Thai orchids, American computer services, British music hot from the recording studio--electronic commerce is sending products like these flying across national borders as it goes global. Many are welcomed, helping lower prices and raise standards of living. Others aren't. "Mein Kampf," for instance.
Online book merchants, including Amazon.com, ship Hitler's racist manifesto to buyers in Germany. Amazon shipped in such quantities that this summer the title was on the company's top-10 list for the country. Yet it's illegal to sell the book in real-world bookstores there. Responding to a complaint from the Simon Wiesenthal Center, which battles hate groups, the German government is looking at whether the sales violate laws.
So far, Amazon has refused to pull the book from its list, saying it doesn't want to regulate what people read--it contends that the English translations of the book it sells from its U.S. site are not covered by German law.
Fresh from turning convention upside down in their home markets, the e-merchants are doing the same abroad as they expand fast across national borders. In Germany, the issue is local laws born of tragic history. More commonly, it's about price discounting, consumer privacy and the speed of change in an economy.
Dollar figures are hard to come by, but cross-border e-commerce has become big enough that it's gotten the attention of the World Trade Organization, the Geneva-based agency that oversees the rules of international commerce. When thousands of WTO delegates meet in Seattle late this month to plan a new round of trade liberalization, a big item before them will be how to regulate--or leave alone--this new kind of exchange between nations.
For now there are few formal barriers, and the United States likes it that way. At the WTO meeting, says Deputy U.S. Trade Representative Susan G. Esserman, "what we're seeking to do is prevent barriers from being established in the first place."
The U.S. message, so far getting a generally friendly reception around the world, is that unfettered e-commerce will ultimately benefit everyone. "A small business of one or two people, being run by a family, can have access to the whole world," says Bill Poulos, of data-processing giant Electronic Data Systems Corp.
To many analysts, countries that skeptically see Washington acting in its own interests--the United States leads the world in e-commerce, after all--also realize that resistance against a force of nature would be futile. "If they put up barriers to stop it, they're going to pay the price in their economy," says Frederick W. Smith, chairman and chief executive of FDX Corp., the parent of air-freight giant Federal Express Corp., which airlifts to foreign countries tons of products that are ordered electronically.
If it's hard to regulate the trade within a single country, the challenges compound when the market is the world at large. If a company is headquartered in Country A, has a Web server in Country B and ships products from a warehouse in Country C to a customer in Country D, whose rules apply?
Can a tiny, one-room company that deals directly with customers in 50 countries reasonably be expected to know the legalities of each marketplace? Should software sent into a country over the Internet be taxed as a "good," a "service" or something else altogether?
However vexing the questions, they're not scaring many merchants off. A recent survey of 50 big U.S. online retailers by Jupiter Communications, a New York market research firm, found that 28 percent had already put up special pages aimed at foreign buyers. Many also had foreign-language pages.
Certainly the people at KB Orchids International, a small firm in Bangkok, like the new way. One year ago, the company put up a Web site (www.orchidkb.com) to advertise the lushly colored tropical blossoms it grows. Today, about $10,000 of orders a month--15 percent of the company's business--comes in electronically, generating shipments to customers in places as far afield as Japan, Barbados and the Bahamas.
For years, the company has been experimenting with how to get its name in front of foreign customers. "If they can see us, they order," says Sanguansak Tangsakol, the company's marketing manager. Ads in flower magazines were costly; the Internet is cheap. In addition, customers can ask questions by e-mail. If they need a photo of a type of blossom, Sanguansak sends it out as an e-mail attachment.
Most economists say that on an international scale, e-commerce brings the same kinds of efficiencies that it does to a national economy. It can lower companies' response time, increase selection of goods and lower the need to keep costly piles of inventory.
"The Internet allows consumers . . . to see worldwide what prices are, what levels of customer service are," says Bill Bass, vice president of e-commerce for Lands' End. "At the end of the day, what happens is that consumers are going to want to have the best experience possible shopping" and insist on it from the places they give their money.
This does not always please the home team. Lands' End, for instance, recently got sued in Germany for offering a U.S.-style customer service on its German-language Web site: a no-questions-asked return policy for the life of a product.
Retailing practices are closely regulated in Germany, down to the hours that shops can remain open. Lands' End was soon hit with a lawsuit saying its returns policy constituted unfair competition--most companies couldn't afford to guarantee returns for life, after all. The German supreme court agreed, and Lands' End backed off.
Elsewhere, the Web prevails. Price-conscious people in parts of Europe are starting to shop for cars by looking at the Web sites of dealers the next country over. Often, there's a mismatch of taxes or prices that makes it financially worth their while to cross the border, buy the car there and bring it home.
It's possible for Norwegians to save 10 percent to 20 percent by buying in Denmark, says one Danish BMW dealer. He asked not to be named; the companies that supply his cars don't like this cross-border business and might cut off his supply. "We have to keep it at a low level," he said.
