A few weeks ago, I attended one of the talks that are hosted in London by Brian Micklethwait on the last Friday of every month. The speaker was fellow Samizdatista Alex Singleton, and was essentially on the subject of why globalisation is good (and was incidentally about Alex’s new think tank devoted to this very issue).
In the discussion after the talk, one thing that came up was the benefits of global economies of scale and global competition in manufacturing, retailing and the supply chains in between. A point made was that although it is certainly the case that prices on many goods (clothes and electronics being the examples brought up) have dropped due to retailers being able to easily shop throughout the whole world for products to sell, we do not really yet see customers buying goods directly from foreign retailers. Internet commerce is becoming large, but mostly it is domestic in nature.
However, something happened to me this week that made me think that perhaps more international commerce is happening than we realise, and that a lot of it is happening under the radar.
My present mobile phone is a Motorola v500, which is a lovely phone. (Motorola has always had great engineering. Five years ago they were losing badly to Nokia, who had inferior engineering but better industrial design and better user interfaces, but in recent times they have caught up in both regards). However, it has a small external antenna, which is removable and screws into the phone. As it happened, the thread on the antenna became damaged, and I needed a new antenna.
I went into the Carphone Warehouse store from which I had bought the phone, and they were sympathetic but not very helpful. They were more interested in selling new phones and high mark up accessories than tiny replacement antennas. (They suggested that I visit their repair centre in a different part of London or check the Motorola website). I went to a couple of other mobile phone shops with similar results. Checking the Motorola website led to similar results.
So what to do. Well, I checked on ebay, found that there were plenty of people selling replacement antennas for my phone, put in a bid, and purchased an antenna, online, for £2.77 including postage. Although an antenna probably costs 5 cents to make, I suspect that if I had gone to a “repair centre”, I would have been charged considerably more than £2.70 for a new one, and the other advantage of buying on ebay is that the new one would arrive in the mail in a couple of days.
Just as I was logging out of ebay, I noticed something else, which was “Location of Seller: Singapore”. So it turned out that it was easier and cheaper for me to obtain a new antenna from some guy in Singapore than from a local retailer in London.
Thinking about it some more, I suspect that a lot of this is typical. If you set up a “shop”, then there are still restrictions on where you can obtain goods from and who you can sell to. The producers of branded goods still try very hard to make sure that retailers only sell goods that have been bought from the “authorised distributor” of their brand in a particular country, and that they only sell to people in the same market. In a world where every buyer is also potentially a seller, and where goods can be sold on to people elsewhere in the world, though, this is hard to enforce. And what we do have now are large, trusted companies that act as brokers of goods of all kind. Ebay is the classic example, but as I have discussed before, more and more of Amazon’s business is of this kind too, acting as a broker for third party sellers. I haven’t seen any statistics in the percentage of this kind of trade that is cross border, but I suspect it is growing. (I also buy large numbers of DVDs from the US and Canada through third party sellers via Amazon).
Quite sadly, there is also another obstacle to the growth in this kind of cross border commerce. If you send something through the mail, it is subject to cross border bureaucratic interference in the terms of customs duties and local taxes. (In the case of importing most goods into Britain, the issue is the payment of VAT). If you receive a package and HM Customs and Excise decides to charge you VAT on it, then rather than receiving the goods through the mail, you receive a card explaining the situation. You then have to visit the local post office, and pay the VAT plus an “administration charge” before receiving your goods. The inconvenience and the administration charge can between them make it no longer worth your while to buy from overseas in the first place, which is irritating. Ultimatelly it isn’t so much the tax as the inconvenience that goes with it.
But of course there is a loophole. The VAT is waived if the total value of the goods is less than £18. This regulation was presumably brought in some time in the past to avoid the inconvenience of having to charge tax on every small gift sent throught the mail, but it has now grown into being an examption widely used by customers of internet commerce. You learn not to order multiple DVDs in the same package but to order them one at a time. The additional postage costs are often as much or greater than the tax would be, but this way you avoid the bureaucracy. This doesn’t precisely improve the economic efficiency of the whole process, but the exemption is great enough to allow a large global economy to exist in goods under about £18, whereas there are substantial restrictions on trade in goods of higher value. None the less, some stores have set up specifically in order to take advantage of this tax advantage (Amazon Jersey for instance).
