Not just for the big boys: Irish SMEs lead way in online exports

The popularity of internet shopping has led to a boom in online exporting.

Consumers live in a world of instant gratification: They want a large range of products and they want to get them quickly.

This is why e-commerce — and its cross-border cousin, e-exporting — has become so successful.

Irish SMEs have taken to e-commerce more readily than most of their counterparts in the EU, with 32% of Irish SMEs selling online and generating 37% of their sales, according to the latest Eurostat survey.

Ireland is also on top for e-exporting, with 17% of Irish SMEs selling internationally. The EU average is just 8%.

Ireland’s e-exporters were given an added boost in 2015, with the change in EU regulations regarding Vat.

The old regime obliged e-exporters to charge their overseas clients the Vat rate applicable to the place of business — in our case, Ireland.

As Ireland has one of the highest Vat rates in Europe, this was a disincentive to e-exporting from Ireland.

From 2015, digital products were taxed at the Vat rate applicable in the consumer’s country of residence, rather than in the seller’s.

The rules were introduced to stop companies that trade online — be they multinationals, like Amazon, Apple and Google, or start-up businesses — from routing purchases through low-Vat countries, such as Luxembourg.

Back in October, 2014, when the new EU regulation was mooted, critics saw it as a new Brussels’ tax grab that would shut thousands of micro-businesses.

However, Finance Minister Michael Noonan argued that the new rules would provide a level playing field. He was right.

Critics had underestimated the ability of small businesses to deal with foreign Vat rates.

The size of the online market in Europe has attracted many international corporations.

USA eShop, which is based in South Carolina, has a business based on the premise that European shoppers want to buy low-cost items from US websites, but are put off by high shipping costs.

It provides the means to consolidate small volumes of products from multiple US manufacturers and ship them to a centre in London, from where local couriers do the ‘last mile’ delivery.

The location of distribution centres is a critical consideration for any new Irish e-export business, especially as the major online retailers, such as Amazon and China’s TaoBoa, are constantly cutting delivery times.

In 2009, TaoBoa introduced same-day delivery, meaning shoppers placing orders by 11am can expect delivery by 3pm, thanks to a network of motorcycle couriers.

Amazon has unveiled plans for Prime Air in the US, a delivery system that uses small drones to get packages to customers in 30 minutes or less.

More than ever, fulfilment centres have to be located close to consumers. Australia’s Goodman Group recently opened a 110,000-square-metre facility, the Goodman Chongqing Airport Logistics Park, in China’s Chongqing Province.

Perhaps, Enterprise Ireland needs to get into property development abroad to support Ireland’s burgeoning e-exporters.

Asian e-commerce sales grew to $615bn (€561bn) in 2014, twice as big as the US market.

In 2014, US retailer, Wal-Mart, announced plans to expand its fulfilment capacity in Japan by investing in e-commerce initiatives for Seiyu GK, a grocery chain and web merchant that it acquired in 2008.

The US remains an important market for e-commerce, in terms of innovation. Seattle-based Amazon has some 70 fulfilment centres across the US, but has plans to open several more by the end of 2017.

So what is next for online exporters? Amazon recently filed a patent for what it calls ‘anticipatory shipping’ — the packaging and shipping of products before customers have committed to buying them.

The future, perhaps, is not as unpredictable as many had thought.

John Whelan is an international trade consultant