In a guest column for AIN, Andrii Matiash, Managing Partner at the 4B Law Company, that specializes in supporting Ukrainian entrepreneurs abroad, discusses which countries our manufacturers most frequently choose to expand their businesses.
Ukrainian businesses are currently facing challenging times. However, despite this, manufacturers are trying to find solutions; they are actively venturing into foreign markets. They operate both offline, in countries with large concentrations of compatriots, and online, opting to sell their products on Amazon. This globally renowned e-commerce platform allows them to reach numerous markets with minimal expenses.
Top Markets Ranking
Amazon is a true giant in online retail, operating 21 marketplaces across the globe. According to Statista, the undisputed leaders in terms of net sales were the USA ($395.64 billion), Germany ($37.6 billion), and the United Kingdom ($33.59 billion). For comparison, all other global markets combined accounted for only 19% of Amazon’s revenue – approximately $108 billion.
These countries also lead in other metrics. For example, the Amazon USA marketplace attracts nearly 3 billion visitors each month, while Germany and the United Kingdom see approximately 400 million and 500 million visitors, respectively.
It’s no wonder that Ukrainian manufacturers are striving to access such a broad target audience and achieve high sales levels. Let’s take a closer look at the markets of these countries.
Amazon USA: Features and Advantages
Apart from being recognized as the largest marketplace within Amazon (accounting for almost 69% of the marketplace’s revenue), there are other reasons that encourage our manufacturers to choose the American trading platform:
- Popularity Among Consumers
According to JungleScout, 53% of Americans prefer online shopping on Amazon. The closest competitor to the marketplace, Walmart, lags behind the leader by 20%. Another resource, eMarketer, reports that 61% of US residents start their product searches on Amazon. Therefore, Ukrainian entrepreneurs prefer Amazon USA, which ensures that their products will be seen by tens of millions of consumers.
- Tax System Loyalty and Convenience
I’ll start by saying that the US tax system is inherently convenient, especially compared to Europe. Although income from sales in the US is subject to Sales Tax (equivalent to our VAT), its rate is relatively low—averaging 5-7%. Moreover, this tax is not levied upon importing goods into the country; it’s paid only by the end consumer.
In the context of trading on Amazon, taxation in the US market has another advantage. It lies in the fact that large American marketplaces automatically add the tax amount to the price of the product, meaning they collect and pay the Sales Tax themselves. This is appealing to entrepreneurs, as it allows them to save time and money on accounting services.
- Established Logistics
The USA is the most popular global market, so logistics from Ukraine and China to this country are well established. There are many companies specializing in working with Amazon. They handle various tasks, including preparing and packaging cargo and sending it to the marketplace’s fulfillment centers.
Despite the advantages mentioned above, one downside to the Amazon USA market is significant competition. Statistics show that there are 1.11 million active Amazon sellers in the United States. This is a lot compared to other countries worldwide—the total number of sellers in other markets is around 1.5 million.
However, our manufacturers easily overcome this problem. They do so by ensuring the quality of their products and paying special attention to creating an effective advertising strategy.
Pros and Cons of Trading in Germany and the United Kingdom
Germany and the United Kingdom are two constantly competing Amazon markets in Europe. Although their level of net sales significantly lags behind the American marketplace, trading here is still advantageous for several reasons:
- Consumer trust: Amazon DE is the e-commerce site with the highest number of visits in Germany. According to statistics, in February 2024, 397 million users visited its pages. Meanwhile, eBay DE, Amazon’s main competitor in this ranking, was visited only 109 million times during the same period.
Regarding the British market, Amazon also holds the lead in terms of visitor numbers. The marketplace records about 500 million visits each month. Considering the population of the United Kingdom—69 million people—this means that all of them visit the trading platform about seven times each month.
- Relatively low competition: Although the German and British Amazon markets rank second and third in size after the USA, there is quite low competition here. Amazon DE has just under 245 million sellers, and Amazon UK has 281 million. It’s worth reminding that in the USA, their number exceeds 1.1 billion.
- A large number of Ukrainian immigrants: For manufacturers from any country, their compatriots are the primary target audience. Because of shared customs and mentality, it’s easy to create a product that meets their needs and demands. Official data states that there are currently 1.1 million Ukrainians in Germany and 253,000 in the United Kingdom.
