A skeptical look at drop-shipment - A Blog from Freemont Group
01 November, 2011
A well-known online business concept that enjoys much popularity in recent years is drop-shipment supported internet shops. We too have been naming and promoting drops-shipment as a way of making money from your online business. With good reason, because internet based businesses are most able to make significant tax savings using the international tax-planning tools we offer. But just like in every other business, not everyone is a winner, and drop-shipment does deserve a more skeptical look.
In theory, drop-shipment seems like a perfect business solution. You open-up a web shop, but instead of handling goods yourself, you outsource it to a foreign company that directly ships your orders to your customers. No inventory, no risks. Makes you wonder why not everybody is doing it.
But here comes the catch. What if some of your customers are not happy with what they received and want to return it, who will pay the return fees and who will handle faulty or unwanted products? What if the laws in your country make you, the vendor, legally liable for timely delivery, quality of product and so on?
To work with drop-shipment companies means you´ll be dependent on them for your range of inventory, shipment and handling of the products you are going to sell. Since the only added value you create is having an accessible website with a high Google page rank you will be in competition with sites like Amazon and E-bay and hundreds of other established online vendors. What is more, the concept of drop-shipment appeals to so many bedroom entrepreneurs that you will face massive competition, and chances are you´ll be scraping for pennies.
Nevertheless, there is one area where your online business might get the edge. That is the area of taxation. When you take online business that step further by moving parts or all of the business processes to a tax haven such as Dubai, you can create a price advantage over your competitors and turn your pennies into a steady source of income. In fact, we have helped several online businesses make that step to a tax haven and significantly reduced their tax bill. So yes, drop-shipment can certainly work, as long as you drop your tax bill offshore.
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