(Dow Jones)--Companies looking to boost their online business by
expanding abroad need to be realistic about the challenges they face, including
brand translation, marketing and costs, according to independent research firm Forrester Research Inc. (FORR).
With online sales in the U.S. maturing, retailers are looking to other parts of the world for some of their growth, said Forrester Research analyst Carrie Johnson in a recent report about companies taking their online sales abroad.
While U.S. online sales should have a compounded annual growth rate of 14% during the next five years, those sales in Europe will have a growth rate of 33%, Forrester said.
European retailers are looking to get their share of customers in the U.S. because European consumers are slower to adopt online shopping compared with their U.S. counterparts, the company said. That's led U.S. retailers to feelhey need to be global.
Having online sales is also a cheaper avenue for establishing a brand presence compared with building a store, and it's a good way to test a country's interest, the report said.
Regions that have potential include Asia, Latin America, Eastern Europe and India, the Forrester report said. Expanding abroad, however, isn't without hurdles. Branding and marketing are "hands down" the biggest challenges, Johnson said. "It's not a technology issue or a management issue, but whether your brand translates there and how much it costs," she said.
Retailers, especially those without the brand recognition and worldwide presence of the most well-known companies, need to evaluate existing brand awareness and the competition before going into new markets, Forrester's report said. U.S. companies spend millions in online marketing as well as existing channels and brand strength to fuel their online sales, the report said. Those companiesalso need to have big budgets when they go abroad.
For online jeweler Blue Nile Inc. (NILE), the costliest aspect of doing business outside the U.S. is technology, Chief Executive Mark Vadon said. "When you look at moving from a single Web site to multiple sites with local content, you have those multiple sites running off a single platform," he said. "You need some local presence, you need fulfillment, but a significant piece of the cost is technology." Blue Nile had been selling items to Canadians from its U.S. Web site for a couple years but launched a stand-alone site for Canada in January. It launched a site in the U.K. last fall without any marketing muscle to see what interest the site would garner. Sales are doing well enough that Blue Nile plans to havea full site in the U.K. by the fourth quarter, Vadon said.
There are other challenges for companies beyond brand translation and costs. One is language. When eBay Inc. (EBAY) launches a site in another country, it has to make sure the language on that site is "contextually correct," spokesman Henry Gomez said.
"There are local people doing the translating because there are nuances to any language," Gomez said. "EBay is instantly local, so much of that issue is solved by users when they list items on the site, but we need to make sure thenavigation and the words we use are appropriate for the market."
EBay has local sites in several countries, including Germany, India, Italy and South Korea, as well as the U.K. Retailers also need to be aware of differences in taxes, duties, accounting, legal issues and shipping regulations. In addition, companies need to know local customs and traditions, Blue Nile's Vadon said.
