effective compared to cards or PayPal.

Reducing Costs: Cost sensitivity is paramount for Indian businesses. While India’s merchant discount rate (MDR) ranges around 1-2% for domestic payments, it could be nearly three times as much or even higher in international markets. Digital payment evolution has also alleviated costs. For instance, earlier wire transfers from the US to Indian banks incurred $30-$40 per transaction. While global players might charge around 10-12% per transaction, Indian payment providers have optimised costs to 7%-8%. ACH transfers are 75%-80% cheaper, and card transactions are around 30%-50% cheaper.

Compliance Solution: International transactions necessitate a foreign remittance advice or certificate for reporting, compliance, and tax purposes. Payment platforms like Cashfree have integrated this into the payment flow, offering real-time foreign remittance advice. Streamlining compliance around the Foreign Contribution Regulation Act (FCRA), documentation, and GST is also a priority. Automation has transformed what used to take months into a process that happens within seconds.

Merchant Safeguarding: Cross-border transactions entail risks like fraudulent activities and currency fluctuations that can severely impact D2C sellers, especially concerning refunds. International transactions often see higher levels of fraud and disputes than domestic ones. Payment platforms like Razorpay have developed sophisticated tools and controls to mitigate these risks and safeguard merchants’ interests.

“As we scale up and expand to a larger audience, managing risks on both ends – consumer and merchants – is crucial,” said Rahul Kothari, chief business officer, Razorpay.

The Global Road Ahead For D2C Brands

The emergence of the cross-border tech enablers ecosystem has facilitated the global expansion of even small-scale companies.

“What was previously achievable only by a handful of large companies has now been democratised, enabling even small businesses to engage. This transformation is primarily driven by automation and a customer service mindset,” Kothari of Razorpay pointed out.

Nonetheless, challenges persist. Shiprocket’s Ghulati underscores that the Indian government could enhance the establishment of bilateral trade corridors to alleviate dropshipping and import duties.

The payment ecosystem is concurrently working on reducing transaction costs, minimising decline rates, and simplifying regulatory complexities. Also, noteworthy fintech brands have an advantage in their respective regions. Building a mutual sense of trust represents a pivotal challenge as we venture into new territories.

Nevertheless, Indian D2C brands have already embarked on their cross-border journeys. With the growing demand for Indian products and technology enablers propelling D2C brands, the trajectory of cross-border ecommerce is poised for growth that will know no bounds.

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