Periodic Reporting for period 1 - DSMFACIL (Facilitating a digital single market in Europe through cross-border alliances)
Reporting period: 2018-09-01 to 2020-08-31
“Nearly all growth in retail comes from e-commerce” states E-commerce Europe, as online sales in Europe grew by 13.3% while the growth in total retail sales merely reached 1% in 2015. However, cross-border sales constituted only 10.6% of Europe's total online sales in 2013, despite the European Commission’s (EC’s) estimate of €415 billion annual contribution to European economy from a European Digital Single Market (DSM), which is currently one of the top priorities of the EC. Besides language barriers and differences in legislature across the EU, the EC states that low engagement can be attributed to several operations related issues concerning logistics. This project aims to develop an interdisciplinary framework to study the cross-border demand dynamics as well as their implications for cross-border alliances between retailers for enhanced cross-border customer acquisition, distribution, and after-sales support. As such, we study the drivers of cross-border demand empirically, and analyze the impact of logistics related aspects on customer acquisition from abroad by considering several elements such as culture, regulation, and economic wealth. We develop an analytical modeling framework to study the cross-border alliances in terms of profitability.
The project resulted in a comprehensive empirical study on understanding the cross-border demand dynamics with respect to the retailer and consumer characteristics. Our work has shown that there exist significant differences in consumer shopping habits in terms of gender, education, etc. From an operations perspective, we have found that the heterogeneity in the logistics capabilities of different EU countries lead to a big fragmentation in the EU e-commerce market. In their cross-border purchases, consumers choose to buy from retailers that are located in countries with high logistics capabilities. Yet, our findings have also shown that improved logistics capabilities would not always lead to higher cross-border sales for retailers. Importantly, we find that the rule of law in a country is a big determinant in how much demand the retailers can attract from abroad. As such, we find that consumers would be very reluctant to buy from countries where the regulative systems cannot be trusted, no matter how good the logistics performance is. In addition to this data-driven study, we have also developed an quantitative modeling framework to study the optimal revenue sharing schemes between two cross-border retailers where profitable payment schemes are studied. The findings have the potential to benefit retailers who want to expand their sales abroad. The work carried out in this project has been disseminated via several international conferences such as POMS, INFORMS, EURO conferences, as well as in events and workshops organized with other EU-funded projects, and through press releases.
Our findings provide important insights for retailers in their location decisions and identifying partners with whom cross-border alliances can work and be beneficial. From a societal perspective, our results suggest that investments in the logistics infrastructure can help defeat market fragmentation in Europe. Importantly, however, the expected gains from such investments may be undermined by the lack of trusted regulative systems. This highlights the potentially complementary nature of these two aspects (operations and the rule of law) in policy-making, emphasizing that the government investment in one may not substitute for the lack of the other. In the long run, the insights gained in this study will potentially help increase cross-border e-commerce engagement in Europe, which will directly benefit 1) retailers by expanding their markets and 2) consumers to enjoy a wider variety of goods and services. This will help set the ground for innovation and price reduction incentives.