One would hope that someday this exemption would be so widely used that it will lead governments to remove the taxes in resignation, but this is sadly much too hopeful. More likely are attempts to charge taxes on all goods, however small, and much more government intrusion into commerce. And it is the intrusion and bureaucracy that is likely to really be economically destructive, even more so than the taxes themselves.
One of the really nice things about living in the world’s largest free-trade zone (otherwise known as “The United States”) is that I can purchase from stores anywhere within that zone and get my stuff delivered here without any such baloney.
Our founders were very wise when they included a provision in the Constitution forbidding the states from interfering with interstate trade.
Well, considering that even primary grade children nowadays in Singapore carry mobile phones(we call ’em handphones here)…
I’m not too sure, but I think the density of mobile phone users here is one of the highest in the world, and phone parts are plenty cheap, and available because we repair them so often! We do love our SMS! ^_^
The reason for the overall cost being cheaper for single seller-to-buyer relationships is, I think, the increasing degree of customization with advanced technology. It’s hard to ship anything anywhere in large cost-efficient volumes if the buyers just aren’t going to take the product because they have too many other choices.
And what does go through, like say, antenna parts from Taiwan to Britain, go at perhaps 50000 antennas with the associated shipping, but where only a bare fraction of those antennas will be purchased, leaving the distributor to slap a higher price on what is sold in order to cover their costs. Either that, or they avoid selling such specialised components altogether.
So in the future we can expect to see even greater customization, and hence greater volumes of single-buyer-seller transactions, because they’re just much more cost-efficient with modern communications, rather than bulk shipping as was done in the past.
That’s my take on it anyway.
TWG
“…more and more of Amazon’s business is of this kind too” That should not be surprizing, as originally Amazon specialized in brokering sales of used and rare books. They simply expanded this practice to other products.
BTW, you did not have to go to e-bay for your little antenna, or for any other small items, including laptop batteries and fake Rolexes, you could have just googled it, and chances are you would have ended up purchasing it from somewhere in Asia.
Why would you have to google for fake Rolexes? I get more than enough spam trying to sell them to me. 🙂
At least here in Edinburgh, there are several small shops offering mobile phone repairs, maintenance, spare parts, unblocking, etc. I imagine there are dozens of such places, completely unaffiliated with any manufacturer, all over London & I would think the last place you would actually need to go to in this case would be a manufacturer’s outlet. Or even Singapore.
As for the idea of taxing all transactions, however small, there is no real reason why this couldn’t be done. The concept of internet micropayments, formerly touted as (yet another) way of making cash out of the basic desire of humans to communicate with each other, shows that it is eminently possible. However, since governments tend to be a bit slow on the technological uptake, I wouldn’t expect it particularly soon.
EG
EG,
I wondered a bit about that as well. Surely the postage costs from Singapore to London outweigh any price advantage? A quick google for “Motorola v500 antenna” brings up THIS.
It’s a matter of convenience. I could have gone to one of those little mobile phone repair shops, and they would have no doubt had what I needed. However, there aren’t any such shops sufficiently close to where I work at Canary Wharf for me to do it in my lunch break, so this wasn’t really a very convenient options.
And what I paid on ebay (including postage) was less than any of the prices quoted on the page Julian gives, so apparently as for the postage outweighing the price advantage, apparently. Not. It is a tiny component, and it is not going to cost much to post even that distance.
There is a lot of that sort of trade between Canada and the U.S.–especially on eBay.
One area that’s a particular problem for Canadians, though, is buying books across the border. Our government insists that it has the authority to investigate what books we read and, even worse, to deny them to us if it thinks they’re the wrong sort of book. This results in a delay in receiving your books (always), an extra cost (sometimes, and strangely without any apparent pattern), and can even result in you not receiving the book at all. The problem is bad enough that Amazon opened a Canadian warehouse.
Ted, I was reffering to genuine fake Rolexes;-P
Juian: is the VAT included in the prices on that page?
