Step by Step Season 7 Episode 3
March 23, 2022

[Step by Step] What Changes Will My Business Face in Selling Overseas?

We’re halfway through Season 7 of Step by Step! In this 3rd episode, we’re answering the question “What Changes Will My Business Face in Selling Cross-Border?” We sit down with Craig Reed to discuss the cross-border lingo, customer experience and more! Listen now!

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this episode sponsored by

The Rosetta Stone of eCommerce

  • Craig Reed is the GM of Cross-Border at Avalara and has watched the industry develop over the last 20 years. He’s truly one of the godfathers of cross-border eCommerce.
  • An HS code is the code that an individual country expects you to give them to tell them what you're importing. This is important because all the other rules and restrictions flow from HS codes. Craig likes to label HS codes as “The Rosetta Stone of eCommerce.”
  • The way we think about goods is different for every country and is different in every country.
  • “A marketing description of a good and a country's description of a good are vastly different things, and they don't work well together. But getting that description is important. Getting to that Rosetta Stone is important, and that's the art behind trying to do cross-border eCommerce well.”- Craig
  • If you’re doing anything cross-border, it is all about having the right information, and the right data.
  • “It's about having good data and providing the right data to the right party at the right time, whether that's the consumer, whether it's a government, whether it's your suppliers, etc. You really need to have good data.”- Craig
  • Customer expectations have changed, which means that the cross-border customer expectations have shifted. It's important to provide a good buying experience because the buying experience is also the shipping experience.
  • “The way that you deliver your customer supply chain is your customer experience” -Brian

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Brian: [00:00:10] Hello and welcome to Step by Step, a podcast by Future Commerce, presented by Avalara. I'm Brian.

Phillip: [00:00:15] And I'm Phillip. You are in the seventh season of Step by Step. [00:00:20] We're taking you around the world cross-border. And this is episode three of five. So if you're just jumping into the series midway through, might I suggest that you go back and listen from the very beginning? In this five-part series, we're going to talk with experts from industry leading cross-border platforms and technologies that power cross-border [00:00:40] innovation. And we're going to bring it all to you step by step.

Brian: [00:00:45] This season, we're answering the question "What's the right time for my brain to go cross-border?" Yesterday! Like, no, not yesterday, but maybe tomorrow, maybe not tomorrow, maybe with careful planning and thought. [00:01:00]

Phillip: [00:01:00] Yes.

Brian: [00:01:01] Which is something that you need to actually consider. There's a consideration period going into this.

Phillip: [00:01:07] Have to do it. {laughter}

Brian: [00:01:07] But what are those steps that are required to maybe take my brand cross-border in like three, four or six months or whatever the time frame is? And maybe you've already taken some of these first steps [00:01:20] and you performed some tests and you realize that cross-border is a key part of your growth strategy. Then actually this is the right podcast series for you.

Phillip: [00:01:32] One thing that I have learned so far that I never considered before is that cross-border is [00:01:40] heavily dependent on so many different parts of the business and technology investments. For instance, your eCommerce platform, it's the tip of the spear. It's your customer experience for deciding to actually getting the customer to want to engage with your brand and actually provide all [00:02:00] the information they might need to be able to make a purchase. But from there, it sort of spirals out, right? Like to have really good customer experience, you need data that powers that platform. For instance, "How long is it going to take for me to get my goods? Where is it shipping from? Is it appropriately priced in my  [00:02:20]region's currency? How much is it going to cost? Am I going to get stuck with a bill when I go to try to pick it up for unpaid duties and fees? What's the inventory like?" These are all things in different regions. By the way, different regions have different labeling requirements. So say you're in food or CPG or in wellness [00:02:40] products, it changes region to region. These are all things that you have to consider when you're looking to go overseas. We're going to learn some new terms. We're going to learn a whole bunch of new acronyms. Really excited about that.

Brian: [00:02:55] Acronyms.

Phillip: [00:02:55] Already we're deep into acronyms, but we are also [00:03:00] along the way developing what Craig Reed, who is joining us in this episode, who is the General Manager of Cross-border at Avalara in 20 years building cross-border capable businesses and tech stacks that power the whole industry, what he calls the Rosetta Stone of commerce. It's the master key that helps us to understand and translate [00:03:20] between customer expectations and brands' ability to deliver upon them.

Brian: [00:03:24] This is probably, I mean, no disrespect to anyone else on this podcast. This is probably my favorite episode. So you're in for a ride?

Phillip: [00:03:31] Yeah. Yeah, yeah, yeah.

Brian: [00:03:33] Craig is a wizard. He's a genius. I learned so much on this episode.

