Prepared by the Trade Council USA

Date File No. Our ref. Case No.

June 16, 2013 N/A Daniel Skavn Ruben, Philip Unger N/A

1. 2.

SUMMARY ..................................................................................................................... 4 COUNTRY FACTS, USA .................................................................................................... 4 2.1. DOMESTIC POLITICAL SITUATION......................................................................................... 5

3.

THE E-COMMERCE MARKET IN THE USA......................................................................... 5 3.1. 3.2. 3.3. 3.4. E-COMMERCE GROWTH COMPARED TO TRADITIONAL RETAILING ............................................. 6 POPULAR ITEMS TO BUY ONLINE (BY CHANNEL) .................................................................... 7 COMPETITIVE LANDSCAPE ................................................................................................. 9 E-COMMERCE GROWTH OUTLOOK ................................................................................... 10

4.

TRADE ORGANIZATIONS AND INDUSTRY EVENTS......................................................... 12 4.1. 4.2. 4.3. 4.4. ECTMA ...................................................................................................................... 12 ERA ........................................................................................................................... 12 SHOP.ORG ................................................................................................................... 12 IRCE .......................................................................................................................... 13

5.

SELLING IN THE US VARIOUS OPTIONS ...................................................................... 13 5.1. 5.2. DIRECT SALES FROM A DANISH WEB SHOP WITH A .DK DOMAIN OR .COM DOMAIN .................. 13 DIRECT SALES THROUGH YOUR OWN US COMPANY ............................................................ 14

6.

LOGISTICS, DELIVERY AND TRANSPORTATION COSTS................................................... 15 6.1. PACKAGING.................................................................................................................. 16

7.

CONSUMER RIGHTS, CANCELLATIONS AND RETURNS .................................................. 16 7.1. RETURNS ..................................................................................................................... 17

8. 9. 10.

CUSTOMER SERVICE ..................................................................................................... 18 COMMON METHODS OF PAYMENT.............................................................................. 19 ONLINE MARKETING .................................................................................................... 19 SPAM.......................................................................................................................... 19 CERTIFICATIONS / PROOF OF LEGITIMATE WEB-SHOP ............................................................ 20 LAUNCHING IN THE US ................................................................................................... 20

10.1. 10.2. 10.3. 11. 12. 13.

LEGAL ISSUES ............................................................................................................... 20 TAX AND CUSTOMS ...................................................................................................... 21 SETTING UP A SUBSIDIARY IN THE US........................................................................... 22 HIRING EMPLOYEES ....................................................................................................... 23

13.1. 14. 15.

GETTING AN ADDRESS .................................................................................................. 23 VISA ............................................................................................................................. 23 VWP .......................................................................................................................... 23 B-1 ............................................................................................................................ 23 L-1 ............................................................................................................................. 24 H-1B .......................................................................................................................... 24 E-1 ............................................................................................................................ 24 E-2 ............................................................................................................................ 24

15.1. 15.2. 15.3. 15.4. 15.5. 15.6. 16. 17.

FIXED COSTS OF DOING BUSINESS ................................................................................ 25 NEXT STEPS .................................................................................................................. 26

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18. 19.

SOURCES ...................................................................................................................... 26 APPENDIX..................................................................................................................... 28 LIST OF THE LARGEST ONLINE RETAILERS IN THE US ............................................................. 28 GROWING INTERNET ACCESS DRIVING US E-COMMERCE SALES ............................................. 30

19.1. 19.2.

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The US economy is, despite the economic downturn of 2008-2011, still the largest in the world. The US e-commerce market is also huge; it stood at US$ 224 billion in 2012, and is expected to grow to US$ 434 billion in 2017. It is estimated that about 70% of Americans have broadband access, making the US number 15 in the world. The US is lagging behind Europe and Asia when it comes to deployment of fast broadband such as FTTx, and there is untapped potential as millions of Americans are not yet online. American consumers are curious to try anything new. Denmark and Danish is a strong quality indicator in the US, especially in the design field. US consumers are not accustomed to buying from foreign ecommerce retailers. Therefore, if one wants to sell to US consumers, one should establish a local presence in the US, in some form. The US is however fiercely competitive also in the e-commerce field. If your company doesnt have a unique selling point or some other advantages, it will be hard to succeed. With a high purchasing power and hundreds of millions of consumers, the US is nevertheless an attractive market for Danish e-commerce actors. Establishing here might feel bureaucratic and unmanageable, but once you have your setup, you have access to one of the largest markets in the world. This report describes various issues, rules and market conditions in general terms. Any company is unique in terms of industry, resources, international experience and level of ambition and the framework conditions including legislation constantly changes. We therefore advise you to seek further advice, from the Trade Council or other parties, before any expansion into the US.

Geography Capital Area Population Ethnic groups Language Religion Economy GDP per capita Growth in GDP per capita Currency Government

Washington, D.C. (599,000 residents) 9.6 million square km (Denmark 43,000 sq km) 307 million 68% white, 14 % Latin Americans, 13% black, 5% others. English (not official) No official religion (86 % identify themselves with a religious belief, 89% are Christians, 2% are Jewish and less than 1% are Muslims) 49,922 USD (2012) 1.0 (2012) 1 US dollar = 5.75 DKK (June 9, 2013)

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Chief of State Vice President Secretary of State Secretary of Defense

President Barack H. Obama Joseph R. Biden, Jr. John Kerry Chuck Hagel

The United States of America is a presidential democracy. The USA has two major political parties: the Democrats and the Republicans. The electoral system is based on the majority vote in single-member constituencies. President Barack Obama was elected on November 4, 2008, and re-elected on November 6, 2012. In the Senate there are 52 Democrats, 46 Republicans and 2 Independents, usually caucused with Democrats. There is a Republic majority in the House of Representatives of 234 representatives versus 201 Democratic representatives.

2.1.