Steve: isn’t the same true within the EU? (ducking for cover).
Interesting that the VAT-exclusion limit is 18 pounds.
Here in New Zealand, they don’t charge GST on imports if the GST is less than $50 — that is, if the goods are worth less than $400.
The other point is, that its not generally worthwhile to repair a phone or replace bits if they need it. The operators want people to churn their handsets in Europe – this means replacement over repair. Otherwise they wouldn’t subsidise the handsets so much.
It’s probably just not economical in Europe for anybody to bother with the spares. The Asia model tends to focus more on buying new kit at full Bill of Material cost, therefore holding and providing spares is more likely an issue.
Our local PBS station broadcasts the Car Guys on Saturday morning to which we always listen because the program is both interesting and amusing. They have a puzzle to solve every week and last week’s puzzle involved buying a product on eBay. It was a replacement passenger side mirror for a Jaguar and without going into the eye glazing over details, the solution was that although the buyer thought she was getting just what she needed for her US owned car, the mirror when it turned up was for a UK car. The point of all this – yes there is a point – is that this sort of commercial transaction is becoming so commonplace that it can turn up in such a format. The whole global commerce trend is just a continuation of what Marco Polo wrought and thousands before him – trade it’s what makes the world go round.
I’d have gone looking for the appropriate tap and die to correct the damaged (crossed?) threads instead of a whole new antenna.
For bargain basement cell phone accessories — from the far east, I think — cellphoneshop.com. I think I get my earpieces from there for about $2.20 each.
In Germany how you pay the tax & duty seems to depend on who’s shipping it to you. I have had the PITA situation where you have to go to the customs office to pay for stuff, but not always. Recently I ordered a load of photographic stuff from a retailer in the States. I had it shipped via UPS and they invoiced me afer the delivery for the customs and VAT. Very convenient and painless – I didn’t explore how how they would have pushed if I hadn’t paid the invoice promptly.
Part of the hassle is governments trying to protect tax revenue. Part is companies trying, in an increasingly transparent global market, to protect their ability to rip off customers in particular markets (usually Europe, especialy the UK) – oops, sorry, “price differential”. E.g. Hewlett Packard, whose (cheaper) US ink cartidges apparently don’t work with printers sold in Europe. HP as a private commercial organisation are of course completely within their rights to try these stupid customer-alienating stunts – just as I the customer am within my rights to therefore buy Epson instead.
“Globalisation is imperfect, …..”
What makes you say that ? Any particular problem or just a general principle (nobody’s perfect…) ?
Globalisation (whatever it is) is ok. No need to denigrate it gratuitously just to sound “in”…
Well, if Globalisation was perfect, there would be no remaining trade barriers for one thing
A friend of mine has made a nice little business selling ipods overseas. For a small fee he will also register it in the U.S. so they can use the itunes at the apple store. In global commerence laws that prevent exchange of goods and services are a waste, of time and resources of the goverening bodies
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Globalisation also means that no business or related jobs are confined to any given location. Production can be portable and mobile ready to move again and again based on the cheapest labor markets in the world down to wage slave and even child labor. Businesses can decentralize, relocate, go offshore, subcontract, outsource, lease workers or what have you. And when these businesses move out from one place they leave behind communities worst off than they were before they came. As one community of even nation falls out of the flow, it leads to turmoil and even wars. The turmoil can flow from one place to another.
Globalisation melts Capitalism, Communism and Socialism all together because it no longer matters what is going on in any society as long as those in charge of the wealth control the process be it a Capitalist system under elite groupings or a Communist system that has the State control the flow of jobs and wealth. Trans-national corporations are in the drivers seat. Some of these corporate heads have stated individual nations have to give up some of their sovereignty.
Free Trade the tool of Globalisation is not based on trading products per se for the real commodities are human beings who are put on a world trading block to compete down to the lowest possible levels. If the workers demand too much, the companies can just move production to another place where there is the least line of resistance. Human dignity in the workday degrades as a result.
Soon the nations that have supported entitlements for many years find it more and more difficult to support them as a working poor class grows and grows.
This is what globalization is all about. It is a race to the bottom.
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