Phillip: [00:03:40] At [00:03:40] some point in the future, maybe we just find a way just to do a five-part series just with Craig. I feel like there's a lot to unpack with him. He's just a wealth of information and a wonderful teacher.

Brian: [00:03:51] Wonderful teacher. So good. So good. And that's so important because the cost of acquiring customers is high right [00:04:00] now. And so in your local markets, you might be finding it's starting to get unattainable to go get new customers. And so the opportunity to go cross-border is such a great opportunity.

Phillip: [00:04:11] Yeah. So then in this season of Step by Step, we are not doing this alone. I said this in episode one. It takes a village, right? And so [00:04:20] we're partnered here with the greatest minds in eCommerce. So why wait? Let's jump right into it. Let's join Craig Reed, who is the GM of Cross-border at Avalara, and find out from him as he teaches us how you can successfully launch your brand into a new market step by [00:04:40] step. Today we have Craig Reid, who is the GM of Cross-border at Avalara to help give us sort of that 301 deep dive on all the things that you need to consider when taking your business across the border. Welcome to the show, Craig.

Craig: [00:04:56] Oh, thanks for having me.

Phillip: [00:04:58] It's so good to have you. We [00:05:00] are deep in this series learning everything that we need to know about cross-border to help businesses of all sizes grow and help them stretch out beyond their borders. Before we get into any of that, what makes you uniquely qualified to talk about cross-border? Other than the fact that you are the GM, the [00:05:20] game master of cross-border at Avalara?

Craig: [00:05:26] Well, I've been doing this for an awfully long time, so I guess you could think of myself and a few others as the godfathers of cross-border eCommerce. We started up [00:05:40] a company called Border Free back in early 2000. Which was the first attempt, I think, at cross-border eCommerce, and I've been shockingly in the industry ever since and watched it develop over the past 20 plus years. So seeing a bunch of different models for how to do things [00:06:00] come and go, been a part of most of them, so I think I've got a fairly, fairly well-articulated view of what to do and certainly what not to do because we've seen a lot of that as well.

Brian: [00:06:13] No doubt.

Phillip: [00:06:14] Isn't that the truth?

Brian: [00:06:16] {laughter} Border Free, that's taking me way back. Way back. [00:06:20]

Craig: [00:06:22] Me, too.

Brian: [00:06:22] That's amazing. Well, today we're going to talk a little bit about the costs, optimizing costs, for going cross-border, and really building a good customer experience for cross-border. And so as [00:06:40] we sort of start out, I feel like there's analyzing what costs are cross-border requires an understanding of things that people in commerce typically don't even think about when they go into this. You've got to know what NAFTA is, right?

Phillip: [00:06:59] Wasn't [00:07:00] that a Bill Clinton thing?

Craig: [00:07:01] Yeah, that's not that the USNCA, I guess, right?

Brian: [00:07:05] Right.

Phillip: [00:07:07] Exactly. There's a whole litany of things that we need to cover here. You called it, I think the Rosetta Stone, almost to some degree. It's like establishing a common language.

Craig: [00:07:15] Yeah, sure. I mean, I do refer to it as the Rosetta Stone. And what I mean [00:07:20] by that is what's called an HS code, common industry parlance to call it an HS code. It's a bit of a misnomer. It's like calling a copy machine a Xerox machine. An HS code is really the code that an individual country expects you to give them to tell them what you're importing. And [00:07:40] the reason that's important is because that's where all of the other rules flow from. It's where the duties flow from. It's where a lot of the restrictions flow from, what you can bring into the country, what you can't bring into the country. And the thing about HS codes, a lot of people don't realize, and the actual name HS code comes [00:08:00] from harmonized system code, and that's the World Trade Organization's six-digit nomenclature that most of the countries of the world have agreed to. But the interesting thing is that most countries, all countries pretty much, append an additional three to six digits beyond that. And that's [00:08:20] what's really important because each country is interested in additional detail for each good, for their own specific reasons. A lot of the times it's around things like textiles and other things where they want to know what it's made of and other things. They may be protecting domestic industries. They may levy special duties depending on where it's from. [00:08:40] So it's that combination of what is that thing according to what the country defines it as and where is it made that really defines what it's going to cost you to import and whether you can import it at all. And the other thing that's important to note [00:09:00] is that the way that we think about goods, men's sneakers, for example, that's good enough for us. We know what that means. But for different countries, they may say, "Well, is the sole made of rubber? Is it over the ankle? Under the ankle? Is the upper made of leather? Does it have laces? Is it kids? Is it men's? Women's?" So all of these [00:09:20] things could determine what ultimately the customer needs to pay. So [00:09:25] a marketing description of a good and a country's description of a good are vastly different things, and they don't really work well together. But getting that description is important. Getting to that Rosetta Stone is important, and that's really, I [00:09:40] guess, the art behind trying to do cross-border eCommerce well. [00:09:44]

Phillip: [00:09:45] The science that overlays the art is also very important. There's a Twitter thread I saw some time ago about tariff engineering and sort of like your favorite shoes, your Converse that you wear, have [00:10:00] sort of a little bit of a fabric-like overlay on top of the rubber sole and that's tariff engineering to classify them as slippers in certain countries. But how much of this is, first of all... Craig, is that true? Second of all, how much of that actually takes place on a sort of product manufacturing [00:10:20] basis that sort of alters the way that a merchant might think about going to market based on these HS codes and sort of the level of specificity needed to qualify to get into a country?