Domestic political situation

The US economy is still the largest in the world; 2011 GDP stood at appr. US$ 15 trillion. The US is the fourth largest export market for Denmark reaching an export value of DKK 45 billion in 2012 - and almost DKK 100 billion if also considering service exports. The US is also the world's largest consumer market. The US market for online-retailing is well-developed developed in terms of product selection, prices, logistics and delivery, and is by far the largest in the world. According to the United States Census Bureau e-commerce sales amounted to US$ 225 billion in 2012, which is equivalent to 5.2 per cent of total retail sales in the US. Figure 1: The US e-commerce retail sales in US million from 2005 to 2013
70.000 60.000 50.000 40.000 30.000 20.000 10.000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 E-commerce 70.000 60.000 50.000 40.000 30.000 20.000 10.000 0

Source: Census.gov: Quarterly E-Commerce Survey 1st quarter 2013. The e-commerce sector in the US has increased rapidly during the last decade. From 2000 to 2012, e-commerce sales increased by 715 percent, from US$ 27.6 billion to US$ 224.6 billion, corresponding to an average growth rate of

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approximately 19 per cent yearly. Amazon.com remains the undisputed leader in the US ecommerce space, with a 17% value share in 2012. US consumers spend about US$ 1,300 per year online, and that number is expected to almost double by 2016. A new study claims e-commerce sales in the US will grow at a compound annual growth rate of 14% the next for years, bringing online sales to US$ 434 billion in 2017; mobile devices will generate some 25% of all sales.1 American e-retailers claim to have a market share in Europe of more than 20%.2 In addition to shopping from US companies in Europe, many Europeans, including Scandinavians, are used to shopping directly from US e-commerce websites, to find unique products or competitive prices. However, the vast majority of US consumers havent shopped from foreign e-commerce websites. Barriers such as language, delivery time, payment, customer services and price deter US consumers from shopping online abroad. Thus if wanting to sell to the US consumers, one needs to be present where the US consumers are in the United States! Comparing growth rates in traditional brick-and-mortar retailing with online retailing its easy to see that the growth rates are much higher in e-commerce. Consequently, e-commerce constitutes an ever larger share of total retail in the US, as seen in Figure 2 below. Figure 2: E-commerce retail sales as a per cent of total US retail sales
6,0 5,0 4,0 3,0 2,0 1,0 0,0 2005 2006 2007 2008 2009 2010 2011 2012 2013 E-commerce as a Percent of Total Retail 6,0 5,0 4,0 3,0 2,0 1,0 0,0

3.1.

E-Commerce Growth Compared to Traditional Retailing

http://www.internetretailer.com/2013/04/25/us-e-commerce-sales-could-top434-billion-2017
2

http://www.nationaljeweler.com/nj/majors/a/~26881-U.S.-eretailers-stake-claim-in
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Figure 3: Yearly growth rate in total US retail sales and e-commerce retail sales
25,0 20,0 15,0 10,0 5,0 0,0 -5,0 -10,0 -15,0 2007 2008 2009 2010 2011 E-commerce 2012 2013 Total retail 0,0 -5,0 -10,0 -15,0 20,0 15,0 10,0 5,0

Both the store-based (brick-and-mortar) and pure online retailers have started to use mixed channel strategies. The store-based retailers, such as Nordstomr and Wal-Mart, have learnt from their online competitors how to employ more sophisticated merchandising, marketing and fulfillment, while leveraging their physical advantages. At the same time, some online retailers have embraced physical retail by e.g. partnering with brick-and-mortar stores, exhibiting at fairs and events or doing pop-up shops, to expand brand awareness and enable consumers to buy and collect instantly.

3.2.

Popular Items to Buy Online (by Channel)

The most popular items to buy online resemble those seen in Denmark (tickets, books, electronics, clothing, shoes, music, film, cosmetics, photo, games, toys and furniture.); autos and auto parts is an additional important category in the US. The largest grossing channels, as can be seen in the table below, are apparel, consumer electronics and media products. Its important to note that these numbers do not include the re-selling of used goods taking place on websites such as eBay, Amazon and Etsy.

Internet Retailing by Channel: Value 2008-2012 2008 2009 2010 2011 2012 US$ million, retail value rsp excl sales tax Beauty and Personal Care 2,752.7 2,858.3 3,121.6 3,391.3 3,831.0 19,644.8 21,243.5 24,587.2 28,142.6 31,535.4 Apparel Consumer Electronics and 22,164.3 23,417.9 26,802.5 29,732.6 32,406.0 Video Games Hardware

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Internet Retailing by Channel: Value 2008-2012 2008 US$ million, retail value rsp excl sales tax Consumer Healthcare Consumer Appliances Home Care Home Improvement and Gardening Furniture and Homewares Media Products Food and Drink Toys and Games Other Internet Retailing Internet Retailing, Total 2009 2010 2011 2012

2,147.9 2,608.6 110.1 1,702.1

2,655.6 2,942.4 129.5 1,714.3

3,406.9 3,510.6 138.4 1,911.0

3,949.2 4,319.6 150.4 2,215.4

4,565.0 5,348.5 157.4 2,462.7

4,519.2 4,435.3 4,810.2 5,531.6 6,002.5 10,730.6 12,324.1 14,616.3 17,264.8 20,286.2 3,198.6 3,452.4 3,797.5 4,178.8 4,478.4 1,690.4 1,862.3 1,921.0 1,922.4 1,964.2 39,091.9 38,709.9 44,933.3 53,192.0 64,360.0 110,361.2 115,745.5 133,556.6 153,990.8 177,397.3

Source: Euromonitor International When looking at the value growth, the fastest growing channels the past 5 years have been consumer healthcare, consumer appliances and media products. Table 2 Internet Retailing by Channel: % Value Growth 2007-2012 2011/12 % current value growth, retail value rsp excl sales tax Beauty and Personal Care Apparel Consumer Electronics and Video Games Hardware Consumer Healthcare Consumer Appliances Home Care Home Improvement and Gardening Furniture and Homewares Media Products Food and Drink Toys and Games Other Internet Retailing Internet Retailing Source: Euromonitor International

2007-12 CAGR 8.7 11.9 9.1 21.6 19.1 9.6 9.9 5.9 16.4 10.0 2.9 11.8 11.6

2007/12 Total 51.5 75.5 54.7 166.2 140.1 57.9 60.1 33.4 113.3 60.8 15.1 74.5 73.2

13.0 12.1 9.0 15.6 23.8 4.7 11.2 8.5 17.5 7.2 2.2 21.0 15.2

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3.3.

