About 5 years ago, in a panel discussion on the impact of eCommerce on global trade, a point discussed was related to “e-revolution.” The new global trading market place was emerging and the executives of all companies are maneuvering to embrace electronic commerce in ways that they hope will open markets and fend off competition both old and new. e-revolution is creating a global arbitrage in terms of product pricing.

In other words, it is now possible to create global arbitrage in terms of product pricing, which would benefit the buyer. This is made possible only because the pricing information is easily available to everyone in the global marketplace in almost real time. We are not completely there yet, but it already has a major impact on business execution and will continue to redefine global trade as information flows even faster and is accessible to more buyers.

While there has been heavy focus on B2B situations it is the revolution of B2C that makes it really interesting. While an average consumer is still not shopping online and is even more reluctant to order something from an Website based in Nigeria or Bulgaria, as comfort level with online shopping increases and established companies build trust among clientele, consumers are exploring arbitrage opportunities.

Case study:
Personal care products
Let us take the example of cosmetics. Thousands of Websites allow women to shop online for cosmetics. We recently looked at Avon’s ANEW RETROACTIVE age renewal cream as an example. Avon U.S. Website lists this product at $24. Although Avon is a global company, “creative” design and clever use of technology makes it possible for a buyer from Turkey to actually land on their Turkey Website. However, after a few clicks, anyone can find a country-specific Website. And the findings were interesting. Here is a summary of the prices listed for this cream in different countries.

U.S. $24.00
UK $21.49
Canada $19.09
Spain $18.85
Germany $18.31
Poland $13.22

There are many other countries where Avon does not have local presence. Some Avon businesses, such as in Australia, will only allow Avon representatives to order cosmetics online. In other countries, for instance India, while Avon does not have a Website, a consumer can order Avon products on other Websites. In other words, a consumer can literally check the prices on a global basis and order them with significant savings.

Case study: Books
Impact of online shopping in a country is not limited to cosmetics (or apparel or other consumer products). Some of these products are not uniform across the globe. But there are certain products that are essentially universal. For instance, books, software, music, hardware, electronic appliances, etc.
A major publisher has a textbook listed at $103.35. With some searching, the same textbook published by the Indian subsidiary can be found for just $ 6.96 and for $13.00 for others. It has assigned different ISBN numbers to make it appear as different product.

Nevertheless, the contents of the books are the same in most cases. In some cases, of course there is minor localization involved for textbooks, but for fiction novels, there is absolutely no difference.

In other words, it makes perfect sense for an online shopper to search the lowest price anywhere in the world, and then order it.

Barriers to global arbitrage
Unlike Avon though, some companies have gone to great lengths to limit access to country-specific Websites so that a consumer from U.S. is not able to access the online shopping area of other country’s Websites. However, any intelligent consumer will be able to get to it in just a few clicks. Suppose every Avon customer in U.S. orders from a country that offers the lowest prices, one has to wonder as to what the impact will be on Avon U.S.

Another major barrier to online shopping in the U.S. has been the cost of shipping. Online retailers have seen significant growth in number of shoppers, value of each order, and profitability, when they introduced free shipping. Shipping charges will continue to be a major issue to deal with for ecommerce Websites in Asia that wish to serve customers overseas, particularly for low-value products.

Another major barrier is regulation. Prescription drugs are a classic example. Even the U.S., the bastion of free trade, has done everything possible so far, to restrict import of prescription drugs from Canada. Pharmaceutical companies, with their enormous clout, have been successful in creating the barriers, but it is only a matter of time before the market forces win over regulatory barriers. At that time, the orders will not be placed with a pharmacy in Canada but with any pharmacy around the globe that offers the best value.

Impact of global arbitrage
on businesses
Before the arrival of online shopping, global arbitrage opportunities were miniscule. However, now that it is only a few clicks away, consumers are already looking at this. Let us go back to our example of cosmetics.

A highly successful company based in Hong Kong/China, StrawberryNet, actually ships almost all leading personal care brands anywhere in the world in less than 10 days. As anyone can guess, the prices are heavily discounted, and if custom duties are imposed in any country on an order, the StrawberryNet reimburses the amount to its customers.

There is nothing new about pricing strategies based on local situations. Amazon is known to offer different prices by zip code and customer profile. Almost all retailers in the U.S. have prices that vary by store location.

However, the Internet has complicated this further by enabling the consumer to make the buy decision in the country of his/her choice. Shopping comparison Websites in the U.S. currently mostly includes domestic, well-established Websites, but it is only a matter of time before international sites are also included.

Conclusion
Some analysts erroneously argue that B2C in ecommerce was dead but this new dynamic is going to add a whole new dimension to global trade and online shopping. Companies will continue to struggle to prevent consumers doing price comparison and taking their business across borders. This will put tremendous pressure on companies, which are currently taking advantage of market inefficiencies that exist between two economies and profiting from it, to become more efficient.

Jay Srinivasan is a Director at Siemens Corp and a charter member at TiE-Boston. Before Siemens, Srinivasan was the Director of eBusiness Strategy at PricewaterHouse Coopers and Director of eCommerce at Compaq and Digital Equipment Corporation. He may be reached at JaySrinivasan@comcast.net.

Jay Dwivedi is a graduate of IIT Roorke and is a senior advisor at iProceed helping clients with developing strategy. He may be reached at jay@iproceed.com.