eBay and the Flattening of the World

January 8, 2007

In his book, The World is Flat, Thomas Friedman notes how the impact of geographic distance has diminished and global competition is happening like never before. Everywhere we look his observation seems true. Due to recent R&D efforts with my organization and the need to source a diverse set of products, the role of eBay in facilitating the flattening for small businesses has proven remarkable. Buyers who have not used eBay for sourcing internationally should take note.

Traditionally, there have been hindrances to small businesses who wished to source products internationally. These included finding a potential vendor, determining the vendor’s reputation, negotiating exchange rates, determining shipment methods, and, finally, customs. As a result, many domestic buyers never attempted to negotiate international sourcing even though doing so promised savings.

eBay is perhaps best known as a consumer marketplace but its breadth of product types and global reach has undergone phenomenal growth since its inception. With eBay, product searches can be global in scope. Products matching search criteria are listed and buyers can review pricing and shipping costs for items wherein they want to immediately procure them – what eBay terms “Buy It Now” or they can bid on auctions. By drilling into each offer, the buyer can see where the seller is located geographically. eBay overcomes the age old barrier to the information. Before eBay and the Internet, buyers could only find products by knowing where to look. In other words, they had to have some vendor related knowledge to begin with. With eBay, however, the world of sellers comes to the buyer.

When purchasing via eBay there are still basic procurement practices that need to be followed. In evaluating vendors, there are two important data points given – the number of transactions and their positive feedback as a percent. These numbers are an indicator of how much business the seller has done and as a barometer both of legitimacy and customer service. Sellers with low transaction counts have a higher risk relative to those with higher counts. For example, a seller with no transactions is far more risky than a seller with volumes in the hundreds. Combining the volume with the positive feedback begins to paint a picture of how good a seller is. For those sellers with positive feedbacks of less that 100%, you can drill in and see the feedback left by each buyer and positive/negative feedback trend information.

In addition, if there are concerns over what the seller has sold in the past, the buyer can review the past feedback and drill into the items sold to each buyer, when and the associated pricing. This data further helps a buyer understand the behavior of prospective sellers. What have they sold in the same past? Was it in the same league as what they are selling now? The idea is to try and select reliable vendors and avoid ones deemed too risky for a given purchase.

In reviewing pricing, buyers can see both the foreign currency and the approximate local currency with the exchange rate factored in. By doing so, the total cost of the product including the item’s price, shipping, insurance and so on can be factored in and thus domestic and international sellers compared equally. Then, if Paypal is used, the financial transaction is incredibly easy with all of the currency conversions handled and the seller immediately receives the funds. A very handy element of eBay and their Paypal service is the audit trail that is generated. Emails are sent to the parties and the respective systems also retain the transaction data. What was purchased, how much was paid and when is very clear.

Shipment methods, if insurance is available and so on are listed and pricing provided. In some cases vendors lower their unit price but increase their shipping charges so buyers need to look at total cost – not just unit price. Additionally, delivery lead times for foreign items are typically two to three weeks. It wasn’t too long ago that these timeframes would have been considered acceptable for domestic purchasing. Now, in the US we expect delivery in a week of ever overnight depending on the carrier and service level selected. For purchases that can be planned in advance, the two to three week delay can be perfectly acceptable given a sufficient cost savings. For groups needing expedited shipping, some sellers offer that as well but the price is often quite high.

Many small orders are shipped via some form of international mail / parcel post with the appropriate customs declarations. The buyer is responsible to ensure that restricted materials are not being purchased, but if that is not the case, then any duties owed are collected before the shipment is released to the buyer. In small lots of low cost goods, their frequently isn’t a duty due. If duties are expected then they need to be factored into the total cost of the material so appropriate comparisons can be made.

Without a doubt the world is more accessible than ever before and the markets reflect this. eBay has opened the doors of global sourcing to small businesses in a way never before possible. For buyers new to eBay, the idea is to always understand and trade off total cost and the associated risks. With a little work, it is very possible to extend your vendor network to include global sellers and reap the benefits.