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Three supply chain considerations for e-commerce companies expanding overseas
Oct. 21, 2021 · Updated May 26, 2022 · Authored by Sharon Gregory, Michael Parker, Roy Deaver
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Article
Oct. 21, 2021 · Updated May 26, 2022 · Authored by Sharon Gregory, Michael Parker, Roy Deaver
Your e-commerce business could see a significant impact on margins when you optimize your e-commerce management and identify opportunities for improvement during each step of the supply chain.
There are three main considerations for business owners trying to achieve a true global supply chain when it comes to e-commerce supply chain logistics:
One of the primary goals for an e-commerce business is to deliver products to the customer at the best possible price. Looking at the supply chain from end to end and analyzing all available options could help reduce costs and provide the customer with a seamless and transparent shopping experience, as well as competitive prices.
When looking at your product supply chain, there are four e-commerce challenges and fundamental decisions for your business to make.
Answer the following questions on day one when the framework of the e-commerce supply chain is being built. Implementing the right framework could protect your business from compliance, legal, and tax implications.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
Going through the process of answering these questions can help you get there by identifying your business' weaknesses, areas of opportunity, and where you can fine tune your supply chain. Ultimately, your global e-commerce supply chain should deliver a seamless customer experience, offer consistent multichannel pricing, and meet targeted profit levels.
Global e-commerce business selling through your own online store or through a reseller must navigate several challenges.
It’s important to analyze each stage of the e-commerce supply chain to determine the most cost-effective route from manufacturer to customer; some factors could impact the final price of the product.
Analyze key taxes, duties, and fees, as well as the items listed below to determine where cost savings and optimizations are possible for your business.
Creating a flow chart can aid in setting up an efficient supply chain. This shows where products originate from and the various steps and partnerships necessary to deliver product to the customer.
There are thousands of potential supply chain routes. What’s best for your business depends on what your product is, where it originates from, and which countries and 3PLs are involved in the supply chain from start to finish.
For example, due to existing tariffs on various products, a product that originated from China versus one from Japan can have a considerable impact on the amount of duty you would pay in the United States.
There are several factors business owners could consider when setting up an e-commerce supply chain and determining product pricing:
The last three factors are of particular note because they generate the most complexity and create the greatest variance in tax compliance — who is responsible for collecting taxes, for example.
VAT is similar to U.S. sales tax and is applied to many goods shipped to the European Union and other non-U.S. jurisdictions. Goods shipped to relevant countries are subject to that country’s import VAT, which can range from zero to 27%.
If your business is selling though a marketplace, such as Amazon, the marketplace will often collect duties and taxes on your behalf. This rule can apply in both the United States and overseas. It's critical to understand when a marketplace will or won't collect tax on customer sales because this will impact the prices you need to set as the seller.
When setting the prices on your marketplace store, you'll need to include any VAT in the cost of your products. Consumers outside the United States and Canada are used to seeing tax inclusive pricing on nearly all sales channels, such as in-store, marketplace, or DTC web sales.
When selling direct through your own online store, there are logistical costs on your end to consider, such as shipping, 3PL fees, and import duties. These cost variances can lead to inconsistent pricing across different sales channels.
Compiling, extracting, and reporting on key transactional data is essential to meet global tax compliance, regulatory reporting, and export control requirements, no matter which system your business uses.
Effectively scaling your business to include international sales requires multiple systems that gather and analyze customer data. Core enterprise resource planning (ERP) systems may need to have foreign taxes, multiple currencies, data extraction capabilities and sales, VAT, live tax calculation, and customs duty solutions.
Common web store systems include Shopify, Amazon, Zuora, Square, and BigCommerce. These front-end systems may be supported by an underlying financial system such as NetSuite. All systems need to be capable of capturing and reporting accurate data on e-commerce sales.
When considering your data tracking system, ask yourself these questions:
The 2018 South Dakota v. Wayfair, Inc., ruling introduced the concept of economic nexus: If your business sells a certain dollar value, number of items, or completes a certain number of transactions within a tax jurisdiction, the business is considered to have nexus in that jurisdiction. This means taxes will be collected on transactions made in that location.
There are 32 countries around the world following this rule as of July 1, 2021. When your business expands to global markets, the countries you sell goods in will look to you to collect taxes and duties on those transactions.
Countries in the European Union and the United Kingdom have a zero-dollar threshold; if you sell $1 in these locations, you have nexus in that jurisdiction and are required to pay taxes there, subject to some transaction value thresholds.