Competitive Landscape

As mentioned above, Amazon.com continues to be the unchallenged leader of ecommerce in the US, sitting on almost one fifth of all sales. At the same time, large online actors such as office supply stores Staples and Office Depot continue to lose market share. With the expansion of sales tax collection for internet retailers, Amazon is increasing its investments in supply chain infrastructure more specifically a wider network of warehouses all over the US. This enables Amazon e.g. to offer sameday delivery. Brick-and-mortar stores that have invested heavily in online sales have also benefitted such as Macys and Nordstrom, which both saw online growth exceeding 25% in 2012. Also, high-end/luxury retailers, such as Neiman Marcus, have increased their online presence. Using an app, Neiman Marcus customers can now get direct access to store associates who in turn get all the information and preferences on each specific customer. Pure ecommerce actors have, nevertheless, continue to outperform the store-based competitors. International retail actors, such as Uniqlo, are eyeing the US market, and will use the online channel as a main driver to build brand awareness and sales. The below table show the market shares in terms of value, of the largest online retailers in the US. Amazon, eBay, Apple together represent almost a third of total online sales in the US. Internet Retailing Company Shares: % Value 2008-2012 % retail value rsp excl sales tax Amazon.com Inc eBay Inc Apple Inc Wal-Mart Stores Inc QVC Inc Sears Holdings Corp Best Buy Co Inc Dell Inc Macys Inc Valve Corp Newegg.com Inc Target Corp LL Bean Inc JC Penney Corp Inc Williams-Sonoma Inc Gap Inc, The
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2008 2009 2010 2011 2012 7.7 6.5 3.5 1.6 1.8 2.1 1.4 3.2 0.8 0.3 1.6 1.5 0.9 1.3 0.9 0.9 10.3 6.3 3.9 1.8 2.1 2.0 1.6 2.6 0.9 0.4 1.6 1.5 0.9 1.3 0.8 0.9 11.9 5.8 4.2 2.1 2.0 2.0 1.6 2.1 1.0 0.7 1.4 1.4 1.0 1.1 0.9 0.9 14.6 5.7 4.5 2.3 2.0 1.8 1.7 1.7 1.3 1.1 1.3 1.3 1.0 1.0 0.9 0.9 16.8 6.0 4.8 2.4 2.0 1.7 1.7 1.4 1.4 1.3 1.3 1.2 1.0 0.9 0.9 0.9

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Internet Retailing Company Shares: % Value 2008-2012 % retail value rsp excl sales tax Costco Wholesale Corp Limited Brands Inc Sony Corp of America HSN Inc Circuit City Stores Inc Zappos.com Inc Others Total Source: Euromonitor International

2008 2009 2010 2011 2012 1.1 1.0 1.0 0.9 0.9 1.2 1.0 1.0 0.9 0.8 1.2 1.2 1.0 0.9 0.8 0.9 0.8 0.9 0.8 0.8 1.3 0.9 57.3 57.0 56.0 53.2 50.9 100.0 100.0 100.0 100.0 100.0

3.4.

E-Commerce Growth Outlook

Looking forward, the prospects of the e-commerce market in the US are positive. Forrester, a private research institute, predicts e-commerce will increase to US$ 370 billion by 2017.3 The main reason, according to Forrester, is that the large traditional retail companies are making significant investments in expanding their online retailing. For instance, Walmart has started pick-up centers in their physical stores and are offering same-day delivery in many places. Furthermore, the biggest online actor in the US, Amazon, is investing heavily on their distribution network to enable same-day delivery as well. Forrester, additionally, argues that the increasing use of smart-phones will contribute positively to the development. Another factor for the expected future growth in e-commerce is the increasing number of people having access to high-speed internet. Today, it is estimated that about 70 % of Americans have broadband access (corresponding to 90 million connections or about 200 million people), making the US only number 15 in the world in terms of broadband penetration (see the Appendix for more information on this subject). Major drivers for the e-commerce growth have been the ease of online transactions, reviews and product demonstrations, and better online deals (this has also resulted in bankruptcies in the US of large brick-and-mortar retailers such as Blockbuster, GAME and Borders. One popular trend has been the rise of the flash sale retailers such as Fab.com and Gilt Groupe. They enjoyed extreme growth as other retailers had large overstock of items, but as retailers have learned to operate with smaller inventories, the flash sales websites have had to change their business models, as they couldnt offer the same attractive offers to bargain-hunters. Rising Internet usage, more ways to pay (and also in a more secure way), and an ever-increasing number of great deals online will continue to drive sales online in
http://www.forbes.com/sites/marcbabej/2013/03/13/forrester-u-s-e-commerce-to-rise-13-thisyear/
3

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the US. The rise of mobile (smartphone and tables) as well as social commerce is another positive driver. A negative driver for online sales could be the adoption of new legislation. Currently, online merchants who sell across states in the US do not have to collect state and local sales taxes on purchases made by consumers in states where they do not occupy a retail presence, which enables them to often offer a lower price than store-based merchants. This pricing advantage has caused many retailers, large and small, to lobby politicians to change the legislation, as online competitors, such as Amazon.com, have benefitted from the lack of a federal sales tax. Changes in regulation would eliminate this price difference and level the playing field, possibly slowing down growth in internet retailing as shoppers become more indifferent towards buying online or going to the store. Another interesting driver for the development of e-commerce sales are disruptive technologies such as NFC (near field communications) and m-commerce. It is important to know, that a large portion of low-income people in the US still do not have internet access or any way to buy products online. As these people get online, an even large share of total retail sales will move from offline to online. The table below shows the growth forecasts split by channel in the US, during the coming five-year period. While the consumer electronics segment is hardly expected to grow at all, apparel, consumer appliances and media products will see significant growth rates. Pet supplies and cosmetics and fragrances are expected to experience growth rates over 30 percent, more than any other categories. Internet Retailing Forecasts by Channel: Value 2012-2017 US$ million, retail value rsp excl sales tax Beauty and Personal Care Apparel Consumer Electronics and Video Games Hardware Consumer Healthcare Consumer Appliances Home Care Home

