Important Note

Globalization is not for every business.

Your business must be geared towards globalization, i.e. marketing, logistics, appeal etc.

Important Topic

By 2004 non-regionalized B2B EC is expected to surpass US $6.1 trillion. GartnerGroup

60% of B2B companies are globalizing their web presence. IDC

The largest B2C sites have some level of globalization. E-Commerce Times

Our Focus

Due to the enormous scope, we will focus on the following three areas:

Localization of the web presence

Jurisdictional Issues

Taxation Issues

Issues, Some solutions…

Localization

AestheticsEase of UseWord UsageIncluded Information

–Shipping, Duties, Support

Legal RequirementsPayment OptionsLanguageCurrency

Adjusting and adapting your web presence to suit the potential customer. This involves considering the following:

Language Issues

VERY IMPORTANT!

Percentage of surfers who will not buy if a site is not in a language they speak (B2C):

N.A.: 98%

Europe: 78%Asia: 70% (Forrester Research)

Language Issues (continued)

Site Translation–Time consuming and expensive!–What languages will your business cater to? –MUST be done properly!–Consider user input for Scripts.

–FedEx (cost of US$1.4 million; does not include upkeep costs)

–Solution choices: Hire individual translators Outsource (example

www.simultrans.com)

Language Issues (continued)

Translation is not enough. Relevant consumers need to get to the site. How?

–Minimally—surfer can manually switch language–Read Netscape language property.–Simultaneously provide domain names with country codes (.jp, .nz, .cn).–IP address filtering and cookies.

Language Issues (continued)

The two biggest language issues are:E-Commerce sites are database driven

–How can you store multi-languages into one database?–How can you retrieve multi-language entries?

URL Branding–How does this apply if the surfers language is not English?

Language Issues (continued)

Fundamentally computers deal with binary numbers.Currently, there are hundreds of encoding systems in use around the world, to convert to binary.

<meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"></head>

These are limited to 256 characters, so none contain all of the characters needed for all languages.http://chinese.yahoo.com/docs/info/bridge.html

Language Issues (continued)

Unicode arose to address these problemsAllows 65,536 so only one character set

Impact on –URLs in various languages (branding)–Database storage

Currency Issues

Use fixed pricing (often US dollars for global e-commerce.But, research shows:

B2C: –14X more likely to buy if pricing is seen in their currency before buying decision has to be made–otherwise 9X more likely to rate the experience as favorable or better if they see their currency later

B2B Issues:

-bidding challenges

Currency Issues (continued)

Company to keep the prices in their currency, but provide tools for the customer to judge price.Different arrangements available:

–Provide pop-up windows for consumer to convert.–Consumers see price in their currency at the checkout.–Consumers see price in their currency as they view the selection pages.

Problem!–These approximate the customer charges and many countries prohibit this type of “ballpark” pricing.–Can be costly.–Consumers may not want to assume the risk of currency fluctuation.

Currency Issues (continued)

Company displays price in foreign currency.Problems:

–Company assumes the risk of currency fluctuations between the time the price is assigned until the time the company actually receives the money–Company is on the hook for currency conversion charges

Currency Issues (continued)

Trend towards a new type of intermediary–Provide the currency conversions and payment settling–Intermediary assumes the risk of currency fluctuation.–Have associations with large banks in many countries to reduce the international processing fees.–Typically charge 1-3% of the transaction price. Funds are electronically moved to merchant.–http://www.toccata.com/frameset1-3.htm

Downside…

Localization Take-Aways

DO NOT UNDER ESTIMATE THE IMPORTANCE, SCOPE, OR TIME INVESTMENT OF LOCALIZATION.

–Expensive.–Many issues to consider.–Time consuming—plan, test, implement.

–But very necessary!!

Keeping Track of Laws, Regulations and Standards

Antitrust Copyright and Intellectual Property Export/Import Regulations Jurisdiction Privacy Regulation and Standards Standards Organizations Standards and Guidelines Transaction Security General Information and Resources Taxation

Legal Issues

Who has jurisdiction?–Country of Origin?–Country of Destination?–Per-transaction basis?–Who decides?–Preventing scam artists from going to a lax country and conducting their business.

The Yahoo! Case

Facts: –Yahoo runs an auction site. On this US based site, SS helmets, swastikas and other Nazi memorabilia is sold.–Selling such items are prohibited by French law.–The site is accessible in France

Question:–Can France impose its laws on a foreign company?

Yahoo’s Arguments

Nazi items are historical artifacts; tokens of vigilance.Banning such items could hinder free speech.Banning the items could hinder historical research.Possession of such material is legal in the US.

France’s Argument

Dissemination of Nazi memorabilia in France is a hate crime.Hate crimes are illegal.Yahoo! broke the law, and is therefore accountable.

Yahoo’s Decision

For the sake of avoiding negative publicity and out of good faith… Yahoo! Removed all objectionable material from their site..Question-Did they really had to do anything about it?

ENACTED LEGISLATION AND REGULATIONS OVERVIEW

Electronic Signatures and Records (including Digital Signatures)Privacy

Questions

ENFORCEMENT?Is your company willing to expose itself to the laws of another country?

Solutions

OECD have adopted standards of conduct..The OECD groups 29 member countries in an organization that, most importantly, provides governments a setting in which to discuss, develop and perfect economic and social policy.

