Comparative analysis of traditional foreign trade and cross-border e-commerce: industry characteristics and market trends

Traditional foreign trade refers to the model in which domestic enterprises sell products to overseas markets through intermediaries. It usually requires multiple links, and its characteristics are in sharp contrast to cross-border e-commerce. This article will explore the characteristics, operating procedures and advantages of cross-border e-commerce of traditional foreign trade, aiming to provide practitioners with a comprehensive industry perspective.

Characteristics of traditional foreign trade

1. High-volume, low-frequency orders
   Traditional foreign trade mainly relies on large orders. This model makes the company’s cash flow stable, but the frequency of orders is low. There is a common phenomenon in the foreign trade industry that “if an order is not issued for a year, it will take another year”, which reflects the cyclicality and uncertainty of foreign trade orders.

2. The transaction process is complex
   The transaction process of traditional foreign trade includes inquiry, quotation, sample confirmation, contract signing, deposit payment, production arrangement, customs declaration and shipment, bank settlement and other links. Every link needs to be tightly controlled, especially when it comes to new product development, these procedures will become more complicated.

3. A lot of customs clearance information
   According to the general trade export model, the documents required for customs declaration include customs declaration power of attorney, commercial invoice, inspection and quarantine certificate, etc. The preparation of these materials requires a lot of time and labor costs for the company.

4. There are many middlemen and high costs for consumers
   Traditional foreign trade usually involves multiple middlemen, which increases the degree of information asymmetry between buyers and sellers, ultimately leading to higher costs for consumers. Each middleman link needs to set aside a profit, and the selling price of the goods will increase accordingly.

Overview of cross-border e-commerce

Different from traditional foreign trade, cross-border e-commerce usually relies on Internet trading platforms, mainly B2B and B2C models. According to data from China Customs, China’s exports of goods reached US$336.35 trillion in 2021, showing a continued growth trend. The rise of cross-border e-commerce allows companies to more accurately grasp the product needs of regional markets when connecting with the international market, and achieve more efficient transactions through chain optimization.

Advantages of cross-border e-commerce

1. Flat trading model
   Cross-border e-commerce breaks the traditional lengthy transaction chain and directly connects manufacturers with end consumers. This model allows companies to quickly respond to market demand, reduce the cost of intermediate links, and increase profit margins.

2. Share profits from terminal sales
   Through cross-border e-commerce, many manufacturing companies can directly face end consumers, thereby achieving higher profits. Different from the meager profits under the traditional model, cross-border e-commerce has improved the premium ability and market competitiveness of products.

3. C2B model improves product design
   In the cross-border e-commerce environment, consumer demand dominates product design. Through big data analysis and market research, companies can accurately meet customers’ personalized needs and produce higher-quality products.

Taken together, although traditional foreign trade has its specific advantages, cross-border e-commerce has obvious competitive advantages in terms of market agility, efficiency and profit margins. Under the current economic situation, understanding the characteristics and market trends of these two trade models is crucial for enterprises to adapt to changes and formulate strategies.