A few days ago I was interviewed by a representative of the German Government. Her task was to investigate and report on cross-border ecommerce within Europe. The focus for her report will be to better understand the challenges and difficulties experienced by those involved in European online retail along with what is needed to improve (EU/German) competitiveness.The backstory for the German investigation is an appreciation of how China has quickly become the number one ecommerce country in the world. Importantly, how China is now leveraging its digital muscles to generate advantages in global trade and how might Europe respond in order to successfully compete.The UK dominates European ecommerce. Latest figures from the European Commision show that European online retail for 2017 is €534 billion at an average growth rate of 11%. Of that, the UK accounts for a whopping €178 billion - i.e. the UK is responsible for a third of all European retail ecommerce with less than 9% of Europe’s population. German and France each have around €93 billion in retail ecommerce; i.e. the UK‘s B2C ecommerce market is around the same as France and Germany combined.One of the central issues in selling across Europe is that every European country operates with different VAT rates, different levels of duty, different distance selling thresholds and different legal requirements for what can and what can’t be sold. For example, VAT rates vary between 25% and 8% and distance selling thresholds can vary between Holland’s €1.3k and the UK’s £83k. Other taxes such as excise duty also vary between different countries. These variations are also different for different types of goods such as wine, spirits, tobacco.Each European country has a completely different banned products list. Austria bans Melatonin and Viagra while Germany bans Citizen band radios and Coffee samples. Denmark bans Furs and Psychotropics while France bans Nazi Memorabilia. These trading differences mean that any company selling into each of these different markets needs to ensure that their product feeds have country-specific filters operating. Failure to do this can result in an ecommerce supplier getting banned. We know of one company who lost a six-figure turnover of sales due to just one error in an eBay feed.One other set of restrictions that is country specific involves advertising. For example, different rules apply across different European countries for the advertising and promotion of alcoholic products as well as smoking or vaping products. Websites such as Google.se or Google.co.uk with searches such as ‘whisky’ show how rule variation is applied. In the UK there are a large number of paid adverts whereas in Sweden there are none.One consequence of the numerous trading differences between different countries is that different online marketplaces show significant variation across Europe. The following map shows the leading marketplace used in each country:
Scandinavia and the UK which, as a group, have the most mature online markets across Europe make most use of eBay while central European markets tend to be more strongly dominated by Amazon. Of greatest interest is how the recent upsurge in the use of Aliexpress is now making it the most popular marketplace in places such as Poland, the Ukraine, Bulgaria and Holland. In Russia, Aliexpress already has 69% of the online marketplace share. This contrasts dramatically with the US where Amazon has around 50% of the entire online market.eBay’s Global Shipping Programme allows UK businesses to sell their products to Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden. At this moment, while European customers are able to make use of the shipping programme, eBay sellers are not.Both Amazon and Aliexpress operate similar seller programmes. For the moment, Amazon hold the advantage of having better supply chains through their Fulfilment by Amazon programme. This mechanism is available throughout every country in Europe. This means that Amazon is able to undertake all aspects around the marketing, selling, stock-control, pick-pack-dispatch-returns of products. This does have the advantage to small businesses of them being able to focus on product development and manufacture. However, the serious downside is that by doing this you effectively hand over control of your sales and marketing operations to Amazon. Customers are no longer your customers, they become Amazon customers.The final aspect of European ecommerce we touched on during the interview was around taxation. While local small companies are easily regulated and taxed within each country within the EU, global behemoths such as Alibaba, Google or Amazon are not. Stronger regulation and taxation of these super-ecommerce channels should be pushed up the agenda following today’s (3rd August 2018) announcement that Amazon profits have trebled while their UK corporation tax bill has actually halved.Another practical suggestion to help EU ecommerce performance is to correctly comply with and implement their own distance selling regulations by ensuring that VAT was paid in the correct way and at the right level. Here in the UK I am aware of several ecommerce businesses selling products from the UK to Germany that total significantly more than €17, 500 and yet are not being charged the 19% required level of VAT. The only country that we are aware of within Europe that correctly charges ecommerce businesses the correct VAT tax is Sweden. While European Governments are slowly starting to become familiar with the issues and complications surrounding ecommerce, their starting position should be to correctly implement a common framework and mechanism for ecommerce taxation across the continent. Any such solution would certainly make things a lot simpler when thinking about the movement of goods across a border such as between the North and South in Ireland. Not surprisingly, nobody has brought that up as a component of the Brexit negotiations. We know of one UK-based company that has sold over three times the distance selling threshold to Southern Ireland and is yet to pay one cent in VAT. How brexit might impact that bit of trade is a whole new can of worms.