Why is E-Commerce Taxation such a Big Problem

“Who gets taxed ?” “Does anybody get taxed?”. “Who is resident where?” “What to tax?” “Where to tax - corporate tax, cross border tax, consumption tax?” “Everywhere?” “Nowhere!!!!”

Considerations

“The development of electronic commerce is not a revolution and does not require a new tax regime” – Germany“Let’s adopt a simpler system “ France“Let’s not tax at all” US (sales tax)“Zero VAT rate for e-commerce” Holland“Let’s have more, new taxes” Italy (bit tax)“Let’s have an low tax” Japan

Global Players

Organization for Economic Cooperation and Development (OECD)World Trade Organization (WTO)United Nations (UNCITRAL)GovernmentsKey Principles of Global Taxation

–Neutrality–Certainty–Simplicity–Fairness–Effectiveness–Flexibility

Taxation

Who can claim jurisdiction to tax?Defining

-“permanent establishment” and “residence vs source”-“carrying on a business”-“double taxation”-“allocating of taxable jurisdiction”

E-Commerce Implications

– Where does a web site fit?– Or a web server?–“The use of a facility solely for storage, display, or delivery of merchandise is excluded from the definition of permanent residence“ Article 5 (OECD Model)

The OECD Logic

A company has permanent establishments in 5 developed (OECD countries who have ratified the Model) Then according to the OECD Model - “Place of Effective Management” But in “cyberspace” Then “permanent home” But “cyberresidents” Then the focus is on “the centre of vital interests”

A Very Simple Example

M lives in Ottawa and has an ISP provider (resident of the Azores Islands). M uses her home computer to connect to a server that the ISP provider leases in Toronto. Software unlimited, a retailer of Seattle, has a web site on a server in Ireland served by ISP, resident of Ireland.M orders software from Software Unlimited web site. They send him a CD version that they ship from a storage facility in Chicago. The price is charged to American Express which deposits the funds directly into the Software Unlimited bank account”.

Which countries(states) are entitled to taxable revenue(if any ) from the sale.

Tax HAVENS

Anti-tax haven legislation -black lists, white lists etc. Exception (bona fide activities, developing countries) OECD definition (Tax Havens, volume 27, 1987)

“ A jurisdiction actively making itself available for avoidance of tax”– low taxes(or none at all) on certain types of income and capital;– a disproportionately large financial sector;– high level of banking and commercial secrecy;– absence of exchange controls on foreign deposits of foreign

currencies;

– modern communication facilities;– (sea and air transport);– Self-promotion as an offshore financial sector;

few(if any) tax treaties providing for the exchange of information

Cross Border Taxation

Tariffs–Direction ( Import/Export)–Purpose (Protective/Revenue)–Rates (Ad Valorem duties, Specific Duties)

Non-tariffs–Government (subsidies)–Customs and Entry Procedures–Quotas

E-commerce VAT Example

Manufacturer’s Net Price $ 60

Insurance and Shipping $ 40

Landed Cost $100

Tariff (20%) $ 20

Full Cost $120

VAT on Full Cost (16%) $ 19.20

Consumer Pays $139.20

Brick and Mortar VAT Example

Manufacturers NET Price $ 60

Insurance and Shipping (CIF) $ 20

Total Landed CIF Value $ 80

Tariff (20%) $ 16

Importer’s Cost $ 96

Importer’s Margin (25% on Cost) $ 24

VAT (16% on full cost + margin) $ 19.20

Wholesaler’s Cost $139.92

Wholesaler's Margin (33% on cost) $ 45.90

VAT (16% on margin) $ 7.30

Retailer’s Cost $193.12

Retailer’s Margin (40% on cost) $ 77.25

VAT (16% on margin) $ 12.36

Price Consumer Pays $282.73

Example

www.fromages.com/usa/cremeus.asp

SOLUTIONS

Bit Tax Transaction Tax No new taxes Black and White Taxes Hardware Tax Telecommunications Tax

“Individual countries may find solutions for tackling domestic e-commerce taxation issues, but when they tackle cross border situations or income taxation from an individual perspective, they risk creating double or non-taxation, trade distortions and tax enforcement problems”.

Bit Tax

Tax to be levied on the transmission of data– volumes of data can not be accurately measured– data can not be measured during flow– how do you attribute value to data– asymmetry (mail order catalogue companies)

- e-mail should also be taxed– volumes of data can not be always attributed

Transaction Tax

Tax to be levied on money flows on the Internet– automatically withheld by global payment systems – can be applied to money flows that can be tracked– collected where the transfer is submitted – applied in the issuance of e-cash– can not resolve the tax haven problem– if implemented will have a serious effect on the allocation of resources and the way business is organized

Black and White Taxes

Tax all e-commerce income in the source country (not in the residence country) Tax all e-commerce income in the residence country (not source) Hybrid

– taxation in the residence for companies giving access to the Internet– taxation in the source for companies having a commercial activity on the Internet

Telecommunications Tax

Hardware Tax– imposed on the registration of PCs, modems, ATM machines, and other physical Internet infrastructure– negative consequence of being cumulative with VAT

Tax levied on basic telecommunications services – levied as a percentage of the charge to users– could be avoided by displacement of telcos– telcos could relocate their businesses to countries without such tax