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European E-commerce, the Cross Border barrier

 By John Giannatos

I started researching European sources of official data and information in September 2010, for an e-commerce project which had to be presented to venture capitalists in Silicon Valley.

At the end of my research I realized that Europe, despite its great “e-conomic” potential, will never reach the level of business of the USA e-commerce sector. The reason is the special characteristics, which do not allow Europe to act as a single nation, either in the political or business perspective.

The EU is not able to deliver the economic and social outcomes expected by consumers/citizens, to track the progress in the integration of the European e-commerce.

What are the broblems?

The main problems in e-commerce, for Cross Border transactions in the EU are:

  • Fragmentation of consumer protection rules
  • Language barriers
  • No or limited cross-border delivery
  • Taxation overhead for the vendor
  • High shipping costs between countries
  • Payment Methods

Putting the problems in some kind of order, I would say that the main problem for consumers (and the main reason a retailer would exit a website), is language. The language problem is also a headache for the vendor, who has to translate his online store and product details into multiple languages, increasing operational costs.

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Another regulatory barrier for retailers, to EU cross-border e-commerce, originates in the fragmentation of consumer protection rules and taxations issues (VAT, fees, levies etc).

Regarding shipping costs, I would simply mention that a product which within the US (West coast to East coast) costs $9 USD in Europe has an average cost of 16 Euros (US$22). This problem is further exacerbated for both parties, vendor and customer, when the customer needs to return faulty or damaged goods.

On average, 11% of individuals who ordered goods or services over the Internet within the EU in 2010 experienced problems. These include technical, failures, language, non-deliverability etc. In some countries, including Romania and Bulgaria, this percentage was as high as 76% and 75% respectively.

The problems above explain why European cross-border e-commerce is tiresome, structured on a not so well functioning market, and thus there is no competition and no innovation.

My feeling is that the EU faces e-commerce the “chicken or the egg” dilemma, because of the existence of big American firms. There are no big European players. We are not pushed to solve the problem and if the problem is not solved, how can big European players rise?

European e-commerce has the highest potential of all, with a market prediction of 311 billion Euros in 2011 (including tickets and non-physical products). There are countries such as Cyprus, Malta, Luxembourg and Lithuania, where for over 75% of all product searches, there only exists cross-border offers.

Empowering the EU e-commerce market means making markets work for people. EU citizens cannot easily step out of their country for ordering products or services.

The EU should take political measures to make cross-border e-commerce work better, starting with addressing the fragmentation of consumer protection to tackle unfair commercial practices from international post delivery firms. The main action from the commission is to simplify the regulatory environment for both retailers and vendors (especially linked to VAT), and of course standardizing the rules for distance sellers to contribute to reducing barriers to online sales.

Related links:

Gap between domestic and cross-border e-commerce
EU seeks to bolster cross-border e-commerce
‘Sluggish’ Growth in cross-border e-commerce across the EU