Craig: [00:10:32] Well, it is more of a manufacturing type of strategy where your sourcing... Typically [00:10:40] you would see tariff engineering being about where you're sourcing your raw materials from such that you attract a specific duty rate within the countries you're trying to import the goods into and sell. You can think of goods that are getting manufactured. And if you're a  [00:11:00]US-based manufacturer and your manufacturing offshore, maybe you want to put your materials together in Malaysia because it attracts a different type of duty when you're importing the finished good than if you import it from China. And there's a lot of that that goes on with large manufacturers, but when it comes to a specific retailer, [00:11:20] typically they're dealing with the finished product. So you're really kind of I guess you could think about sourcing from different countries but typically are kind of stuck with the country of origin of the goods that you're importing. But it's important to know what those are and whether or not you can qualify for any of the special [00:11:40] treaties, trade treaties, that may exist between the countries you're importing and exporting from.

Phillip: [00:11:45] This is such an interesting sort of like inflection point to think about. The audience listening to this podcast at this moment on Merchant to Merchant is thinking, "OK, well, there's the direct to consumer sort of branded manufacturer that is selling direct via [00:12:00] eCommerce." And they have one set of challenges with going cross-border. There's the retailer who has partnerships with those direct manufacturers and various distributors who are providing a broader complement of products in their store. And they have less control over how those products are made, how they're sourced, and what their [00:12:20] ultimate impact might be on their ability to be able to go cross-border. Maybe talk a little bit about how that might change your perspective of the kind of merchandising you might be able to do when making a decision to go cross-border.

Craig: [00:12:34] Well, it's about having the right information, isn't it? It's knowing whether [00:12:40] the different types of goods you're going to be shipping, what countries they may be attractive in, where you may have a bit of an advantage if you're shipping into, say, the UK, for example. And you know that your cost base plus the duty and VAT you're going to attract are competitive relative to a locally [00:13:00] sourced good. That's important information to know. So it's really about I mean, to me, [00:13:07] all of this, anything cross-border is really about having good data. It's about having good data and providing the right data to the right party at the right time, whether that's the consumer, whether it's a government, whether it's your suppliers, [00:13:20] et cetera. You really need to have good data. [00:13:25] So that's just another example of having good data. Hey, are my products going to be really attractive in a certain market? What market should I spend more money in? Maybe from a marketing standpoint, because maybe you're a single product manufacturer merchant and you [00:13:40] can do a little better in the Netherlands than if you spent all your money in Belgium. I'm just making stuff up here. But it's important to know what's available locally and then what your competitive position is when you're bringing stuff in. And you can only tell that if you know what the implications are of your cross-border movements.

Brian: [00:13:58] You know it's amazing. We've been sitting [00:14:00] here talking for ten minutes about cross-border, and we haven't even mentioned the word shipping, which is incredible. The amount of data that you have to have to go cross-border, you're not even to shipping yet. Your ten minutes in. And I feel like [00:14:20] the shipping is almost the easy part, except for it's not. And so it seems like there are two ways of shipping. The DAP and DDP. Can you tell us what those mean and what the differences are between those two options?

Craig: [00:14:35] Yeah, it's DAP and DDP. So [00:14:40] DAP used to be called DDU. I actually thought DDU was a better description, which was "delivery duty unpaid." Now it's called "delivery at place," and really, that's just code for fire and forget. And what I mean by that is you hand off your package to somebody in brown or somebody in yellow and [00:15:00] they deliver it for you and you wash your hands of the whole affair. But the problem is that somebody somewhere has to pay for the friction at the border. The costs of classifying the good, of figuring out what duties and taxes might be, and then collecting those duties and taxes. [00:15:20] So when you ship DAP, really what you're doing is saying, "Hey Mister Customer, you're on the hook for that. I'm washing my hands of it, and I'm going to let the carrier take care of it and they're going to charge you." I'm based in Toronto and I've been doing this a long time, so I know it's coming. And when I order something and I know it's getting shipped [00:15:40] a DAP, I do that with eyes wide open and sometimes I'll get to carrier show up at my door and they want fifty dollars COD. Not a nice experience, even if you know it's coming, but for somebody who doesn't know it's coming, it's an especially bad experience that leads to oftentimes, if [00:16:00] you're a customer, you could just refuse it say, "I'm not paying that."