2012

2013

2014

2015

2016

2017

3,831.0

4,131.2

4,378.5

4,658.8

5,117.5

5,621.3

31,535.4 33,761.5 35,800.0 37,747.0 39,641.0 41,426.3 32,406.0 33,270.4 33,571.2 33,846.3 34,130.2 34,416.4

4,565.0 5,348.5 157.4 2,462.7

4,989.5 6,664.0 170.2 2,673.6

5,365.5 8,456.1 180.6 2,895.6

5,753.2

6,133.0

6,922.6

10,701.7 13,877.2 17,866.5 194.0 3,136.6 199.0 3,373.8 210.8 3,628.9

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Internet Retailing Forecasts by Channel: Value 2012-2017

2012

2013

2014

2015

2016

2017

US$ million, retail value rsp excl sales tax Improvement and Gardening Furniture and 6,002.5 6,374.4 6,754.2 7,144.6 7,532.4 7,941.2 Homewares Media Products 20,286.2 23,326.0 26,688.0 30,468.0 34,730.0 39,130.0 Food and Drink 4,478.4 4,639.6 4,880.9 5,105.4 5,319.8 5,514.0 Toys and Games 1,964.2 1,963.1 1,973.4 1,992.6 2,002.4 2,012.2 Other Internet 64,360.0 78,472.4 94,369.1 111,966.7 130,958.8 149,938.7 Retailing Internet Retailing 177,397.3 200,436.0 225,313.0 252,715.0 283,015.0 314,629.0 Source: Euromonitor International

A few of the most important trade organizations in relations to the US and ecommerce are listed below.

4.1.

ECTMA

ECTMA (http://www.ecmta.org/) the eCommerce Merchants Trade Association, was founded in 2005. Bronze Membership is free. Some notable partners include alibaba, Amazon, FedEx, Yahoo, eBay and Google.

4.2.

ERA

ERA (http://www.retailing.org/ ), the Electronic Retailing Association is a trade organization that represents the global leaders of the direct-to-consumer marketplace. ERA began 1991 as the National Infomercial Marketing Association with nine founding members. Its mission today is to drive, grow and shape the future of electronic retailing.

4.3.

Shop.org

Shop.org (http://www.shop.org/home) is a division of the NRF (National Retail Federation). With over 600 members, it's vision is to be the worlds most valued membership community for digital commerce. Some areas Shop.org focuses on are: Best practices in digital retail marketing and merchandising
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 Innovative and emerging retail technology Mobile and social marketing and commerce Omnichannel strategy Website design, usability, conversion, and customer experience

4.4.

IRCE

IRCE (https://www.irce.com/) is the worlds largest e-commerce event, with almost 10,000 participants in 2013. The next event will be held in Chicago, June 2014. More than 600 companies are expected to exhibit in the 25,000 sq. meter hall.

Selling (exporting) to, or establishing in, the US is an important strategic decision. Therefore, its crucial to assess the various options before deciding on the market entry strategy. Being in the US provides more alternatives for your company, besides just selling items to your customers. For example, the US, especially in Silicon Valley but also in e.g. New York and Boston, has a large business angel and venture capital community. There are also many world-leading e-commerce solution providers be it within social, mobile, analytics, sales or other areas. Being present in the US will furthermore enable you to get access to the latest trends and solutions, as well as potentially also funding for the further expansion of your company. When considering selling in the US, you have several options. You can for example: Sell on an external platform, such as Amazon, eBay or Kickstarter (for a single product) Do direct sales from your Danish webshop, with a .dk domain or .com domain Do direct sales through your own US company

In this report, we will only discuss the latter two options.

5.1.

Direct Sales From a Danish Web Shop With a .dk Domain or .com Domain

The entire field of e-commerce and customs clearance is difficult especially when assuming that goods will have to be imported into the US. The choices for imported goods are: 1. To have the customer clear the goods through customs not a good choice, because this makes the process tricky and complicated for the customer, thus ruining the model of quick and easy shopping 2. To have the goods delivered by courier (FedEx, DHL, UPS etc) but that is far from ideal because they are so called importers of record, which is good, but their records are typically not accessible so getting a refund is

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very hard (and the e-commerce sector can have rate of returns of 0-30% depending on the product sold).4 A solution is to have a broker clear the goods but have the courier organize the actual shipment (a broker will usually however require the e-commerce merchant to have a US affiliate presence). Working with couriers and brokers however comes at a cost and product returns and the whole reverse logistics situation is very complex. This burden can of course be put on the end-consumer but that would be detrimental to sales and the entire customer experience. 3. To have the e-commerce merchant clear the goods themselves, and then deconsolidating the shipments for deliveries to the customers. The US Customs authorities will then look to the e-commerce merchant as the entity primarily liable for customs duty and compliance with customs and law obligations (declaring the correct tariff classification, dutiable value and origin of the imported goods). If you want to deliver DDP (Duty Delivered Paid) to your customers, where youve already taken care of customs, you need to register in the US. To know the correct tariff classification, first check the tariff codes5. You can always contact the Customs- and Tariffs Department in the Ministry of Foreign Affairs of Denmark to get the customs tariffs for the relevant product and country (eksportteknik@um.dk). In short, acting as an importer of record can be a headache. On a side note, the current US duty exemption level stands at $200, although there is an ongoing political discussion on raising the limit to $800. In conclusion, fulfillment is difficult when dealing with direct deliveries to individual end-consumers (and not storing in a US warehouse first). Advantages: Easy set-up, few changes (translation to US English would be needed), no need to register for, or charge, VAT. Disadvantages: Danish website; customs, shipping & returns are complicated; product liability issues could be directed at the main company in Denmark Assessment: This would not create considerable sales to the US; the process would seem too complicated for US customers. This solution would be relevant for a Danish webshop with ad-hoc, large sales to the US e.g. selling unique, antique watches to other businesses or consumers.

