E-Fulfilment and Offshore Centres: Economic Policy Implications for Small Business

Introduction

Past research on the development of the e-fulfilment industry has provided understanding of the activity at a time when it has attracted negative publicity. Negative publicity has focused on businesses that have switched their distributions of low value goods such as CD’s/DVD’s through offshore centres to take advantage of Low Value Consignment Relief (LVCR) which is the European Union (EU) approved mechanism for VAT exemption. LVCR allows products in the single parcel to be shipped sales tax/VAT free throughout the EU if the value of the goods is between 10 and 22 Euros (£8 to £18 in the UK). The specific level of the relief is set by individual EU members and the UK limit is £18.

There are basically two types of activity within the e-fulfilment sector, although a number of businesses operate as a hybrid of the two activities. Whole Chain Companies (WCC), such as Play.com, buy and own stock and sell goods to final customers. On the other hand, Third Party Service Providers (3PS) provide logistics or distribution services for other retailers. It is known that some big retail players, such as Tesco, Asda and Amazon, are using agent companies with operations on Jersey to obtain the benefits of LVCR. WCC receive revenues based on the total value of sales whereas 3PS receive revenues based on the service they provide, with sales revenue received by the retail firm.

The key for e-fulfilment businesses operating in Jersey to take advantage of the LVCR relief is to balance the additional package and delivery charges against the increased profits arising from the competitive advantage offered by lower prices due to the VAT free sales prices.

In this chapter we initially consider the literature concerning the e-fulfilment industry and the models that have been developed. This is followed by the conceptualisation of a model of the e-fulfilment industry which is appropriate to offshore centres. We then apply the model to the case study of the island of Jersey which is an offshore jurisdiction in the English Channel off the shores of France. Finally we draw conclusions from the findings of this study and consider the policy implications of the e-fulfilment activities which are taking place.