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26 Feb 2001, Italy

Dear Dr. Ecommerce,

I would like to start my online business selling products and services to e-shops. I think that there are a lot of B2C shops on the internet but the wholesalers are still doing business in the traditional way. My idea is to buy directly from Asian manufacturers in order to cut prices and deliver technologically fresh items and offer the products to e-shops using the co-buying sales system. Doing it this way I can be sure of higher margins for my clients compared to branded items purchased from wholesalers. However I am not sure if it is better to promote the products, receive the orders, have the products sent to me from the manufacturer and deliver them to my customers after about two months or if I should buy the products first and offer them through my web-site once I really have them. In both cases I will offer the latest generation of products. In the first case I will reduce my risk and will be able to charge lower commissions, in the second case I will also need a store and a good stock of sleeping pills. What do you suggest? Do you think that my idea can work? Is it acceptable for customers to do business in the first way if it saves a lot of money? Please give me some guidelines to develop my idea in the right direction.

Thanks

Maxim

Dear Maxim:

An interesting concept - and one you've clearly thought about. But, there are a few more issues you need to think about.

If you wait for customers to order products and then you order from the Asian manufacturers, there is the issue you pointed out of a two month waiting period. Will customers be willing to wait two months from ordering to receive their products? If price reductions are substantial and you make it clear to customers that they will have to wait, you may find customers willing to accept such terms. There is also the issue of when you expect payment from customers. Will you invoice them at time of order or time of delivery? If the latter, they are more likely to be willing to accept your terms.

Secondly, are you sure the price savings will be as substantial is you think? Prices of electronic goods in the shops in Singapore or Hong Kong are certainly lower than in Europe. But once you pay shipping costs and import duties you may find that the prices you offer your customers are not that much lower than the wholesalers offer.

By the way, if you have the factories in Asia deliver directly to your customers in Europe, your customers will be liable to customs duties and clearance fees when the goods arrive. If you plan to use this model, make it perfectly clear to your customers and ensure they are aware that they will probably get a tax bill when their goods arrive.

Another issue you have to look into is after-sales service, particularly honouring of guarantees. You need to be sure the products you import have international guarantees. If they only have guarantees for Hong Kong (as an example), the end customers will not be able to get a refund or repairs in the event their product is faulty. In any event, you will need to clarify this issue with your customers and make sure your contract is quite clear on issues of after-sales service and responsibility.

You do not mention how you will source your electronic products from Asia. The big name manufacturers either have their own distribution channels established throughout Europe or they have contracts which give exclusive territorial rights to authorised agents. This means, they will probably not sell to you directly and you will need to go through a middleman in Asia. Moreover, distributors and agents in Europe will not like you bypassing them and some may look for ways to make things difficult for you and your customers.

Finally, if you have not got any experience in international trade on the B2B level, beware. It is not as simple as you may think. There are issues of documentation, letters of credit, payment, contracts, insurance, port of delivery, etc which can be very confusing. Find a good shipping agent that is willing to hold your hand at the early stages and explain everything to you. You should also talk with your banker about payment related issues.

Incidentally, you can often get sleeping pills cheaper in Asia too!.

Good luck,

Dr. Ecommerce