However, working on European marketplaces, including the German and British Amazon, may be difficult. This is primarily due to the peculiarities of taxation and legal business registration. Let’s delve into more detail.
- Subtleties of income taxation: In Germany and the United Kingdom, like in many other European countries, income from sales is subject to VAT, i.e., the European equivalent of our value-added tax (VAT) and the American Sales Tax. However, there are differences from America.
Firstly, it lies in the rate. The standard VAT rate in Germany is 19%, and in the United Kingdom, it’s 20%. Secondly, VAT in Europe must be paid upon importing goods and at every stage of the sales chain, both in the B2B segment and in the B2C. Moreover, entrepreneurs must monitor tax payments to the state treasury themselves.
- Necessity of establishing a legal entity: In 2022, Amazon added Ukraine to the list of countries eligible to trade on European marketplaces. Theoretically, this means that Ukrainians are allowed to work on the platform as individuals. However, in practice, this is impossible because tax authorities in Germany, the United Kingdom, and other European countries do not issue VAT to Ukrainian residents.
Therefore, registering a legal entity is mandatory for trading on Amazon DE and Amazon UK. However, there is a solution for Ukrainian manufacturers to bypass this somewhat complicated procedure. It lies in the fact that the company does not have to be registered in these countries specifically for trading in Germany or the United Kingdom. You can choose a jurisdiction that is convenient for you. Therefore, it is entirely possible to enter the European market with a registered LLC in Ukraine.
The markets of Germany and the United Kingdom are quite attractive for Ukrainian entrepreneurs. There is minimal competition and a wide target audience, including many of our compatriots. As for taxation, the principle of collecting sales tax is very similar to Ukrainian VAT, so you won’t have to get used to anything new; you can just entrust taxation to professionals.
Getting Started with Expanding into New Markets: Top Recommendations
To successfully conquer foreign markets, it’s important to know where to start and how to proceed. Hopefully, some tips on this process will help you effectively expand your business.
Explore Sales and Revenue Prospects
To immediately understand if your product is relevant for a specific market, analyze the demand for it on the corresponding marketplace. Amazon Best Sellers section, available on each regional platform, can help with this. Find the relevant category of products and see if your product falls into the bestseller category. You can also learn about pricing here.
For the same purpose, it’s easy to use other Amazon tools, such as Movers & Shakers. It contains a list of products whose sales have significantly increased over the last day. You can also try third-party resources like Google Trends, Keepa, and Jungle Scout.
Understand Legal Matters
Is it worth creating a company to enter a specific market? In which country is it better to register a legal entity? How to obtain tax benefits? All these and many other questions can be answered on our blog. Since the beginning of the war, we’ve been filling it with materials that help Ukrainian entrepreneurs understand all legal issues related to doing business in foreign markets.
Find a Logistics Contractor
Contact a trusted company that provides a wide range of services. Such contractors can help you with customs clearance of goods.
Develop an Effective Marketing Strategy
There are three ways to do this. You can promote your products independently if you have the necessary knowledge and skills. You can also outsourceYou can also outsource this part of the work or createcreate a marketing department within the company. You can hire qualified employees or organize training for your own staff. Nowadays, many businesses offer training services for teams managing Amazon projects, where your specialist can gain all the necessary knowledge.
Register a Seller Central Account
Once all legal, logistical, and marketing issues are resolved, you need to register a seller account on Amazon. Here, we have shared a step-by-step instruction for you to do it. Note that the marketplace thoroughly checks all provided documents and information. Therefore, it’s better to entrust this matter to specialists to avoid registration refusal and blocking. By the way, you can also consult with them regarding further work on the trading platform, including the use of FBA service, intellectual property protection, financial matters, and so on.
Summarizing
In 2024, the most popular markets among Ukrainian manufacturers are the USA, Germany, and the United Kingdom. Working in each of them has its nuances, including tax specifics, legal business arrangements, logistics setup, and more.
To ensure that the exploration of a new market goes as smoothly and quickly as possible, seek the support of professional lawyers. They will assist in resolving all questions regarding business expansion and will accompany you at every stage of your development.
Author: Andrii Matiash, Managing Partner at the 4B Law Company
