Testing the water in new markets

It’s essential that a business knows there’s demand for its products in a foreign market before they begin trading there. However, even after completing comprehensive market research, some companies might be apprehensive about fully committing to expanding internationally. After all, setting up operations abroad can be costly.

One solution is to “test the water” in the new market by selling your products through a third party online marketplace, like eBay or Amazon. Doing so allows you to gauge consumer interest without having to set up the business infrastructure required to make cross-border sales independently.

In this article, we’ll look at how you can establish yourself as a third party online marketplace seller. We’ll also look at why it’s important to complete some degree of market research prior to expanding internationally.

You'll need to conduct extensive research on a new market before you begin trading there. A thorough market research project should identify:

• Potential competitors - Who will you be competing with for market share and is there space in the market for you to enter?
• Product demand - Is there a demand for your product in an international market?
• Demographics - Does the new market have the right demographics to be selling your product to?
• The price - What is the typical price in the local market for the type of goods you wish to sell? 
• Required infrastructure for international trade - Evaluate your supply chain to ensure it can keep up with the demand of cross-brorder sales.

Identifying the right platform for your business is important, as different demographics will shop on different platforms. One of the most popular choices is to register your business as an Amazon marketplace seller. Registration is simple and the website has a huge audience — it’s the leading ecommerce retailer in the U.S. and is similarly well-established in many other markets.

Additionally, as an Amazon marketplace seller, you’ll have access to Fulfillment By Amazon, also known as Amazon FBA. This additional service means that Amazon will warehouse and deliver goods on your behalf, and is one of the primary reasons why becoming a marketplace seller is a great way to test new markets. By utilising Amazon FBA (or similar services offered by other marketplaces), you don’t have to invest in building your own logistics network (i.e. warehouses, courier services, related employees).

If you’re interested in becoming a marketplace seller before expanding internationally in earnest, there are a few key preparations you must make. Selecting an appropriate marketplace is an important first step. In fact, depending on the marketplace, your preparations may differ significantly (e.g. an Amazon marketplace seller using Amazon FBA won’t have to worry about any of the services that FBA covers). 

If you have little or no ecommerce experience, then you’ll need to familiarise yourself with the basics of online transactions, such as how to create an attractive product page and how to arrange shipping. Using a marketplace streamlines the learning process, as you don’t need to worry about things like building a platform or a checkout page — these are provided by the marketplace.

Keeping a close eye on inventory is also crucial as a marketplace seller, as incorrectly advertising goods as being available when they’re not can harm the customer experience. Learn how to sync your inventory to your marketplace storefront, and keep your stock records updated frequently.

While Amazon marketplace sellers can rely on Amazon FBA, other third party online marketplace sellers may have to arrange their own shipping. If you’re planning to make cross-border sales, picking an appropriate carrier for your products is essential. Try to balance price with efficiency — while the cheapest carrier can be attractive, they may not offer a reliable international service.

If you’re specifically looking for advice on selling in the U.S. via online marketplaces, check out our dedicated guide on the subject: The American Marketplace Dream.

Selling through a marketplace can be a cost-effective way to test foreign markets prior to a full cross-border initiative. However, selling through a marketplace also comes with its own challenges, such as dealing with specific tax obligations. 

These laws vary depending on the territory you’re selling to and where the marketplace is based out of. For instance, in the U.S., sellers need to have a decent understanding of marketplace facilitator laws. These laws mean the company that operates the marketplace must collect and remit sales tax on behalf of sellers. 

There are two vital points to remember regarding marketplace facilitator laws:

• They do not completely remove the seller’s responsibility when it comes to tax compliance. You’ll still need to establish compliance processes as a U.S. marketplace seller.
  
• The laws differ between states. You can find our state-by-state guide to facilitator laws here.
  

In the EU, the tax laws are similar but not identical. For the most part, online marketplaces are deemed (for VAT purposes) to have received and supplied the goods themselves. As such, the sellers do not have to collect and remit tax independently. For more information on the tax rules for marketplaces in the EU, take a look at our EU VAT reform guide.

Selling through a third party online marketplace is just the start of your international journey. Once you've found a market abroad with a significant interest in your products, you can start scaling your business further. To learn how, read our comprehensive Step-By-Step Guide to Going Global. 

If you’re actively making cross-border sales or selling via a marketplace, but aren’t sure of how to handle tax compliance, get in touch. We’re tax compliance experts, and can help you regardless of the challenges you face. To contact our team, click here.