5.2.

Direct Sales Through Your Own US Company

Establishing a US company will make your company look American, and this will make US customers trust you to a higher degree. It is possible to use a drop shipment / fulfillment partner to handle all logistics. Other Danish companies have successfully worked with e.g. UPS for B2B warehousing and drop shipping. If selling B2C, other companies like Shipwire would perhaps be more relevant.
Importer of record is the "Customs term for the entity responsible for (1) ensuring the imported goods comply with local laws and regulations, (2) filing a completed duty entry and associated documents and (3) paying the assessed import duties and other taxes on those goods." Source: http://www.businessdictionary.com/definition/importer-of-record.html 5 http://udr.dst.dk/nomenklatur/index.aspx
4

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In addition, a local company will act as a legal firewall between the subsidiary and the parent company's respective operations. Debts and obligations stay in the US and are not the responsibility of the overseas parent. The US culture is very litigious by nature (i.e. people and companies sue each other rather frequently), so this is an important factor to consider. When opening in the US, you can use the infrastructure of your Danish ecommerce solution, or build from scratch, or use a third party e-commerce platform. There are many good, well-built shopping cart systems available online. In the US, there are three major actors in this field; Shopify, Volusion and BigCommerce, and a few midsized actors, such as BigCartel, 3dcart and Magento. Each platform has its pros and cons in terms of functionality and value; before setting on a platform, its important to look at issues such as ease of installation configuration options, branding and SEO, support and pricing and other fees. In conclusion, there are both advantages and disadvantages when opening a local US presence. Advantages: With a .com domain, and a US company, you will be perceived as a local US company, which will help attract customers. A local warehouse will make it easier to ship and handle returns. You will also shield the Danish parent company from litigation. Disadvantages: This requires a larger investment in time and money (compared to just selling ad-hoc from outside the US) as well as having to work with an accountant, having an insourced/outsourced warehouse and filing your taxes in the US. Assessment: For anyone interested in really establishing in the US and growing their sales, it will be necessary to having a local presence, at one point or another. Whatever option you choose of the above alternatives, be very clear in your terms and conditions, so that the customer will know how takes care of customs and any VAT.

With a land area of almost 10 million sq. kilometers, the US is the fourth largest country on earth (after Russia, China and Canada). The population density is however rather low (34 persons per sq. kilometer, compared to 130 per sq. kilometer in Denmark). Most people live in the larger urban areas on the East and West Coast. The US has a highly advanced logistics and supply chain system, both in general but also for e-commerce actors. Its important to take the US geographic size and demographics into account for not only marketing and sales purposes, but also logistics. In order to export goods outside the EU, your company needs to be a registered exporter, in addition to register for VAT. This is done via www.virk.dk. When registering, you will get an EORI number for customs use. If exporting for more than DKK 7,500, you also need to report to SKAT (the Danish Ministry of
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Taxation).6 As mentioned above, courier firms can often assist with customs and the entire importing process including all paperwork; this however will create other issues (e.g. for product returns). If shipping to the US with Post Danmark, please see this guide. The three main couriers in the US for e-commerce actors are: UPS - http://www.ups.com/ FedEx - http://www.fedex.com/ USPS (United States Postal Service) - https://www.usps.com/

When shopping on e.g. Amazon or eBay, these couriers can offer same-day delivery on some products. As the US is such a large country, people accept online delivery times of 3-8 office days and just like in Denmark, some customers will be prepared to pay a premium for a rush delivery. Many packages will have a tracking number, which will enable the customer to track the package and thus minimize inquiries to customer service regarding the whereabouts of a certain delivery. Having your own warehouse or a third party warehouse in the US can be an advantage, especially considering returns and consolidated return shipments. As mentioned earlier, if you as an e-commerce merchant is the importer of record, dealing with all the paperwork, you will want to get the duty back when customers return products and having a warehouse with consolidated shipments will make this process easier. There are no formal requirements in terms of packing on the US market; most delivery/shipping companies will accept packages no matter the packaging, size and weight. Having that said, there are certain restrictions, as the prices of the shipping companies are directly correlated to the size and weight of the individual package. Work together with your shipping company to find out what packaging and shipping options to use. Remember that the US is a large country, and a package may be sorted many times, automatically and manually, before reaching its destination. It is therefore crucial to allow for sufficient packaging, so that your products will arrive unscatched.

6.1.

Packaging

Compared to Europe, not least Scandinavia, the US has rather limited legislation in regards to online shopping consumer rights. The main governing body is the Federal Trade Commission, FTC. 7 When individual consumers (private person) but something online (or via mail/phone or fax), the FTC requires the merchant to ship the merchandise within the time
6 7

http://www.skat.dk/SKAT.aspx?oId=1920805&chk=207960#pos http://www.ftc.gov/
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promised, and maximum within 30 days of receiving an order. The FTC also requires merchants to notify consumers when shipments cannot be made on time and offer either a refund or just waiting longer. Finally, the FTC gives consumers the right to cancel orders and get their payments back, if the new shipping date cannot be met. In addition to the FTC, there are a number of Consumer Protection Offices. Just for New York State, there are e.g. State, Regional, County and City Consumer Protection Offices, in addition to the State Banking Authorities, Insurance Regulators, Securities Administrators and State Utility Commissions.8 In addition, in the US, each of the 50 states has their own commercial laws and court systems. There is also the Better Business Bureau.9 Still, there are less consumer protection legislations in place compared to Europe. The official USA website has some tips for online shoppers, including: Be wary of post office boxes and sellers in other countries. It may be difficult to find the seller to resolve a problem later. Get the seller's refund, return and cancellation policies.10

7.1.