Phillip: [00:16:04] Tell my wife that. I don't feel like she's ever refused anything coming to the door asking for money.

Craig: [00:16:11] There you go. And then what's the merchant to do? You're stuck with a good in-country. Maybe it's thousands of miles away. How are you [00:16:20] going to get the good back? Do you dispose of it? And now you've got an angry customer. How do you satisfy them? So really not a good experience. The opposite of that is DDP, "delivery duty paid." So that means that at checkout you're telling the customer, hopefully accurately, "Here's how much duty and tax you need to pay on your good," and [00:16:40] you collect it at checkout and the customer can make a decision at that point during the purchasing process, whether or not that's the transaction they want to commit to. And unfortunately, in having discussions with hundreds of merchants, literally some of them say, "Well, I don't want my customer to see that duty and tax. They're [00:17:00] going to abandon the cart. They're not going to convert." And my answer is, "Well, wouldn't you rather them have that experience a checkout versus when it shows up at the door?" Because that's a much worse experience. And there are different ways that DDP can be managed that I've seen done artfully where you [00:17:20] can embed duties and partially taxes, depending on the market you're going into. So think of the UK as an example, in the UK, folks are used to seeing that included in the price. So you could do that as part of your merchandising strategy and show UK customers products with that included. Again, if you have the data if you know what [00:17:40] the product duties and taxes are going to be, you can embed those costs. So there are a lot of ways around the conversion issue. But I think the long story short is it's important to give your customers a clear understanding of what their total purchase obligation is at the time they're purchasing. And that's what DDP does

Brian: [00:17:57] See now we're getting in the customer experience. That [00:18:00] seems like it's essential for this. If you're going to be a good partner to your customers and you're going to not let them know about a giant fee or not tell them how much that fee might be before the package lands on their door. I [00:18:20] don't even think of that as cross-border, that just seems deceptive.

Phillip: [00:18:24] Yeah. Well, it seems like table stakes, right?

Craig: [00:18:26] Yeah. Yeah. And you know, the thing to think about, too is the customer expectations have changed a lot. So 20 years ago, we talked about that at the outset and I'm living in Toronto. We were just happy to get something. Like, "Wow, [00:18:40] we got something over the border. Amazing," regardless of whether you had to pay or not, you're just happy to get something. But [00:18:47] today we've all become accustomed to, in many cases, same-day delivery. You definitely know what your costs are, so the cross-border customer expectations have shifted [00:19:00] pretty dramatically, so you have to provide a good buying experience. And we talked about shipping. I mean, shipping is the buying experience in a lot of cases, right? And so if you're you go back to the complexity of cross-border and if you're not declaring your goods correctly, you're not telling the government what they are in the way they expect, they could get held [00:19:20] at customs, they could get delayed and again, bad customer experience. So again, it all falls back to our discussion about the Rosetta Stone. If you have good information, if you're providing good information to you're carriers, you can use carriers that can ship pretty quickly and you can provide a great customer experience even if it's going from [00:19:40] the US to Singapore or from the UK to Australia. You can still provide a good buying experience. [00:19:48]

Brian: [00:19:49] And correct me if I'm wrong here, but you really can't ship DDP if you don't have that good data. You would be providing incorrect [00:20:00] data upfront to your customer, which is just as bad as DAP.

Craig: [00:20:08] Well, there is kind of an in-between between DAP and DDP, which is doing DDP badly, which is...

Phillip: [00:20:15] That sounds bad.

Craig: [00:20:17] Doing DDP poorly. You could actually make an acronym [00:20:20] out of that, maybe with some friends or something. But that really means that you're kind of peanut butter spreading things. I've seen that done a lot where you don't know your cost because you don't have the data. But you know that you have to collect something so you just take [00:20:40] a swag and you say, "Oh, for Canada, I'm just going to add 30 bucks to every order. There that ought to do it." And some customers have a great experience and some don't. And it's all based on trying to peanut butter spread complexity over something and make it simple when it just [00:21:00] isn't. And you can get away with that if you've got maybe a few products and they're very similar. But if you've got a wide variety of different products and they change over time, that just doesn't work. You need to know what your duties and taxes are. You need to know what you should be charging your customers and your customers probably know as well. So [00:21:20] if you're charging too much, they're probably going to say no. And if you're charging not enough, they're probably going to say yes. So guess what ends up happening when you do DDP poorly, you end up losing a lot of money because customers are smart and they convert when you're wrong and not when you're way too right.

