New Face of Globalization: Online Shoppers and Sellers

As the world economy digitizes, patterns and players in trade are changing. According to U.S. Census Bureau, the total online transactions in the U.S. grew from $3 trillion in 2006 to $5.4 trillion in 2012, to about a third of U.S. GDP. Increasingly, these transactions are cross-border. By 2017, a third of U.S. business-to-consumer (B2C) and consumer-to-consumer (C2C) ecommerce transactions will be with foreign counterparts, up from 16 percent today.

One driver of these trends are the previously marginal participants in trade – American small businesses, entrepreneurs, and consumers that transact with foreign sellers and consumers online. Ecommerce is propitious for these players: it drastically lowers the costs for buyers and sellers located far apart to gain visibility and transact with each other. But ecommerce is also driven by large companies that leverage ecommerce just like small companies do – as the key and even as the only means to access a foreign buyer. For example, Wal-mart has no stores in India, but does have an e-commerce presence shipping in goods from other countries to Indian customers.

Online trade enhances U.S. productivity and lowers international trade costs, accelerating economic growth and job-creation. In a conservative estimate by the U.S. International Trade Commission, domestic commerce and international trade conducted via the Internet – increased U.S. GDP by 3.4–4.8 percent in 2011, and U.S. real wages by 4.5-5 percent, and created up to 2.4 million new full-time jobs.

As hundreds of millions of individual consumers around the world leverage their laptops, tablets, and phones to buy goods and services online, U.S. companies of all sizes are more likely to be discovered by foreign buyers – and turned into exporters. Given the popularity of U.S. ecommerce sites, the rise in global online trade is likely poised to boost U.S. exports. A 2013 survey of individual cross-border online shoppers in the United States, Australia, Brazil, China, Germany, and UK showed that U.S. ecommerce sites were the most popular destination, cited by 45 percent of the online shoppers. And as businesses abroad develop online stores, U.S. online shoppers have access to an ever-larger variety of products, making themselves importers. Everyone will be better off. The challenge is that old structures, such as customs procedures, are not keeping up with the evolution of the patterns and players in trade.

Exporters and Importers Today…

So far, only a select few U.S. companies engage in trade, and it is the very largest companies that make up the bulk of U.S. trade flows. According to the latest Census data, in 2012, 304,867 companies engaged in exports. This is only 1 percent of all U.S. businesses, and 5 percent of employment-providing businesses (figure 1). There were even fewer importers, or 185,729, in 2012 (figure 2). Some 80,000 companies were two-way traders – exporters that also import. 

Figure 1 – U.S. Exporters’ Number and Share of Total Exporters and Imports, by Number of Employees

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Source: U.S. Census Bureau.

Figure 2 – U.S. Importers’ Number and Share of Total Exporters and Imports, by Number of Employees

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Source: U.S. Census Bureau.

…and Tomorrow

Online buyers and sellers are different from offline sellers in many ways. Of course, they are technology-savvy and intrepid in using online tools to market, sell and purchase products. But they are also very different from traditional players in their engagement in international trade:

  • Online sellers are highly likely to export. On average, 97 percent of American micro and small businesses that sell on eBay also export – in stark contrast to the 1 percent of U.S. small businesses that export in the traditional “offline” way (figure 3). This drastic difference between off- and online sellers occurs in other advanced nations as well as in developing countries. Online platforms dramatically expand buyers’ visibility of sellers even far away: sellers’ products are clearly visible and easy to explore across oceans. Online platforms’ star ratings systems, customer reviews, and payment tools such as Paypal gives the buyer a sense of trust, the lubricant of trade that in the offline economy takes several transactions between buyer and seller to build.
  • In online trade, tools and visibility are similar for all companies, irrespective of their size. As such, small and large online sellers are almost equally likely to export and export as much: even the smallest 10 percent of commercial eBay sellers overwhelmingly engage in exports (94 percent) (figure 4). For small sellers on eBay, exports make up 14 percent of all sales – not very different from the levels of the largest shippers for whom exports make up 18 percent of all sales. What’s more, similar concentration of exports in a few larger companies does not occur in the online economy: small exporters on online platforms make up a much larger share of online exports than they do in the offline world.
  • As opposed to the more than 50 percent of U.S. offline exporters that export to 1-2 countries, 81 percent of online exporters export to 5 or more countries (figure 5). The diversification is very substantial: the smallest 10 percent of U.S. regular online exporters on eBay serve 28 markets on average, and the largest 10 percent sell to 66 different markets (figure 6). This means these companies face multiple distinct trade compliance regimes, a maze for a small business to manage.
  • Online exporters and importers are typically smaller than “offline” exporters and importers: even the largest online exporters on eBay pale before those of the largest corporate exporters. Online importers and exports also tend to be quite new to import and export, and have irregular, sporadic shipments.

