Few international markets are as appealing to German online retailers as the USA: minimal cultural disparities, substantial purchasing power, and near-complete digital penetration. For comparison: Statista Market Insights projects a revenue of €859.60 billion in E-commerce for 2023 in the USA, whereas in Europe, it amounts to only €220 billion. Nonetheless, embarking on establishing a presence in the United States without proper guidance often proves to be a costly misinvestment. This article elucidates the specific focal points you must emphasize for a successful entry into the US market.
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Barriers: Challenges to Market Entry in the US
To illustrate why a business model that works in Europe isn't a guaranteed success in the USA, let us briefly recall a few terms from economics:
Open Market and Closed Market
An open market is characterized by the absence of any access or exit restrictions. Any provider and any demander can enter and exit at will; competition alone regulates prices and supply.
In contrast, a closed market is subject to specific regulations that make market entry difficult or even impossible. Typically, these regulations are imposed by the legislator. For example, the import of fruits and vegetables into Australia is heavily restricted; the import of most goods into North Korea is completely prohibited.
Market Entry Barriers
All regulations and laws that hinder market entry are referred to as market entry barriers. As globalization has progressed, many of these trade barriers have been dismantled, although not entirely extinguished. Tariffs on many goods still exist, some countries require a legal representative on-site, or they complicate market entry for traders through generous subsidies for domestic products.
Barriers to entry
The term "market entry barrier" initially encompasses market entry restrictions but takes a significant step further. In economics, market entry barriers refer to all obstacles that traders can encounter when conquering new markets. These barriers can be categorized as follows:
- Structural barriers to market entry (e.g. infrastructure, logistics network)
- Technological barriers to market entry (e.g. number of internet connections)
- Strategic barriers to market entry (e.g. marketing strategy, pricing strategy)
- Cultural barriers to market entry (e.g. product presentation, payment options)
- Legal barriers to market entry (market access restrictions)
For the USA, structural and technological market entry barriers can be neglected. The country is structurally well-connected with an extensive network of railways, roads, and logistics centers; 85 percent of residents regularly make online purchases. On the other hand, strategic barriers can only be meaningfully addressed on a product-specific basis – introducing German-made reinforcing steel ("Stabstahl") into the USA requires a different market entry strategy than establishing health-enhancing sole sandals.
In this article, we therefore focus on cultural and legal barriers to entry.
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Making a difference: Cultural barriers to entry
If you were suddenly dropped in a US city out of the blue, you probably wouldn't stand out or encounter significant difficulties. The cultural differences between Germany and America are just too slight for that. However, when it comes to online commerce, there are several things to consider:
Customer service
The expectation of customer service is perhaps the most crucial distinction between the USA and Germany. Walking into a store and being left on your own is unthinkable in America. A similar service is also anticipated by Americans when shopping online. Therefore, place a significant emphasis on:
Delivery times
Free delivery within 24 hours is the norm in the USA. Shipping costs generally deter consumers; only for exclusive imported items are they willing to pay postage and exercise patience. For products facing fierce competition and a multitude of market competitors, having a local logistics network is thus imperative.
Exchange
American customers also anticipate the highest level of flexibility when it comes to returns. Charging fees for returns or rigidly enforcing legally mandated deadlines is detrimental to the business. In the USA, 30 percent of online shoppers will promptly abandon their purchases if they are dissatisfied with the return policies.
Support
Slow response times to inquiries or issues also do not resonate well in a country known for its exceptional customer service. The German practice of "We will respond to your email within five business days" is completely unacceptable. To stay competitive in the US, having a well-staffed hotline or online chat is essential.
Privacy Policy
No, the USA doesn't have a GDPR, and some individuals have become billionaires by selling their customers' personal data. However, precisely because of this, many Americans are very sensitive when it comes to data privacy. A Privacy Policy, in which you commit to handling personal data confidentially, is therefore an integral part of every online shop.
Payment
Just like anywhere else in the world, the same applies in the USA: if you don't offer the most popular payment options, customers will abandon their shopping carts. In America, the big three are:
- PayPal
- Credit card
- Direct debit
Furthermore, electronic payment services like Apple Pay, Amazon Pay, Google Pay, Venmo, Payline Data, and Stripe are also significant. You can completely disregard purchasing on account or even cash on delivery.
Product placement
While a German may thoroughly examine the data sheet and be influenced by the seal of approval from Stiftung Warentest, an American prefers to click through product images. Visual shopping takes precedence here. Therefore, high-resolution eye-catching visuals are indispensable. However, this doesn't mean that Americans don't seek information. But it needs to be fast. Nobody in the US reads product descriptions, no matter how evocative they may be. Bulleted points outlining all the advantages of an item are entirely sufficient.
Furthermore, a word about the "Made in Germany" label: For many people in the USA, German engineering is still considered a distinction. Machinery, cars, industrial goods – here, an appropriate indication is worthwhile if you indeed manufacture in Germany. However, for other products, the "America first!" principle has often taken root in many minds. Therefore, if your market analysis reveals that you'll be competing against strong American competition, it might actually be worth considering production in the USA – "Made in U.S."
Finally, the price can be displayed boldly (and without tax). Because while in this country the saying goes: "People don't talk about money", things are different on the other side of the pond. Tell me your price and I'll tell you if we can do business.