Phillip: [00:21:43] Are [00:21:40] you considering selling to international customers? I think you are because you are listening to this season of Step by Step. We have partnered with Avalara to create a 40 page merchant's guide to cross-border commerce. This new Step by Step guide will take you through all of the things that you [00:22:00] need to consider when putting people, processes, and platforms into place to have a winning cross-border strategy. Cross-border sales are a great way to increase your customer base and drive revenue and position your brand for the future. But it's not without complexity. You have to consider the customer experience, you have to have a comprehensive timeline. [00:22:20] You have to understand compliance, custom duties, and tax requirements, and you have to work with a wealth of partners. Our eight-step 40 page guide will help you to do that and create a winning cross-border strategy. Download the guide for free right now at FutureCommerce.fm/crossborder.

Phillip: [00:22:55] There's [00:22:40] something we talked about as like the bad customer experience, but you [00:23:00] mentioned something that I think really stood out to me, which is being in the Toronto area, you're very used to receiving packages from across the border, let's say, from the US. And so you're faced with this problem all the time. In the case where you're constantly sort of [00:23:20] being let down, that becomes the norm. To stand out, the superlative experience actually becomes the one that we're talking about, which is the most desirable. It's not even just trying to get on the level with the customer. It's that sometimes you're the only brand who's capable or willing to put in the effort to remove that point of friction with the customer. I can't [00:23:40] think of a better way to stand out than to invest in doing the extra legwork needed to accurately land the package friction-free. And I think it's a more relevant experience now than ever, especially as more brands are coming online and going direct. And you have this exposure, [00:24:00] especially through all sorts of different means, Tik Tok, Instagram, whatever. This desire to be able to do transactions with brands and you may not even realize where they're based, right? So now our whole perception is being shifted and the opportunity to be let down is much higher than it used to be. I [00:24:20] can't imagine going into the idea of we're going to extend beyond into new regions and go cross-border without having considered any of these first.

Craig: [00:24:31] Yeah, no, it's a great point. And that's really the difference with eCommerce. Your shop is wide open to the world, so [00:24:40] you don't want your customers who want to buy your goods to feel like kids with their faces pressed against the candy store window, unable to get in. You want to be able to get in and have a good experience and get the goods that you want. Like you said with social media too a lot of times, you have absolutely no idea where these goods are coming from because [00:25:00] you're purchasing through a social media platform. But you better be able to provide a decent customer experience on the back end because that's what your customer expects. They don't care that you're in the UK and you're shipping it to the US or vice versa. They just want their stuff.

Brian: [00:25:15] Let alone all of the other challenges you have when you're going cross-border. Localization [00:25:20] and understanding culture and things like that. Building out a marketing strategy alone, going into a completely different region that you're maybe unfamiliar with that you're trying to come up to speed on just from a go-to-market perspective [00:25:40] to not have this right as well could just be complete, you could be stepping into failure if you don't have this right first.

Craig: [00:25:49] Yeah. And the other thing that I've seen... You're exactly right. And the other thing that I've seen happen a lot is brands who try to pretend. Like, [00:26:00] [00:26:00] don't try to pretend. So if you're an English-based merchant, don't go and convert language and everything on your website and your product pages if you're not going to follow it through with the entire customer experience, including customer service, including what you're putting in the package, the [00:26:20] shipping documents and packing slips and so forth. It's got to be all-inclusive. So if you're going to localize to a language, you've got to do it all the way through the customer experience. And what I'd say is you're better off sticking with the [00:26:40] language you can deliver a good customer experience in than trying to pretend that you can do it in other languages when you really can't. And investing in all those languages can be cost-prohibitive in a lot of cases. So kind of stick with what you know would be my advice. [00:26:57]

Brian: [00:26:57] You're blowing my mind a little bit. The advice to [00:27:00] merchants listening and I've seen this far too many times. They look at cross-borders like, "OK, how do we get a website up in the language that it's supposed to be in? And how do we get goods from our country of origin to that country?" And that's like the last thing you should be thinking about.

Craig: [00:27:17] It is the last thing. It's absolutely the last [00:27:20] thing you should be thinking about. You should be thinking about getting it there, selecting a good carrier, and making sure that you're collecting payment, you're collecting DDP. Get the basics right. I mean, that's really the key. And the basics start with knowing what your costs are, knowing what de minimis [00:27:40] rates are in various countries, knowing what is allowed in the country in the first place. Getting those basic building blocks right. You can add complexity later, but get the basics right.

Phillip: [00:27:54] So just as an aside, you wouldn't be a merchant [00:28:00] if you weren't over-indexing and unnaturally preoccupied with top of funnel. That's just being a merchant.

Craig: [00:28:08] Sure.

