Internationalisation on Amazon: How to Prevent Cross-Border Sourcing
Once your business is up and running on Amazon, it’s tempting to start considering how to target international marketplaces. However in order to properly take advantage of Amazon’s potential - and to avoid major pitfalls - it’s crucial to set the right course before further internationalisation.
A typical challenge faced by manufacturers is cross-border sourcing and supply. As soon as a product is shown to be “not available,” the risk is Amazon will simply obtain the same product from another source. That includes other country departments of the same brand. In particular in Europe, the online giant is always looking for the most attractive vendor to offer price advantages.
Are you considering expanding your Amazon business within Europe? Here we will offer you insights into some usual risks, as well as major opportunities available.
Three Reasons Behind Amazon's Cross-Border Sourcing
Sourcing from abroad is quite common, especially in internet marketplaces. The sheer amount of Amazon Fulfillment Centers around the globe, particularly favors easy relocation of goods.
Transnational sourcing and sales on the part of Amazon has several causes:
|Einkaufspreise||Amazon bestellt automatisch bei der Einkaufsquelle, die den besten Einkaufspreis anbietet. Dies kann eine beliebige Ländergesellschaft Ihrer Marke oder ein (Groß-)Händler sein.|
|Operative Leistung / Compliance||Amazon achtet auf die strikte Einhaltung der Lieferfenster, der Verpackungsrichtlinien und der Logistik seiner Lieferanten. Lieferanten, die die gewünschte Menge liefern, flexibel genug sind, um pünktlich zu liefern und über die beste Verpackung verfügen, erhalten eher Bestellungen.|
|Verfügbarkeit||Sollte ein gefragtes Produkt nicht verfügbar sein, wird Amazon versuchen, eine andere Quelle zu identifizieren. Dies gilt sowohl für kurzfristige Lieferschwierigkeiten als auch für Produkte, die sich am Ende des Lebenszyklus befinden.|
Preventing Amazon's Cross-Border Sourcing
Cross-border competition and price transparency are steadily increasing. In order to remain successful in the long term, it is essential to develop an appropriate EU-wide strategy.
Harmonizing prices and conditions at a Europe-wide level for your company can help prevent Amazon cross-border sourcing, to your disadvantage. Instead of maintaining separate country, accounts are best managed with an overall EU-wide account. That said, internal competition situations between individual national companies of a wider conglomerate often stand in the way of this aim. This is the central reason why it’s often difficult to achieve pan-European governance.
Best practice: In any policy or policy decision at a national level, you should always be aware of the potential impact at an international level. In order to exploit potential and economies of scale, such a European, transnational strategy is indispensable.
Contracts and Models for the European Marketplaces
When it comes to the question of internationalization, vendors have the option to enter into various types of contracts with Amazon. Both European-wide agreements or individual country-specific contract models are available, according to preference.
EU-Wide Account Management
In this variety of contract, all-EU countries of a particular brand are included. This contract would thus apply to the entire process from negotiation to sale. An Pan-EU or EU-wide account guarantees greater room for maneuver, since the same conditions apply to all participating marketplaces, such as purchase prices, returns agreements, etc. This reduces the risk of cross-border sourcing from Amazon’s side.
In addition, manufacturers who work with larger flows of goods can experience a cost advantage. You can get discounts by negotiating larger purchase quantities with manufacturers and pass these directly on to Amazon. Usually, these bundled quantities are delivered directly from the factory to Amazon.
Individual National Contracts for Every Marketplace
Specific country accounts mean one contract per country. The negotiation process is generally less complicated for this option. Maintaining separate control of a national marketplace however, tends to increase the risk of cross-border sourcing by Amazon. To avoid this, exactly the same terms and conditions must be negotiated with Amazon for each marketplace - exactly to the cent. The reason: Amazon sources whenever necessary in the country with the most favorable conditions.
Possible Measures Against Cross-Border Sourcing
In order to counteract cross-border sourcing, some further solutions are available:
Unification of conditions and prices
You should try to harmonise conditions across all countries. For each country a suitable balance between purchase prices and downstream conditions have to be found. Only then do cross-border sourcing arrangements become fiscally unattractive for Amazon.
Country specific offers
Products that are as internationally usable as possible favour cross-border sourcing. Amazon doesn't care whether a French customer receives his ordered product in German packaging or not. A solution would be the establishment of exclusive product features to serve individual country marketplaces.
Another factor that favors cross-border sourcing is Europe-wide standardized EANs (European Article Number). However if country-specific European article numbers are assigned, this makes transnational transfers more difficult.
Tracking serial numbers
Though serial number tracking is a lot of work, it definitely pays off. In order to track the flow of their goods and products, international companies must introduce serial number tracking. In the long run, tracking of serial numbers makes Amazon sales more transparent, and create a reliable database.
Amazon is continually expanding its EU-wide sourcing programs, in order to capitalize on manufacturers’ lack of transnational sales strategies. Long-term success requires understanding financial risks from cross-border sourcing, and creating a cross-border strategy to avoid it.
factor-a offers comprehensive support, as well as specialist know-how, on the topic of internationalization for Amazon. Go ahead, contact us!