Returns

Although there is no legislation in place regarding the right to return goods purchased online, consumers will still want to return products from time to time. In the US, average return for e-retailer websites was 8% in 2011, according to a Shop.org and Forrester Inc study (State of Retailing Online 2010). Returns for apparel sites (clothing and shoes) can often be 25-30%. The prevalence can be reduced by taking some simple steps: Good, extensive product description on website Make sure you include all charges, shipping, handling, insurance and taxes if you have a coupon/discount engine, make sure it works. Needless to say, your website prices need to be quoted in US$. Pictures should be precise Quick delivery Good packaging (to reduce the risk of damaged goods) Have a clear return policy (e.g. who pays for the return, re-stocking fees etc) Provide a return form where consumers can state why they return the product, so that you can take measures to reduce the number of future returns Offer help (phone, email, social media)

8http://www.usa.gov/directory/stateconsumer/new-

york.shtml#State%20Consumer%20Protection%20Offices 9 http://www.bbb.org/ 10 http://www.usa.gov/topics/consumer/smart-shopping/home-shopping/tips.shtml

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US customers (at least B2C) appreciate the opportunity of having several ways of contacting the e-commerce merchants. Using an FAQ page will reduce the workload of your customer service somewhat. Having an email address and a US phone number is expected a chat function is a nice add-on but not standard. Beyond considering getting a virtual US address (to signify a local presence) Danish e-commerce actors should also considering getting a toll-free number (1800) re-directed to the customer service in Denmark or the US. Online services such as Grasshopper (http://grasshopper.com/) offer a cheap and efficient way in setting up such a solution. Most good 1-800 numbers are taken, but it's possible to get 1-855, 1-877 and such numbers instead. Many US consumers are frustrated by outsourced and offshored customer service, as well as IVR (Interactive Voice Response) systems.11 Having real humans in the US pick up the phone, like LEGO North America, Amazon.com, Urban Outfitters and RalphLauren.com, is seen as a very positive sign. Its important to keep in mind that the continental US is 6-9 hours behind Denmark, so if choosing to handle customer service via phone from Denmark, the team in Denmark will need to work late. Providing great customer service is increasingly a competitive differentiator between e-commerce retailers in the US. The shoe retail giant Zappos (http://www.zappos.com/), a subsidiary of Amazon, is known for its outstanding customer service.12 In addition to offering free shipping both ways and a one year return policy, Zappos offers a 24/7 customer service known from going above and beyond to make their customers happy (e.g. 8 hour phone calls with customer service, and sending flowers to a woman who recently had lost her husband). US consumers increasingly expect e-commerce retailers to be available for customer service via social media, such as Facebook and Twitter. It is important that whoever answers customer inquiries via e.g. a company Facebook page is sufficiently proficient in English. A poor command of English will not build consumer trust in the US. Dont underestimate social media. Bad stories about companies and their customer service spread quickly. Please be aware of the difference between British English and US English. As an immigrant nation, Americans will accept accents when talking to customer service people on the phone, but are more sensitive to typing errors in writing.

http://business.time.com/2011/08/25/customer-service-done-right-when-an-actual-humanbeing-answers-the-phone/ 12 http://blog.kissmetrics.com/zappos-art-of-culture/
11

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The absolute majority of online shoppers in the US pay with debit- and credit cards (Visa, MasterCard, American Express). PayPal is also widely used. Google Checkout, invoicing (e.g. BillMeLater), single use credit card numbers and bank transfers are less common. The reason US consumers prefer to pay with credit cards online is that this provides an extra level of protection. When paying with credit or charge card online, the transaction will be protected by the Fair Credit Billing Act. Under this law, the consumer can dispute charges under certain circumstances and temporarily withhold payment while the creditor investigates them. A list of the major US payment gateways providers can be found here: http://www.shopify.com/payment-gateways/united-states

Price comparison websites are not used in the US most people use large websites (Amazon and eBay) as benchmarks. Still, price comparison websites are used for travels - i.e. booking hotel, flights and cars (Orbitz, Hotwire, Hotels.com and so on.) Affiliate marketing (also known as referral programs) is very common in the US. 13 One example is Commission Junction.14 Many e-commerce merchants also use Google AdSense and Facebook ads to attract traffic. Its also possible to put products on Amazon and eBay as a marketing channel. Coupons are very popular in the US, both in the offline and online space. Therefore, consider using time-limited coupons (with a discount in %) as a tool to attract and re-attract customers. Many consumers will actively search the net for discount codes and coupons before placing an order. The logo to the right is an example of a Verified Merchant (by Authorize.net) this one was be found on www.MODaffekt.com. By clicking on the logo, web users can be assured that transactions on the website are made securely. Others use certification logos from payment gateway providers such as PayPal (see logo on the right) as a way to build trust.

10.1. Spam
The US has very strict legislation on commercial email the so called CAN-SPAM Act of 2003, which makes no exception for B2B email.15 A good compliance guide
http://en.wikipedia.org/wiki/Affiliate_marketing http://www.cj.com/ 15 http://en.wikipedia.org/wiki/CAN-SPAM_Act_of_2003
13 14

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to the current US regulations can be found here: http://www.business.ftc.gov/documents/bus61-can-spam-act-compliance-guidebusiness Each separate email that violates the CAN-SPAM Act is subject to penalties of up to US$16,000, so make sure that you comply with the law.

10.2. Certifications / proof of legitimate web-shop

Ecommerce platforms typically have default built-in SSL upon checkout. Many customers in the US look for the SSL, as well as seal-of-approval programs such as: TRUSTe (www.truste.org) Verisign (www.verisign.com) BBBonline (www.bbbonline.org)

Many consumers also check out the ecommerce actors reputation online before choosing to buy anything from them e.g. looking for complaints. Adding a privacy statement will provide your customers with an extra layer of trust.