Phillip: [00:28:08] And you also wouldn't be a merchant if you didn't sorely neglect the post-purchase shipping and getting the product to the customer experience. Those are just endemic of [00:28:20] being a merchant. And I think that that's a thing we have worked really hard to try to change. One thing that I say often on the show, on the Future Commerce podcast, is retention is entirely incumbent on your ability to get a product to the customer swiftly and safely. Get the product there [00:28:40] in one piece and fast.

Craig: [00:28:42] That's one hundred percent right.

Phillip: [00:28:42] And they will never convert with you ever again if you can't do that, and I can't think of a worse experience than you do that poorly, but then it costs them an additional tax on top of it. One of those [00:29:00] things that I think we have to start thinking about, too, is how you optimize. And you've talked about some various forms of optimization. There is an operations role to go cross-border. How do you give good advice on how to optimize and sort of optimizing your costs? And is there a supply chain component to that?

Craig: [00:29:20] Yeah, [00:29:20] definitely a supply chain component to that. The good news versus 20 years ago is there's a lot of really good carrier options, depending on the market you're trying to go into. Before, it was really difficult to find good options for getting the sweet spot of kind of the five [00:29:40] to seven day delivery, getting that in place, and getting it in place across all the countries you want to serve. The good news is there are a lot of really great options out there for the supply chain, which is what I'd focus on first. Make sure you can get the goods there, as you said. Payments, the other thing. Again, [00:30:00] a lot of great payment tools now, and probably the payment service providers you're using have great cross-border tools that you can take advantage of. That never used to be the case. So really the missing component and obviously why I'm doing what I'm doing is because compliance is hard and compliance is always changing. We're just going through a five [00:30:20] year revision cycle of the HS code. So HS 2017 is out the window and everyone's at various paces trying to adopt HS 2022. De minimus rates are changing all over the place. Enforcement levels are increasing because governments see all these new eCommerce packages [00:30:40] crossing their borders and they want their money. So I would concentrate on getting the supply chain components right. If you're a merchant, there are good carriers to work with. There are good options for payment. And then the piece that we're talking about, the compliance piece, how do I make sure [00:31:00] that my shipments are compliant? How do I make sure that I'm giving my carriers the right information? How do I make sure that my customers are getting the right information? And that's why we do what we do because that's really, really hard. And I mean, even the biggest of the big outsource these things because it's [00:31:20] just too hard. It just takes too much specialized knowledge and content in order to do it well. So that's what I would look at is how do you solve those puzzles and payment and shipping, you can work with a lot of different providers. There are lots [00:31:40] of options and then it's really the glue that binds everything together is compliance. And as I said, that's why we do what we do.

Brian: [00:31:50] There's a nugget in what you're saying, I think here, which is the supply chain is the customer experience. The way that you deliver your supply chain is [00:32:00] your customers' experience. And I think there are a lot of merchants out there right now who would say that they are all about customer experience. So if you can't get the supply chain right when it comes to cross-border, then you probably shouldn't be doing cross-border yet.

Craig: [00:32:17] Yeah, I would say that's absolutely true. Well, I would say two [00:32:20] things. One is if you're not going to do DDP, don't bother. And if you're not going to get supply chain right, there are lots of good options. As I said, do it DDP and do it with a level of accuracy that you're not just blowing up your PnL. You need to know and understand your costs. You need to understand whether [00:32:40] you're making or losing money on a country by country basis. And the only way you can do that is if you have good data. And the only way you can have good data is if you understand what the rules are and what your obligations are at the border.

Phillip: [00:32:56] Let's make this real. Let's say, OK, I'm a merchant, [00:33:00] I'm bought in, I got to do it the right way. I understand there are all of these things I have to do. The third episode of the series. I understand now that there's a lot of work that's going to go in. I'm not just going to like call some SaaS vendor and flip a switch and turn it on. Ok, let's maybe take a hypothetical, [00:33:20] and maybe you can give us, Craig, an idea of almost how a bill becomes law. I'm a merchant. How do I take the steps to get the information I need? Where am I going to launch into? What products am I looking to launch into? How do I look up all those values [00:33:40] for customs duties and tariff codes and all those? Maybe kind of walk us through it in sort of a hypothetical.

