A Tale of Two Divisions:

Creating a robust cross-border environment for eBay

Abstract

In the face of competitors like Alibaba and Amazon, eBay has fought to maintain its edge in the online

exchange market. Currently online growth is increasing at exponential rates across the globe but

international trading is something all three companies have yet to master. Over 50% of regular purchases

made online but only 35% of the global population check foreign shopping sites. The business is still ripe

for exploiting. In this business solution document we will outline the current situation and problems with

cross border selling, with an emphasis to eBays unique exchange marketplace. We then propose a

solution to be implemented to try and incentive and increase cross-border selling for both private

individuals and corporations on eBay.

1. CURRENT SITUATION OF CROSS-BORDER SELLING

In recent studies from European Parliament, there is evidence that only 15% of customers bought

products online from other EU countries. Moreover, 84% of online sales came from countries in which

the selling companies were located. This data clearly suggests that selling internationally isnt fully

exploited and there is plenty left to develop. What constraints sellers from exposing their products in a

larger scale? What are the issues of cross-border selling and how can we overcome them?

1.1 EXPLOITING FOREIGN MARKETS

The issues can vary in a long range from foreign exchange rates to safety of transactions. Sellers

are continuously searching for the best deal through many channels. Being able to sell internationally

online has advantages for both sellers and buyers. Sellers can make the highest profits by striking the best

deals and buyers have more options to choose among similar products. But if all parties are better off

while trading online, then why isnt e-commerce fully exploited? First of all, prices converge with time;

sooner or later the price of similar goods online and in stores will be nearly identical. Also, customers are
a bit dubious in the quality of foreign goods. Many buyers are risk-averse, they are not inclined to

experiment on new products and as a result they buy products from local suppliers. The perceived cost of

ordering online and the hassle it involves, like having to sign and be home at unreasonable hours, the cost

of shipping and handling, the added time to return a good that is defect, makes people go for a more

expensive local item. In the US, more than two thirds of adults shop at least once online. In the EU on

average 53% of internet users made a purchase online within the last 12 months (2015 data). The UK

represents the country with the most developed EU online retail market with 81% of individuals making a

purchase in the last 12 months while Romania is the least developed with only 11%. The country

breakdown of data provides unique insights of where and how to expand eBays market. What can solve

this instant issue, could be a more intensive advertising campaign of foreign goods in domestic markets.

1.2 MEMBER COUNTRIES REGULATIONS

Other issues involve regulations. There is great inconsistency from one country to another. For

example, debates regarding the applicability of state taxes on e-commerce transactions continue to be

present. Also, less developed countries have very different legal and tax regulations from the majority of

other countries. The absence of uniformity can cause insecurity for sellers to engage in cross-border

activities. In their domestic regulation, countries have specific rules regarding what to be sold and what

fees to be applied for selling a specific product. Even as an e-commerce business you are not exempt of

these laws. For example, for a product to enter into a country it should comply with domestic laws for

specific characteristics in ingredients, date of manufacturing, values or print date. The issue is not only in

respecting the local laws. One seller should take into account the juridical structure of the country and

their flaws. Even if he/she is able to sell in this country, he/she may not always be able to defend his legal

rights there.

1.3 SHIPPING ISSUES

In the context of shipping, we have to consider various elements such as shipping costs, time and

quality of delivery, method of receiving the product and distance from which the product arrives. One can
be reluctant to buy a product in Thailand from Portugal due to time and possible discrepancies in quality

of handling. If the buyers decide to buy a product, they should take well into consideration the costs of

shipping. Hence, the selling businesses that are closer to the active buyers in distance or the companies

that have better deals in shipping transactions will benefit more. An engaging task would be finding the

best shipping companies to collaborate with or internalizing this part of the businesses. The latter isnt

preferred nowadays since there are lots of initial costs in establishing a shipping system, and there are

plenty of specialized companies that are experienced and charge fair prices in shipping products.

1.4 ISSUES IN TRANSACTION SAFETY

With selling internationally, problems of confidence arise as well. There are plenty of scam sites,

some of them hardly recognizable from legitimate marketplaces. E-commerce is growing at a very high

rate and consequently even more scammers will try to make illicit profits. Customers should be careful in

reading feedbacks and choosing trustworthy companies to take care of their cross-border transactions.

This ambiguity in the players of the industry makes sellers or buyers hesitant to enlarge their activity

internationally. Other than internationally well-known sites such as E-Bay or Amazon, there exists plenty

of ghost sites or not experienced ones that are slow in their deliveries.

