Editor’s note: This is a guest post by Kristella Pender, Director of Sales and Marketing at 1Office Group.
During the past two decades, eCommerce has grown at an exponential rate and created giants like Amazon, Alibaba, eBay and more. eCommerce businesses are expected to grow at an ever-increasing rate, creating a huge opportunity for entrepreneurs around the world.
Business models like drop-shipping, e-shops, Amazon FBA, etc. have all emerged and become popular rather quickly. Recently, drop-shipping has gained massive popularity in Asia. Let’s start with an example – typically a drop-shipper used to be a tech-savvy businessperson in London or Berlin who realized during a vacation to India that leather shoes crafted there are absolutely fantastic and yet much cheaper than an average pair in Europe. Immediately it clicked that this is indeed a business opportunity. After some bargaining and negotiations, an agreement to export these products to Europe is finally reached.
What’s next? Selling to the end consumer!
Begin selling on Amazon as a pan-European FBA (Fulfilled by Amazon) seller since unlike other eCommerce giants, Amazon takes care of warehousing and logistics and has of course grown its brand to echo trust and credibility. Amazon offers a variety of different warehouse hubs across Europe allowing customers to access the Amazon website nearest to them.
Want to learn more on how to start selling on Amazon UK & EU using solutions covered in this post? Join us on November 20th as experts from Payoneer and 1Office explain how sellers can benefit from using their services and take their eCommerce business globally!
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Amazon deals with the entire logistics chain for the seller and allows sellers to focus on their core business and marketing activities. Let us not be naive – there are indeed many micro-decisions and tasks involved with shipping, product labeling, business management, etc., which all need to be streamlined before a seller can begin. Let’s call it – The Amazon Universe!
To fully understand the Amazon Universe, it is important to highlight some of the major challenges associated with running a cross-border drop-shipping/Amazon FBA business.
Amazon experts and consultants have not been able to solve a major challenge which has restricted drop-shipping businesses & Amazon sellers from growing to their full potential – high accounting costs and bureaucratic reporting requirements in Europe.
In an attempt to provide a solution, many third-party software and technology products have been invented to collect VAT-related data and provide accurate information which can in turn be transmitted to the relevant authorities. Unfortunately, none of these solutions are fully compliant, and to ensure smooth operation of an Amazon account, any seller whether based inside or outside the EU (but selling in the EU of course) has to rely on human talent.
What’s the solution? Using an external service provider for accounting and reporting purposes. This allows the seller to maintain focus on the core business and outsource a set of administrative tasks to external experts. However, this creates a new challenge – since this involves manual work, as sales volumes rise, so do the book-keeping and reporting requirements and as a result time per manhour needed for this purpose.
For sellers based outside Europe, in major hubs like India, South Korea the U.S. and Central Asia and Caucasus region countries like Ukraine, there are even more challenges. At times they need to find a VAT guarantor to be able to register as a VAT payer before being accepted as a pan-European Amazon FBA seller and most companies are either unwilling to act as guarantors since they would be penalized in case of any issues on part of the non-EU based seller or simply end up charging a hefty fee to act as guarantors.
In countries like India, South Korea or Ukraine, governments pursue protectionist policies because of which even though fintech solutions like Payoneer (official payment partner for Amazon), etc. are available, they are unfortunately restrictive and lose a large part of their utility as better banking alternatives. This further creates challenges – for example, in India, sellers cannot maintain foreign exchange reserves in their Payoneer accounts beyond a certain time-limit which makes it challenging for businesses to pay suppliers or even issue refunds.
There are even more micro-challenges in accessing suitable banking solutions which sellers face, but these mentioned above are the biggest ones which really can make or break ambitions of becoming a global entrepreneur.
The solution clearly seems to be to have an outpost – another company based in Europe which can benefit from easier VAT registration, accessing the European version of fintech solutions like Payoneer. Yet again, this is not as easy as it seems, even for many people based inside the EU since incorporating a company in most European countries comes with more bureaucracy, rather large startup capital requirements, need for local director or employees, and the list goes on.
For non-EU sellers, in addition to the above, this is compounded by the need to provide Power of Attorneys (PoA), be physically present in the respective country where they would like to open a company during the establishment process and sometimes even an obligation to physically have an annual board meeting in that country.
This already pushes small and medium sized sellers away because they lack resources to be able to comply with all these requirements and simultaneously run their business, while paving the way only for larger companies to grow and that too after crossing all these hurdles.
Fun fact; Estonia is a rather small EU nation with 1.3 million people located right next to Finland. Today, Estonia has one of the most advanced e-governance platforms in the world with over 5,000 e-services which citizens can access at the click of a button ranging from e-police, e-law to e-health, e-prescription and of course even e-tax and e-business registry. Tech in general really has been Estonia’s forte – Skype is an Estonian invention too!
In 2014, a few visionaries in the public and private sector got together and wondered that if Estonian citizens and residents could so easily access public services electronically from anywhere in the world then why could they not extend at least a section of these e-services to foreign businesses operating in Estonia to access the EU single market. This gave birth to the Estonian e-Residency program in late 2014, through which the government issues a digital-identity card, using which an e-resident who can be a national of any foreign country, can establish and manage their business entirely online. Everything from digitally signing documents & contracts to declaring taxes in Estonia, all at the click of a button from anywhere in the world.
Unlike other countries, Estonia does not mandate companies to have a local director or any local employees and even has one of the most business-friendly tax systems in the world. Estonian companies do not pay any tax on reinvested profits or undistributed income, which in essence implies no corporate tax. This was designed specifically to encourage small and medium companies to grow as efficiently & quickly as possible.
How does this help drop-shippers and Amazon sellers wanting to sell in Europe? Well, the first advantage is clearly the time & money cost. To be successful and provide easy company establishment and management services like virtual accounting, virtual office, etc. the government decided to create a highly collaborative public-private partnership (PPP) model. This is where a service provider like 1Office comes in, which was in fact one of the private-sector contributors during the creation of the e-Residency program itself.
For eCommerce sellers, 1Office understood the challenges listed above, and created the first ‘one-stop-shop’ solution where a seller who would like to start selling on Amazon Europe (starting with Amazon U.K.) from anywhere in the world can access the following:
To top this all off, 1Office has even included the cost of applying for the e-Residency card for first time e-residents, truly creating a streamlined solution where sellers do not need to complete multiple processes to start selling! In the near future, we also plan to offer sellers multi-channel solutions to sell in other EU marketplaces together with additional consulting services.
For more details, please visit 1office.co/amazon or contact us at sales@1office.co.
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Kristella Pender is the Director of Sales and Marketing at 1Office Group, a business services provider in several EU countries. Kristella has an MA in Business Management & Marketing and she has been working in the field for many years. Among helping clients from all over the world to start their location independent business, Kristella also participates in several 1Office projects that involve accounting, legal services and virtual office.