Craig: [00:33:47] Yeah, sure. And we do this all the time with customers, and they're usually at various different points in the sophistication scale and in terms of cross-border. T [00:34:00]o me, the first piece of it is making sure you've got compliance right. So that's typically where a customer comes to us and says, "Hey, what do I do? How do I charge the right amount for duties and taxes for each country?" But let's take a step back from that. To your point, what countries do I go into? [00:34:20] I think it really depends on where you are and who you are. I'm going to make an assumption for the audience or your US-based retailer. You probably want to transact in the English language primarily. So I would be looking at Canada for sure, the UK, probably the EU, and Australia. [00:34:40] And then you can go from there. You can expand from there. Or even Canada, the UK, and the EU are a pretty good start. Pretty big markets. So from there, you're looking at, "OK, how do I ship my goods?" And to get started, you could choose one of the major integrated carriers. They [00:35:00] all provide DDP options. There are more specialized eCommerce providers. There are a number of them out there that have grown out of this ecosystem that are providing specialized services that we work with in various different ways. So I go about selecting here are the countries I want to ship to, and here are the carriers that can cover that. [00:35:20] A lot of good options. And then look to your payment service provider and say, "Hey, I want to take payment in these currencies. What are your fraud prevention tools?" They all have them. And probably the ones that you're using have very good tools that you may just not be aware of. And then really that's where the [00:35:40] next step is where we come in is compliance. Ok, so what do I tell my customers? How much do I charge? How do I give my carriers the right HS code so that they're crossing the border and what I tell the customer is duty and tax is what I actually pay in duty and tax. Well, that's kind of a service like ours, that's [00:36:00] where that comes in. And we work with all the major platforms. We can integrate directly. And that's the service we provide is to try to provide that glue between your supply chain and the data you need to tell your customers what you need to charge and then give your carrier [00:36:20] so that they have the right information when they're crossing the border. And what you think you should pay is what you actually end up paying.

Phillip: [00:36:29] There's something that I'm aware of that might be true or might not be true, so I want you to correct me. We've determined where [00:36:40] we want to sell to. We know that we're based in the US. We would go into these English markets. But depending on the type of product that I want to sell, if I'm a broad retailer, there are probably things that will be more challenging for me to be able to sell into all these markets than others. I have a background in wellness [00:37:00] and supplements, and that's the thing where it's like depending on where you're trying to ship to that can be very challenging from that perspective. There's I'm sure there are all kinds of pitfalls that you have to take into account. Is that something that Avalara also then helps with?

Craig: [00:37:15] Yeah, you're talking about restrictions. There are two types [00:37:20] of restrictions. There are import restrictions. Well, there are three really. Well four, depending on how far you want to go. But there are export restrictions. So can you export it out of the country? There are import restrictions, which means is there some kind of import restriction at the border? And then a third one is are there OGA or PGA, meaning partner government [00:37:40] agency restrictions? And when you're talking about supplements, that's where you run into partner government agencies. Health agencies within the government that would mandate certain concentrations of certain types of chemicals are forbidden. This percentage is allowed. An example for Canada is Health Canada would [00:38:00] say, "Well you can only have this much L-Glutamine in a supplement if you're going to bring it over the border." And those are things you would need to know. And then the fourth one is a carrier type restriction where you don't want you don't want a concentration of Lithium-Ion batteries in the belly of a commercial airplane.

Phillip: [00:38:16] Right, exactly.

Craig: [00:38:17] So [00:38:18] you've got these various different [00:38:20] types of restrictions that are all based on rules that apply depending on the mode of transportation, country of exit, country of entry, and type of good. The short answer is yes. That is something that we do help with is restrictions and understanding whether or not those goods are things that you can [00:38:40] bring into the country that you're interested in. [00:38:42]

Phillip: [00:38:43] It's so shocking to me that you can't just wake up and say, "I need incremental growth in 2022," and flip a switch and start shipping. {laughter}

Craig: [00:38:51] Well, you can. It's just there are implications to that.

Phillip: [00:38:54] Yeah, you can with Avalara. Give [00:39:00] me a little bit of like, make this a little real. What does an average merchant sort of see from a timeline perspective of the decision tree of "I want to go cross-border" to actually starting to land packages? What does that look like? And I'm sure it's different for everybody. What's average?

Craig: [00:39:20] Average, [00:39:20] I'd say, is 60 to 90 days.

Phillip: [00:39:26] Oh, wow. Ok.

Craig: [00:39:27] Would probably be average. But then you have on the shorter end of the scale. We recently announced we're powering Shopify duties, for example, so we're working with Shopify on that program. So if you're a Shopify merchant, [00:39:40] you can take advantage of that through the Shopify platform. So you're kind of up and running right away. A lot of it does depend on the commerce platform you're using and the tools that are available through that. So there are shortcuts through the eCommerce platforms, typically, [00:40:00] that can shorten that cycle, but then it depends on what you want to do too. We have clients who say, "You know what, we want to pre classify all our goods. We want to make sure we understand to the penny what we're going to pay in each country. And we're going to go through that effort and we're going to use this carrier [00:40:20] for this lane, and this carrier for this lane, and this carrier for this lane." And they're kind of putting that all together. That takes a little longer, obviously. And if they're on their own shopping platform and they're integrating directly with our APIs, that depends on the speed of their development team and so forth. But I'd say it could be as fast as flipping [00:40:40] a switch, which with something like Shopify, where you can take advantage of what's already pre-built or where you're doing a full kind of custom country by country build could be in the 90-day range, 90 day to six month range.