The language
The USA doesn't have a single official language, but unofficially, English is assumed everywhere and always. Of course, it's the American variant, so it's "color" and not "colour," for example. Linguistic diversity isn't appreciated. While a somewhat clumsily translated store from the Netherlands might still be seen as endearing here, poor English is off-putting in the USA. Therefore, we recommend having texts professionally translated (or even localized) at all times.
Search engines
If you want to be found in the USA, there's no way around Google. The company holds a market share of almost 80 percent. Far behind are Bing (15 percent) and Yahoo (3.5 percent). However, we advise keeping a close watch on developments in the search engine market. Microsoft is currently working diligently to shake up the search engine world using AI, and Americans, especially the educated and affluent population, are eager early adopters.
Social Media
Social media platforms play an even more significant role as marketing channels and referral platforms in the USA compared to Europe. 40 percent of all purchases are made following a mention or recommendation on social networks. Thus, a successful market entry in America always includes a well-planned social media strategy. Advertising banners and influencer marketing are fundamental tactics. However, an even more effective approach is to establish a dedicated presence and build a substantial following of your own.
The most important social media platforms in the USA are:
- Snapchat
- YouTube
Marketplaces
For initial market exploration and planning a successful market entry strategy, it often makes sense to first test your offering on one of the established marketplaces. This provides a low-risk opportunity to experiment with purchasing interest, pricing, and marketing strategies. The industry leader, also in the USA, is Amazon. Sellers benefit from the company's extensive logistics network. For products in the arts and design sector, Etsy is worth considering – the platform is much larger in the USA than in Europe. eBay is also a familiar name to Americans as the third-largest marketplace.
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Policy issue: legal barriers to market entry
There remain the legal ones. Please note that we cannot offer you binding legal advice at this point. On your way across the Atlantic, always consult an expert. However, we will be happy to tell you what you should definitely ask them about:
Jurisdiction and applicable law
In the realm of online commerce, jurisdiction can sometimes be unclearly defined. This is due to the relative newness of technology and the slow-moving bureaucratic processes – as incredible as that may sound. Generally, it is assumed that for a commercial transaction, the law of the country where the website was accessed should be applied. So, even if your shop's server is located on European soil, an unsatisfied customer in the USA could still invoke American law. In such cases, the law of the respective state always comes into play. These state laws can vary significantly. What might be allowed in Texas could be prohibited in Nevada. As a fundamental guideline, only the minimum regulations concerning product quality (implied warranties) apply to the entire USA, governing the suitability and intended use of a product.
Our Tip: For your own protection, always align with the legislation of California. The Pacific state has the most stringent consumer protection laws by far. If your shop complies with Californian law, you're likely to be on the safe side throughout the rest of the country as well.
Additionally, please note that these regulations exclusively apply to B2C commerce. For B2B sellers, the UN Convention on Contracts for the International Sale of Goods (CISG) always applies.
Taxes
In principle, foreign sellers in the USA are not obligated to collect Sales Tax. However, this regulation predates the global online commerce boom, and no country in the world willingly foregoes taxes. Consequently, nowadays having what's called a "Nexus" in the USA is sufficient to trigger sales tax liability. There are distinctions between:
Physical nexus: If you have a store, a warehouse or your own employees in the US, these qualify as physical nexus and render you liable for taxes. Some states even go a step further, counting collaboration with a fulfilment service provider, running advertisements, or having inventory on-site as constituting physical nexus.
Economic nexus: You have economic nexus if your sales exceed a certain threshold. The precise threshold is once again determined separately by each state.
You'll become a proud owner of a Nexus sooner than you might think. Additionally, we'd like to point out that you might be obligated to remit Use Tax for sales between different states, and Direct-to-Consumer (DTC) sales can indeed be exempted from all tax obligations according to current jurisprudence. Tax matters in trading with and in the USA can become quite intricate. Thus, when entering the US market, always seek professional advice for tax-related matters.
Main sources of information
Finally, we would like to provide you with a list of the most important databases on market development in the USA. There you will find current laws, regulations and rules:
- The European Commission's Access2Markets database is one of the best places to start. It provides an overview of import regulations, tariff rates and trade statistics.
- The US Embassy's website provides a step-by-step guide to legally expanding in the US.
- The U.S. Customs and Border Protection (CBP) website has all the information you need on import regulations, as well as FAQs on many special topics, such as importing live animals, food or seeds.
- he requirements for product approvals can be found on the Food an Drug Administration page (FDA).
- Customs questions about exporting to non-EU countries can be answered on the homepage of the German customs authorities.
Despite all the barriers to entry, and contrary to the protectionist ideas of an ex-president, both the EU and the US have a significant interest in active trade. The respective authorities thus endeavor to facilitate your market entry as much as possible.
Market access USA
The most important points summarized succinctly: Customer service is written in bold capital letters for Americans. To achieve a successful market entry, you must swiftly bid farewell to the notion of German service deserts. Many other aspects – Google, Amazon, social media – aren't that different across the Atlantic from our practices. However, legal barriers to market entry can swiftly become complex due to the varying regulations in different states. In such cases, only securing expert advice can help, as it's well-known that court settlements in the USA tend to be significantly larger than in Europe.
All that remains is one last sentence: Good luck with your market entry in the United States of America!