1.5 METHOD OF PAYMENT

A robust payment system is needed if we want to succeed in selling internationally. Customers in

different countries prefer paying in different ways varying from Visa, MasterCard, and American Express

to secondary channels as PayPal or AliPay. Before settling agreements with intermediaries that deal with

online payments, businesses that want to exercise cross-border selling have to decide their potential

market and their estimated profits.

2. A GLIMPSE OF THE STRUCTURE AND ACTIVITY OF COMPETITORS

AliBaba has been a significant player in the international industry of e-commerce. What AliBaba

has done better than its competitors is overcoming the cross-border issues. Since AliBaba is based in

China and they operate a bit differently from Amazon and E-Bay, they benefited from the less-restrictive
laws of their country regarding exporting costs. AliBaba exploited this advantage by creating economies

of scope. They invested in huge warehouses and invited plenty business delivery companies to take part

into their plan. As if their position wasnt already outperforming that of the competitors, Chinese

government decided to ease import restrictions since Chinas middle class demand for foreign high

quality products has increased. Once again, AliBaba used this activity by creating 1688.com, that enables

domestic buyers import foreign products at a reduced rate. As we can see AliBaba has finally been able to

create a fully functional chain of transactions that circulates along its immense warehouses. While E-Bay

has PayPal, AliBaba has AliPay. AliPay was initially created as a subsidiary of AliBaba, thus creating

amazing economies of scale and cutting a lot of external costs differently from E-Bay. AliBaba will be an

example of a successfully operating company in the world of e-commerce for many generations. What

AliBaba achieved was thanks to Chinas regulations. Unless we dont want to move our headquarters in

China, then imitating the work of AliBaba can surely be a good solution to increase the rate of cross-

border selling.

3. SOLUTION PROPOSED

Taking into account all the above mentioned issues, a viable solution would be to create a

department of E-Bay that deals extensively only with extraordinary changes in controlling of taxation/fees

and protection of sellers and customers by providing them with information. This new department named

SMN will be structured in two branches. Branch A will play an active role in coordination of

agreements. There will be groups of trained employees that will have the duty to negotiate previous

agreements with government officials in countries where E-Bay is operating. For example, an assigned

group of employees will negotiate with the ministry of finance in Spain to reduce income taxes for

foreign sellers operating through E-Bay. These groups from the department will continuously negotiate

with countries, making clear to them the benefits of entering the deal, like having access to products that

cant be produced domestically. Lobbying will become a more intense activity of E-Bay. The talks will

involve Tax treaties like double tax agreements. In this way, businesses operating through E-Bay will

have lower taxes and thus fewer incentives to evade them. Encouraging cross-border selling will not be
the only effect. E-Bay can take advantage of the more comfortable position and can increase rationally

some of their inserting and final value fees and have more profits. There is data showing that in Europe

for example even though cross-border transactions are important, only 19% of them are done through

internet. This suggests that a good percentage of medium/large businesses operate directly in foreign

markets. If E-Bay could cut deals with these businesses to make them conduct their activities through

their channel the profits would be even higher for cross-border selling. Taking into account the tax

reduction campaign, these businesses would love to be part of the network. Since these businesses

manage plenty of transactions, E-Bay gets higher profits because of fees. Its in our interest to attract

these businesses and provide them with premiums. For example, once these businesses operating through

E-Bay will achieve a specific flow of transactions in currency, we will send a pop-up notification. We will

grant them access to all E-Bay domains (if they meet the regulation of those countries), and provide

personalized treatment regarding their interests, acting similarly as their agents. These businesses will

become E-Bay verified and will receive a program of loyalty. For instance, if a successful company sells

notebooks, the pop-up message will provide them with information like: Congratulations on becoming

an E-Bay verified seller! Did you know that Finland is the EU largest buyer of notebooks? You can check

this link for more information! Moreover, we will charge half fees to these businesses if transactions are

international. Since these businesses provide a great quantity of products to sell, the cross-border profits

will boom magnificently. Other than achieving agreements with businesses, this branch will also contract

with couriers. Nowadays, the tendency suggests that buyers are more concerned with the time and

security of delivery than its cost. Hence, this branch will also be involved in more intensive negotiations

regarding agreements with shipping companies. Requiring a specific courier that will provide quick and

quality shipping will entice consumers to be open to buying from foreign listed companies. Secondly, a

deal that might decrease the cost to ship with these couriers will also entice suppliers who would prefer a

quality shipping like DHL over a government run postal service.

Branch B of SMN is primarily dedicated with the public and the private supply of information.