10.3. Launching in the US

As a Danish e-commerce actor, one should be realistic about the considerable marketing efforts it takes in the US to gain visibility. The market is 50 times larger than the Danish one, and there is intense competition on attracting the attention of the consumers. Before launching, one should make a detailed competitor analysis, to find out whether the products/service you aim to sell will be competitive in the US, and how much youll need to invest to become profitable. Social media is a good complement to your marketing efforts especially those consumers that are early adopters and work as brand ambassadors. If relying heavily on social media as a launching pad, one will need to spend a large amount of time monitoring your social media channels. A good website for communicating through press releases is PR Newswire. For about US$ 500, you will be exposed to thousands of media outlets, which may pick up the story if they find it interesting enough.

Doing business with American companies and consumers will raise certain legal issues; customs, tax payments, product liability, payments, insurance and much more. Many US companies (and consumers) will not do business with foreign companies, as there are too many unknowns how to handle customs, product problems and returns, tax payments, product liability, insurance and so on. If they are very interested to do business with you, they might encourage you to incorporate in the US and let them know when you have done that. If they can find your
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products/services locally, they will likely just go to one of your US competitors instead. Whether youre an e-commerce merchant selling B2B or B2C, or youre providing e-commerce support services (consulting, payment gateway services, logistics), if youre serious about establishing your company in the US, you will most likely have to incorporate there at one point or another. The relevant details can be found in section 13 below. Incorporating will mean that you will become tax liable in the US. However, you will also create a firewall which to a higher degree will protect your parent company in Denmark, which can be a good idea as the US is a very litigious society (people and companies sue each other all the time). Your US subsidiary will be able to get local product liability insurance, which, depending on the products you sell, is usually a good idea. Having a local company also makes it easier for you to raise capital locally (if needed), get visas if you need to expatriate team members from Denmark to the US, and it will create trust amongst your local business partners and customers, as you show commitment to the US market.

The US tax code is large and complex and there are more than 7,000 taxing jurisdictions in the US (states, local entities et cetera). Administering your taxes in the US is often an overwhelming task, whether youre an individual or a company. It is always good to talk to a US tax accountant. The Trade Council in the US can provide information on relevant tax accountants, depending on your size and needs. The US currently (as of June 2013) does not have a federal sales tax. However, if you have a nexus in a US state, e.g. by having your products in a warehouse (even third party) or an address, then you should charge US sales tax when selling to customers in these states. Thus, if you store your products with a fulfilment partner in Ohio, then you should charge sales tax when selling to consumers in Ohio. There are exceptions and as mention above, it is always best to consult with a tax accountant and/or tax attorney. The US is actually the only OECD member country not to impose a VAT, or a general national consumption-based tax, as mentioned above. However, state and local taxing jurisdictions impose sales and use taxes. While a VAT applies to all intermediate transactions e.g. from a manufacturer to the wholesaler and onwards to the retailer and consumer the US sales taxes mainly target retail sales of physical goods although the legislation is changing. Sales taxes are in use in 45 of the 50 US states, as well as Washington D.C. Items that are taxed in one jurisdiction may be excluded in others, and the level of the sales tax varies. The US tax rules are somewhat a result of the past, when trade was local and limited. The effects are that many US state and local government loses

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out on tax revenue. At the same time, sellers/retailers face a very complex system of state and local tax reporting and collection. As for the complex issue of customs and duties, please see section 5 above in this report.

Establishing a company is fast and relatively cheap. For various reasons, companies are often incorporated in Delaware. One can incorporate by contacting the relevant office in the state in question (e.g. Delaware), or use an online service such as LegalZoom. Delaware corporate law is well established, widely known, and quickly applied by Delaware courts. A registered agent can complete the incorporation process quickly within minutes if necessary. However, the difference between Delaware and other states are not huge. For smaller startups and early-stage companies that will not seek funding or go public, it will probably not matter to the success of their businesses whether they incorporate in New York, Delaware, Nevada or another state. The Trade Council has a network of local attorneys and accountants all over the US (for an updated list of relevant professionals, please contact the Trade Council in the US). These attorneys can help with all the practicalities of setting up a subsidiary, often within 1-2 weeks time, at an investment of between US$ 2,000 3,000, in total. The incorporation services typically include the following: Preparing Articles of Incorporation / Certificate of Incorporation / Certificate of Formation (title varies among the states) Filing with the Secretary of State requesting standard turnaround time (need and cost for accelerated turnaround varies among the states) Secretary of State filing fee and, in states where a registered agent is required, first-year registered agent fee Preparing action of incorporator (as appropriate), bylaws, secretarys certificate, and written consent in lieu of organizational board meeting Corporate records book, seal, and share certificates Printing share certificates (for signature by corporate officers) and preparing share transfer ledger for initial shareholder(s) Obtaining an TIN / Employer Identification Number Plus additional counseling, if necessary

You will not need to go to the US to incorporate, and the process can be done in about a week. When your company and TIN is in place, you can open a local bank account for your US subsidiary.

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The two most common forms of incorporation are Inc and LLC. The Trade Council recommends speaking to an accountant or tax attorney before settling on one or the other as your form of incorporation should take into account your future plans with your company (where you like to pay taxes, whether or not you plan to do an M&A/exit in the future - and so on)

13.1. Hiring Employees

The US typically does not have detailed job contracts, except for very executive positions. Its also easy to fire employees. One important issue to notice is the very strict discrimination legislation in the US, which applies to both recruitment, current employees and when you lay off employees.

If one needs to get an address in the US for the new company, there are several options. If one lives here, its possible to use the home address, although this will look unprofessional and the landlord might not allow the home address for office use. Another option is to use a mailbox service, e.g. at a UPS Store, or a shared office space such as Regus. Yet another option, currently in use by more than 50 Danish companies, is to have a virtual office at one of the Danish missions in the US (New York, Silicon Valley, Atlanta, Chicago and Washington D.C.). This enables the company to get a real, good address, access to office space and meeting facilities, a dedicated receptionist to answer the phone, and someone to handle incoming and outgoing mail. Please contact the Trade Council in the US for more information about the opportunity of having a virtual office at one of the Danish missions.