Figure 3 – Share of Sellers Exporting on eBay vs. Offline

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Source: eBay (2013). “Enabling Traders to Enter and Grow on the Global Stage.”

Figure 4 – Share of Sellers Exporting and Share of Value Exported, by Deciles

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Source: eBay (2013). “Enabling Traders to Enter and Grow on the Global Stage.”

Figure 5 – Number of Export Destinations – Small vs. Large eBay Exporters (sellers with > $10,000 in exports)

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Source: eBay (2013). “Enabling Traders to Enter and Grow on the Global Stage.”

Figure 6 – Number of Export Destinations, eBay Sellers with > $10,000 Exports, by Deciles of Sales Value

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Source: eBay (2013). “Enabling Traders to Enter and Grow on the Global Stage.”

According to U.S. International Trade Commission estimates, firms in digitally intensive industries exported a total of $223 billion in products and services ordered online in 2012. The top two sectors for exports of products and services ordered online were manufacturing ($87 billion or 39 percent) and digital communications ($59 billion or 26 percent). Large firms made up 92 percent of exports of products and services ordered online. The top destinations for both digitally and physically delivered U.S. exports that were ordered online were North America (primarily Canada), the European Union (primarily the UK), and the Asia-Pacific region (Australia and China) (figure 7).

The value of imports ordered online by U.S. companies in digitally intensive industries was $106 billion, with 94 percent delivered physically rather than digitally to U.S. buyers. Firms in manufacturing ($51 billion), digital communications ($23 billion), and retail trade ($18 billion) had the largest shares of digitally and physically delivered imports that had been ordered online in 2012 (figure 8).

Figure 7 – Top Regions for Exports of Products and Services Ordered Online, by Percentage of Firms, 2012

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Source: U.S. International Trade Commission. 2014. “Digital Trade in the U.S. and Global Economies, Part 2.”

Figure 8 – Imports of Products and Services Online by Sector and Delivery Mode, 2012 (billions $)

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Source: U.S. International Trade Commission. 2014. “Digital Trade in the U.S. and Global Economies, Part 2.”

Emerging Challenges to Online Trade

Online trade is the trade of the 21st century. It has outstanding potential for expanding U.S. exports and entrepreneurship, and boosting welfare around the world. Already, some 2.6 billion people, or 38 percent of the world’s population, use the Internet, and another 2-3 billion are forecast to access to web, typically through smart phones, by 2020, particularly in China, India, and Africa, but also in Brazil and across South America. That more consumers get online should augment B2C and C2C transactions in particular, and open opportunities to U.S. businesses and individuals to sell and buy goods and services around the world. Globally, B2C transactions are expected to soar to $2.4 trillion in 2017 from $1.5 trillion in 2014, with China leading the way.

However, trade compliance is poised to emerge as a challenge.

So far, customs security regimes around the world have been tailored to the patterns of “traditional” trade: large trade volumes shipped by large and mid-size companies staffed to meet trade compliance requirements. Customs regimes are not optimally designed for trade between small enterprises and consumers, where countless of small shipments are sent and/or received by parties with limited trade compliance capabilities.

In online trade, the importer of record is typically an individual consumer, and the exporter is frequently a small business. These players have much more limited know-how to deal with customs regulations than large corporations do. Meeting complex regulations can defeat the purpose of trade: the fixed costs involved with trade compliance, along with shipping and other factors can thus more easily usurp profits of small businesses.

At the same time, governments have legitimate concerns related to small business trade that could accentuate the need for trade compliance: the mushrooming B2C and C2C trade of millions of small parcels criss-crossing the globe makes the risk of contraband, IP infringements, weapons smuggling, and terrorism in international trade appear more fragmented and amorphous. One reason is that the new participants in trade – small businesses and individuals – are just that, new, and thus often lack a robust paper trail and consistent track record in trading across borders that governments could use for risk-targeting.

What is needed are regulatory frameworks and procedures that secure trade without sacrificing the opportunity for small businesses to engage in trade and reach overseas customers in a timely and cost-effective fashion. Stay tuned for next blogs on new ideas to streamline and facilitate this hugely promising part of world trade.

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