The public aspect of Branch B, deals with compilation. For effective trading on the marketplace, the rules
of the game must be comprehensively understood to avoid fines and other friction. This is especially

relevant in cross-border trading. A public, available to all account owners of eBay, interactive document

will be provided by the legal department to display the regulations of trading with various countries. The

scope will be as broad as possible, to cover the most possible product classes. While the scope will be

broad, the various regulations will be specific in nature. Confusion may be a problem with the document,

however the interactive nature of it will allow a seller to find the exact text he needs to be proactive and

comply to suit his cross-border needs. The document will allow for a seller to select a country, select his

product class, and then read the various rules and possible exceptions. This will include everything from

taxes, courier services, foreign exchange, as well as language criteria. Branch B will also be the one to list

your product on international eBay domain extensions. If a seller meets another countrys regulation and

eBays requirements, it will be published under the appropriate foreign domain with a disclaimer alerting

the buyer that he is buying from a foreign country to allow for full disclosure. The product will also be

displayed under the official international domain. This will however not affect at all the buyers

experience on the site. They will not need to calculate anything to his price as it will reflect everything

including taxes and foreign exchange conversion.

Branch B will also be in charge of providing analytics. At a predetermined level of sales by a

seller, we chose 5000 units or 15,000 euros in sales, to provide certain premiums. eBay would create an

algorithm such that it would analyze the most frequent type of product sold and then search its domains

for which has the most demand for said product type. It would display a message suggesting expansion to

that foreign country and provide the necessary documents to help. If a one sells crystal sculptures, he may

receive a message saying France buyers love crystal sculptures. There would then be a link to the

interactive regulatory document (explained previously) at exactly the page detailing the sale of fragile

art/objects in France.

Finally Branch B will be in charge of rating sellers. After a certain level of sales, Branch B will

reach out to a seller and ask for some sort of identification, like Airbnb, in exchange for a trusted seller
tag on his merchandise. As mutual trust is a main issue, this should decrease the friction in the market and

allow users to buy more confidently.

4. BUSINESS AND LEGAL FRAMEWORK

In the actual moment, E-Bay holds a neutral position between buyers and sellers. The structure is

very simplistic and it works perfectly. Being an intermediary in billions of transactions has really helped

E-Bay become one of the most used websites regarding online selling. Some fans may even see E-Bay as

one of the most successful steps toward globalization. In E-Bay we can easily find the marketplace we

have been searching for a long time. Having the idea in the first place was outstanding, but executing it

required plenty of effort and experience. E-Bay succeeded even in this area by implementing a series of

fair rules. The legal policy is well implemented and covers a good amount of possible disagreements that

may arise. There are solid rules regarding item delivery and failure to pay them. Spamming and

inappropriate content is efficiently managed as well. The solution that we bring doesnt involve much of a

change to the already existing framework of E-Bay. The existing chain of functions will continue to work

normally as it did before the creation of the department. The function of the new department is external to

the usual flow. Its purpose is to increase the intensity of work that E-Bay has to deal with, in other words,

to bring more clients and handle more transactions. As explained in the solution once taxes for sellers are

lower due to negotiations, the total amount of taxes and fees a seller pays will be lower as well. E-Bay

can manage the proportions of taxes and fees to increase the profits and in the same time maintain a lower

total amount to be paid for sellers. As a result of higher fees and negotiations with member countries and

medium/large businesses, E-Bay can create some reserves in money that can be used as a form of

premium for sellers that pay lots of taxes because their products need to pass through multiple countries.

Moreover, the document with information provided by Branch B of the department will eliminate any

asymmetric information and reduce significantly uncertainty of sellers. Hence, international selling will

be incentivized more and more. Regarding the legal framework, few things will change. All the existing

rules will remain in power and few others will be added dealing with arbitrage of taxes from one country

to another and the possibility of misuse of this advantage created.

5. BUSINESS AND LEGAL RISKS

Implementing this solution wouldnt bring risks of a great magnitude. E-Bay has always the

opportunity to go back at the original position of intermediary without dealing with intensive lobbying. To

avoid reasonable losses this project can even start as an incubatory plan. It can be tested with some

countries using few resources and see if it can result into something concrete. If however, there is possible

chance that it may work, the creation of this department should be implemented immediately. Negotiation

talks require plenty of human and technical resources. The risk that the countries will be rigid and not

willing to negotiate its viable anyways. Regarding legal risks, they are almost inexistent. There are no

laws that block negotiation of taxes. Furthermore, this department provides countries with opportunities

that do not exist without international selling. Its in the interest of both parties to arrive into a stable deal.

6. CONCLUSION

The