Brian: [00:40:54] Yeah, I'd imagine it depends on your catalog as well. I've seen catalogs that require three different [00:41:00] payment processors and multiple shipping carriers and getting all of those pieces integrated as well. Not to mention your go-to-market strategy.

Craig: [00:41:11] Yeah, sure.

Phillip: [00:41:12] There's such an interesting thing here that I think is like generationally... I have my battle scars. [00:41:20] I'm an older guy in eCommerce. And Craig, I don't know you said you've been in this a long time. It sounds like you will remember the days where platforms like Shopify didn't have integrations to platforms like Avalara to give you this shortcut. This was like if you were going to do cross-border, you were carving out two years to do it [00:41:40] from identification to implementation. You had to code a bunch of stuff for your custom eCommerce platform that you're running. Mr and Mrs Big Retailer. The kids have it too easy, I think almost.

Craig: [00:41:54] Well, you know, it's funny you say that because that was certainly the genesis of previous incarnations [00:42:00] of businesses that I've been a part of, like Border Free, where you're building a bit of a black box and you're saying, "Hey, just give it to us and we'll take care of everything." And that had its place. But as things have become more sophisticated, certainly as the platforms have developed their tools and capabilities, it's really, we talked [00:42:20] about localization, and from my point of view, there are kind of four legs to the stool. There's localization, there's compliance, there's payment, and there's shipping. Those are the four kind of pieces of cross-border eCommerce. And when you see what platforms like Shopify are doing, eBay has been doing for a while, you [00:42:40] can see localization and payment and shipping are all things that they're starting to offer in various different flavors. The one thing that none of them are really going deep on is compliance. So obviously that's why we do what we do and we partner with [00:43:00] those platforms to do that. But then you think about if we're partnered with someone like Shopify and we're to deliver their duties program, well, now you've got all four legs of the stool happening through that one platform. I don't need to go and get that black box to deliver that experience. I can get it through my  [00:43:20]existing commerce provider. And I think that that's really, really the beginning. Just we're at the beginning of this trend, and I think Shopify is leading the way. eBay has been doing it for a while as well, so those types of platforms are really the [00:43:40] places where cross-border commerce is happening increasingly, and they're offering more and more of what used to be offered as a separate solution.

Phillip: [00:43:50] On that note, I'll just react to it. I'm not looking for anyone else to pile on here. [00:43:56] It's shocking to me how much today your [00:44:00] eCommerce technology investment has a bearing on your forward operational execution and your ability to be able to adapt to what the new future of eCommerce can be. And I can't think of a prior era where that was actually true. Your ability to go cross-border to do it in the next 18 [00:44:20] 24 months, or within a reasonable time frame, could be very well dependent on what you chose as your tech stack five years ago. And that signals that we're in the midst. We're in the middle of a giant shift between the old pass, like platform as a service or hosted custom software or [00:44:40] open-source era, and into a new era where we have connected composable commerce future. [00:44:47] And that to me is like, there are so many people across that spectrum that are listening right now that I'm sure are kind of thinking to themselves, "Well, what's my next technology investment, next tech stack look like for me to be able to have that [00:45:00] sort of operational optionality?" Because that's what I think a lot of brands, especially those of scale, lack today is they just they're not able to be nimble and be able to put these kinds of operational and growth plans in place because they're hindered by technology. And what a shame. [00:45:20]

Craig: [00:45:20] Yeah.

Phillip: [00:45:22] But anyway, Brian, what a great conversation.

Brian: [00:45:26] Oh my gosh, I learned so much. This has been so good. Craig, thank you so much for joining us step by step.

Phillip: [00:45:33] {explosion imitation} That's my head exploding.

Brian: [00:45:33] Yes, my head's exploding too. We've already learned so much in the first couple of episodes and this one [00:45:40] just took it to the next level. And I am looking forward to the rest of the series. But I mean, I can already say this is probably my favorite episode. That's unfair to people, but...

Phillip: [00:45:51] Not fair, Brian. Not fair.

Brian: [00:45:53] Not fair. This was amazing. Thank you so much for joining us.

Craig: [00:45:57] You're more than welcome.

Brian: [00:45:57] And to all of you listening, thank you so much for joining [00:46:00] Step by Step, Season 7, Episode 3. We look forward to seeing you on the next episode of Step by Step with Avalara.

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