The advantages and disadvantages of international dropshipping

Dropshipping is not a new phenomenon: for years it has been a way for start-up online retailers to start their business in an inexpensive way (no need to stock up). What is new, however, is that international dropshipping has taken off since 2018/2019. Especially Chinese dropshippers are dominant in this. Also on Businessforsale.eu we see online businesses that take orders based on dropshipping and have them delivered directly from China. We see advantages and disadvantages to this method of order processing, which we will explain to you in this article.

International dropshipping

Chinese platforms and online busineses have been making inroads in the Netherlands and Belgium for years: names like AliExpress, MiniInTheBox and DHgate will be familiar to many consumers by now. The biggest name is AliExpress (one of Alibaba's brands) and similar to Bol.com and Amazon, Chinese entrepreneurs can offer their products through a sales account. Think of it as a shop in shop. Whereas the initial focus was mainly on direct sales to consumers, Dutch and Belgian entrepreneurs are now also being targeted for cooperation based on dropshipping.

How does dropshipping from China work?

These local entrepreneurs start a Dutch online business with an assortment of Chinese products. They do not have these products in stock themselves. As soon as an order comes in via the Dutch online business, it is forwarded to the Chinese partner. The latter takes the order, packs the products and sends them to the Dutch or Belgian address. The Dutch customer receives the package directly from the Chinese entrepreneur. Legally, the order is placed with the Dutch entrepreneur and he is therefore the point of contact for complaints and compliments.

The intermediary or agent arrangement with Chinese dropshippers

In practice, things sometimes go wrong. Products may turn out to be of lower quality than expected, or they may not arrive at all. The Dutch merchant then has to take these orders back and refund the customer. To prevent this, an agent construction has been devised. The website acts as an intermediary ('agent'). The general conditions are set up in such a way that the Dutch consumer does not buy from the Dutch entrepreneur, but directly from the Chinese entrepreneur. The Dutch entrepreneur only mediates between Dutch customers and Chinese sellers. As a result, Dutch customers would have to take their complaints to the Chinese sellers.

What is the reason for dropshipping from China?

The advantages are the (very) low purchase price of most products and the low shipping costs from China. In addition, we often hear that there are many special products available and wide ranges.

Growth in dropshipping from China

In recent years, delivery times from China have become shorter and shorter. Today, for example, PostNL already indicates 7 days. The (relatively) shorter delivery times, make orders that are dropshipped from China easier to sell to customers. If the price is low enough, people will be willing to wait a few days.

In addition, it has become increasingly easier technically: parties like Shopify have apps like Oberlo in their appstore that allow an assortment to be assembled and placed in a standard online business within a few hours. The entire order processing takes place via APIs so that the Dutch merchant does not have to worry about this: he or she can focus on sales and customer service. And the latter is sometimes lacking. In our experience there are relatively many complaints about online businesses that deliver their orders on this basis.

And nowadays there are several Dutch parties that promote this international dropshipping variant and offer courses for newcomers.

Disadvantages of international dropshipping

But beware: there are disadvantages to this method of order fulfillment. For example, the KVK warns that consumers must pay VAT in all cases. The Chinese seller will not charge this to a Dutch merchant, but he himself must do so with Dutch customers. And does he work as an agent? Then the Chinese partner has a VAT registration obligation in the Netherlands. More information on this.

The success of dropshipping from China is largely explained by the low cost of products and transportation. However, this seems to be changing: for example, in 2020, the European Union approved a new tax regime for dropshipping that will come into effect January 1, 2021: currently, VAT is only charged on packages worth more than 22 euros and import duties are mandatory above a value of 150 euros. But by 2021, the VAT amount must be applied from 0 euros. This will also make packages with lower order values (and most of them are through this channel) 21 percent more expensive.

Furthermore, Chinese entrepreneurs can send their packages so cheaply thanks to a 50-year-old agreement of the Universal Postal Union. That agreement expires and by 2021, countries can choose their own rates. As a result, postal rates may triple in the coming years.

In addition, it is difficult (even as a business owner) in practice to prove your case in China. As with all business acquisitions, proper due diligence is crucial when acquiring an international dropshipping online store.