Sell International - Deliver Local (Part 2)

February 12, 2009 · by Nate Gilmore

This is Part 2 of my post on growing your business internationally and the benefits of local order fulfillment over international shipping.

The Value of Delivering Locally

The mechanics of getting goods overseas can have a few pitfalls, I describe these more in the section "Get Ready Before You Go".

First, let me help you understand the value of having a small amount of inventory closer to end buyers. You will quickly see, it is worth the minor hassles.

• Grow: In a nutshell, you will be able to scale growth because your business will operate as a more efficient machine.
• Customer Delight: Customers will be delighted with your fast delivery times and local shipping prices. Making your product look like a local shipment leads to increased conversion rate, and more repeat customer purchases.
• Hassle free returns: If you ship international and the product needs to be returned by the customer or by the parcel carrier for non-delivery, you stand a very good chance of losing the product or at least any profit for the sale. With a local warehouse, returns go back to the warehouse and get re-stocked, just like in your local market.
• Leverage Promotions: You will be able to use bundled shipping as a promotion ("Free shipping in Canada"). If you offer shipping promotions based on domestic shipping costs, you probably can't maintain those promotions when you ship international. However, if you move product into the region, and use a local parcel carrier, you can bring your free/discounted shipping promotions to overseas buyers.
• Scale without hassles: You will have less shipping hassles as volume increases. Once you have some success internationally, the last thing you really need to do is slow sales while you play catch-up with your fulfillment infrastructure. Do it right the first time; then you just need to flow more products through the "efficient machine" that you created.
• Keep cash in your pocket - pay only for what you use: Order fulfillment today does not have to involve large commitments of upfront capital or contract guarantees. You don't need to build out a warehouse. Pay for order fulfillment like you do for Pay-Per-Click...based on successful sales.
• Build a machine: Once you have done this with one region, you will be able to repeat this process in new countries. Leveraging your success in one country to reach into a second or third market.

You are probably asking yourself, how much can I save by moving inventory abroad and fulfilling locally? Shipwire has a global shipping cost calculator that demonstrates the savings by fulfilling locally in the U.S., Canada and the U.K. You can see the time and cost savings for a given shipping volume. [Note, you will need to add freight costs to move inventory. We hope to add freight movement costs soon; but, this will help you get an idea.]

Get Ready Before You Go.

1. Research and Marketing

We talked about sales history before. The flip side is market research. Investigating where you are going and how you will get your products in front of buyers. Practical E-Commerce has a lot of information for conducting market research, researching new keywords for search engine optimization, and even international payments. Rather than write an exhaustive article on market research, ask yourself:

• What marketplaces will drive buyers to your website?
• What keywords and local phrases describe your product?
• What are the pay-per-click prices for regional keyword buys?
• What directories can you use to seed your catalog?

Take the time to write down a marketing plan (or just an outline). Understand your short and long-term product distribution goals, and visualize what marketplaces you want to use to distribute products.

2. Getting the Product into the Warehouse.

At Shipwire, we break up the entire fulfillment process into a process: (1) Getting goods in to the country/warehouse ("Inbound receiving"); (2) Getting the order ("Automating Order notification and processing"); (3) Getting the goods out of the warehouse ("Outbound Shipping" either B2C or B2B).

Sound scary? It's really is not.

For (2), your existing website can be quickly changed to focus international Web site visitor into a special Web store category - maybe a shopping cart category called "Canada Customers" or "U.K. and European Customers". Then just swap out your PayPal buy-now buttons or confirm your merchant account can take foreign currency.

For (3), shipping is pretty easy once you have product in the warehouse. It can be as simple as swapping out Canada Post or Royal Mail for U.S. Postal Service.

That leaves getting product into the country as the hassle. Let me focus in on this. You will likely be making an LTL freight shipment (less-than-truckload) from your existing warehouse via a freight forwarder and customs broker. Ask around (or ask Shipwire) for a couple freight and broker names that specialize in international freight, and have experience with the country you are targeting. Always get multiple quotes.