However big the potential for global sales of physical goods online may be, it's ultimately limited by the costs of shipping--even little packages cost big money to send across oceans--and by the hassles of taking goods through customs inspection and paying duties. Many analysts see bigger importance ultimately in businesses in which the transaction is electronic in both directions.
A British company named Crunch Music Ltd. is a pioneer in this field. It licenses music--innovative guitar performances, for instance--from independent British recording companies, then sells it all over the world as downloadable files in the MP3 format.
To date, its customers include people in the United States, Ireland, Germany, Hungary and Japan, among other countries, paying by credit card. "It's a world market," says Jimmy Knight, a Crunch manager. "The Internet itself is one of the best ways of distributing to the whole planet."
Many analysts see the music business growing fast, providing that more and more people get high-speed Internet connections that allow quick downloads. Within a few years, it could be possible to rent or sell movies for delivery over the Internet--and again, there would be no technical reason why someone in Australia could not get the movie from a server in France.
Consumer services are the most visible. But to many analysts, the business-to-business e-commerce is by far the more important.
Cisco Systems Inc., the huge California-based manufacturer of hardware for Internet companies, is a case in point. Ninety-two percent of its orders from South America now arrive electronically, as faraway customers at screens type in specifications of the systems they want, working out details of configuration with special software.
The orders are transmitted across the Internet, and the products are built to order, then loaded aboard jets and sent down south. Sue Stemel, director of Internet commerce information technology at Cisco, says that ordering electrically, with software tools guiding their decisions, helps people abroad make difficult orders correctly the first time. And it generally means the product goes out the door to them about a week sooner.
Services make up another huge form of invisible e-commerce. Data-processing companies have no technical reason to put their computer centers within the borders of the countries where their customers operate. EDS, for instance, handles the mammoth data-processing needs of General Motors Corp. worldwide, doing much of that work from data centers in the United States.
There are few barriers now, but every now and then a country rattles the industry with suggestions that it's going to put some up.
Last year, for instance, Argentina passed a law that authorizes tariffs on "intellectual property"--software, movies and music, for instance--that enters the country on discs or by electronic transmission. Envoys from the industry were soon knocking on the doors of Argentine officials to object, and so far the law has not been implemented.
In recent months, the United States has been negotiating with the European Union over an EU directive implemented last year concerning privacy of consumer data online. By U.S. standards it is quite stiff. It requires companies to get explicit permission from customers whose individual commercial data--buying habits, preferred vacation destinations, etc.--they want to use. It also forbids transmission of the data to countries where its protection can't be guaranteed and sets up legal penalties for violations.
This type of data is the meat and potatoes of e-commerce marketing in the United States--it's what allows merchants to target online shoppers with personalized ads. U.S. companies don't like the penalties and worry that too few people would grant permission to use the data. Moreover, they complain, running separate databases for Europe and the United States would be costly; the whole point of e-commerce is supposed to be that the world is one giant market.
The U.S. side is coming back with proposals for self-regulation, in which companies would agree to police themselves, with existing laws applied as necessary. U.S. and European negotiators met for two days in Washington last week.
In the long run, many industry leaders are coming to think it's up to the companies themselves to act. Thomas Middelhoff, chief executive of German media giant Bertelsmann AG, wants merchants to craft a common framework worldwide, with "trust marks" displayed on participating sites. "This trust mark," he told Washington Post editors and reporters recently, "says that if you consumers go to this Web home page, you can be sure of these principles or this code of conduct."
At the Seattle meeting of the WTO, it will be governments sitting down to talk together, trying to decide how to fit e-commerce into the jungle of laws that govern world trade.
Step one on the U.S. agenda is to extend a temporary moratorium, begun last year, in which member countries agreed not to unilaterally put tariffs on cross-border electronic transmissions. From there the U.S. team hopes to establish the principle that the way a product or service is delivered is irrelevant in trade terms. "You don't need a whole new set of rules for e-commerce," says Esserman. "The existing regulations can apply."
In other words, if a country allows a foreign firm to bring in people to maintain a big computer system on contract, it should be all right for that company to do the work remotely online from outside the country.
This is not to say the United States wants an entirely free rein. Countries would continue to have powers of regulation. George Vradenburg, America Online Inc.'s senior vice president for global and strategic policy, notes that doctors are starting to consult with patients online. If those consultations begin to cross borders, it would be reasonable for countries to establish rules to protect patients, as long as the rules weren't being thrown up as an artificial barrier.
By the most optimistic accounts, the talks that begin in Seattle will run at least three years. Vradenburg suggests whatever comes out probably won't match the twists and turns that the Internet makes in the meantime. "All of these things are going to be happening on a much faster track than the talks," he says. "The talks are going to have to catch up with reality."