Importing in bulk looks different to a customs agent than an individual parcel shipment. Customs will scrutinize your inventory documentation and tax paperwork. One option to successfully import in volume is to register your company with the local tax authority. This option will provide you a local tax ID for the importer of record. It is typically not difficult to get a tax ID, a couple forms sent to the right place.

There are benefits from registering and dealing with taxes in country, here are a couple:

• To be blunt, taxes are complicated, and doing them wrong can get expensive. Do yourself a favor, talk to a local tax advisor BEFORE you ship a large amount of inventory. Shipwire can give you a few names for Canada or the U.K. if you would like.
• When you send inventory to yourself at your overseas warehouse, you are changing from one tax jurisdiction to another. It is a "transaction" and customs will expect a tax check in addition to customs fees and duties. The three are known as "CDT".
• If you currently operate in the U.S., you need to get the equivalent of a Federal Tax ID. In Canada its called a "Business Number". In the U.K. its a "Business Registration".
• If you are familiar selling in the U.S., you may struggle to understand how taxes are handled abroad. Basically, the rest of the world is on a system called "Value Added Tax" (VAT). The Canadians call it "Goods & Service Tax" (GST); but, it is basically VAT. It is different than the sales tax system we have in the U.S. Governments love the VAT system because the participants in the supply/sales chain audit one another, and only pay tax on the incremental "Value Add" that each participant adds to the product. Each participant needs to know what the value of the product is at the point where they receive it. Check out Wikipedia on VAT if you really want to learn the history or the lingo. [Interesting side-note: My buddy Mike, who helped me understand this, runs a tax software consulting business. He estimated that the cost of sales tax enforcement and auditing in the U.S. is around 5% or more of total collected tax revenue. In a VAT country, the audit cost is less than 1.5%. Businesses bear the cost, not the government.]
• You want a local tax ID and you want to file taxes locally because if you don't you will likely overpay VAT taxes. When you import you will need to pay VAT on the value of the imported product (Basically "Supplier Cost"). When you sell to a local buyer you will charge them a VAT tax. You will have to pay the government the full retail VAT tax amount unless you can prove you already payed a portion of tax (aka, your import tax payment) - in which case you only have to pay the difference between Import Value and Retail Value tax amounts.

In the U.K. there is an alternative to a full business registration that involves registering your business as an importer with the U.K. government and getting electronic Binding Tariff Information and a TURN number. See the Shipwire UK Warehouse Guide for links and more information on this.

I've gotten asked more than once, if you can flay under the radar for some amount of time. You shouldn't; but, I've seen merchants with small products test a new warehouse by shipping a small parcel shipment of inventory to the warehouse using gift customs forms, and just test a few sales. Clearly, I can't recommend this as it breaks down, and you can't build a business around this method.

3. Partners provide leverage

Don't let the use of the word leverage here give you sub-prime mortgage nightmares. Leverage is a core law of physics. Use a pulley and you know that you can lift a heavy burden with a small amount of force. Partners are critical to your success; but, you have to use them correctly. An 'in country' order fulfillment partner will offer local warehouse expertise at a reasonable price...and give you room to scale.

Your order fulfillment provider should allow you to start with a very small amount of inventory, and charge you on a usage basis as you increase volume. This is especially important when you are just starting out.

• Make sure that your warehouse doesn't charge you account set-up fees, request minimum shipping amounts, or have hidden receiving costs.
• Your order fulfillment provider should easily connect into your shopping cart, and marketplaces such as eBay, Amazon and PayPal. This will help you move fast.
• You should be able to transparently see an order from Web store to doorstep.
• They should counsel you on best practices and help you cost-effectively scale.

I've provided a lot of thoughts on this two part blog post. Clearly, I did not set out to provide a detailed step-by-step guide for every situation. I just wanted to get the idea across and initiate a conversation.

I look forward to reading your comments and hearing how you have sold internationally, your challenges and your successes.

I'm a new blogger so please reach out to me and help me improve.

Nate Gilmore

Shipwire Order Fulfillment

Category: Tools, Tips and Suggestions | Tags: International Selling, Shipping and Fulfillment, Showcase, Product Sourcing