If one needs to present for a longer time in the US, one will need to look at different visa options. As a Danish citizen, its possible to travel and work in the US for up to 90 days with a normal tourist visa the so called VWP (Visa Waiver Program). One may only be paid by the company in Denmark its illegal to work for, and get paid, by a US company, when in the US on the VWP. It is not possible to extend the VWP beyond 90 days.

15.1. VWP

15.2. B-1
If wishing to be here for 0-12 months, it might be worth considering applying for a B-1 visa. It gives you the right to work for the Danish subsidiary in the US. It does
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not equal a work permit, so one cannot work for a US company when on a B-1 visa. It is normally only possible to get a US work visa, if employed by a US company. If a Danish company wishes to expats its citizens to the US, they would normally have to establish a US subsidiary it is this company which will apply for a work visa on behalf of the employee. Non-immigration visas contain certain restriction on what one is allowed to due during the stay. If one wishes to settle in the US for an unlimited time, one should apply for permanent residence. Another form of visa is called the L-1 intracompany transfer visa, used when an employee is expatriated from the company in Denmark to the subsidiary in the US. One needs to have either specialist knowledge or be in a managerial position, to be able to apply for the L-1. This visa type is valid for 5-7 years and spouses to L-1 holders can get work permits after a 3 month stay in the US.

15.3. L-1

15.4. H-1B
The H1-B visa is for temporary stays in the US; this visa form is for specialist positions, and as there are a set number of H1-B visas each year, they run out very quickly as e.g. large software corporations in Silicon Valley hire specialist competence from Asia. The E-1 (treaty trader) visa is for persons employed in the US in companies that exchange goods and services with Denmark. This visa is typically given for 5 years. Spouses to E-1 holders can get work permits after a 3 month stay in the US. One needs to present evidence that there is a considerable trading activity between Denmark and the US (at least 50% of the international trade activity). The E-2 investor visa is a relatively new visa category available to, among others, Danish citizens interested in investing on the US market. A E-2 visa can be used by a Danish company interested in starting a subsidiary in the US. It can be e.g. a sales- or production company, where one needs to hire an executive to manage the US subsidiary. One establishes a subsidiary which works as a sales company for the foreign exporter. The company expatriating the co-worker needs to be at least 50% Danish-held (ownership). The investment needs to be considerable the company needs to be economically viable with a reasonable expectation of hiring employees in the future. The expatriated co-worker needs to be a Danish citizen, and either hold a managerial position or have specialist technological expertise, to work with the products/solutions of the exporter. The E-2 visa is often given for an initial period of 5 years, and it is possible to extend it. Spouses of E-2 holders can get work permits after a 3 month stay in the US.

15.5. E-1

15.6. E-2

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As the visa process is complicated, the Trade Council would advise Danish companies to consider getting a good visa lawyer to assist in the process, which can take several months. The Trade Council has a network of visa lawyers which Danish companies can utilize at market cost.

There are several costs to take into account when starting an e-commerce presence in the US both in the startup phase, but also on a monthly and yearly basis. Fixed costs might be a virtual address, phone number, hosting/e-commerce platform, a fulfillment partner and a bank account. Variable costs might be shipping, PayPal (or other payment solutions provider), marketing, accountant and so on. The following figures below are just a rough estimate of doing business in the USA (in any industry).
Estimated Start-Up Costs US/Federal Level Federal Employers Identification Number (FEIN): New York State and New York City: Legal Fees for Incorporation (approximate average) Start-Up Costs, Accountant Cost $0 Comment Administrative Attorney/ Accountant Fee for obtaining FEIN without SSN number: $100 Fee depends on whether doing it yourself or outsourcing to an attorney or accountant Set up the Quickbooks online account, set up the chart of accounts and digital files (permanent and annual). Turnover dependent. This sum with no activities. Biennial (every other year).

$150-2,000

Appt. $625

New York Department of State's Div of Corporations (Renewal) Estimated Start-up Costs + potential VISA for Danish Employee (average) Estimated Yearly Costs US/Federal Level Yearly IRS Tax Filings by a CPA Quarterly payroll tax declaration New York State and New York City: New York Department of State's Div of Corporations (Renewal) Estimated Yearly Costs Estimated Monthly Costs

Appr. $9 $1,875-2,875 $4,500 Cost $1,750

Comment Estimate based on yearly turnover of $200,000 (corporate income tax without assets) With a few employees only

$500

$9 $2,300 Cost

Turnover dependent. This with no activities. Biennial (every other year). Comment
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Accounting

$450

6 hours (@ 75 per hour) of monthly accounting service. Rough figure based on 1-2 employees. Fee increases with company and task size.16

QuickBooks Online accounting fee Estimated Bank Fees Insurance Coverage Guesstimate Estimated Monthly Costs + potentially the Trade Council virtual office

$15 $50 $300 $800 Appr. $800 Depending on the business size, products, et cetera

Disclaimer: Above estimates depends on a variety of business variables and should be checked with lawyers, tax advisors, accountants and other professionals for the specific company circumstances.

So youve decided that youd like to establish your e-commerce store in the US now what? The present report has hopefully answered a lot of your questions, but there are still probably other issues that you need to assess before investing in a US ecommerce adventure, such as: What is the potential market size for your specific product? Who is your target customer? What is your competition? Can the product already be bought locally? Is your product / solution a fad or a growing market? What is your markup? How much can you sell it for? Is your product seasonal? If yes, are there regions in the US that you should focus on or ignore? Is your product perishable? How will you solve that? Are there specific restrictions or regulations for your products?

The experienced advisors of the Trade Council in the US based in New York, Silicon Valley, Chicago, Atlanta and Washington D.C. are ready to help you answer these and other questions, and move forward. Each year, we help over 600 Danish companies with exporting to, or establishing in the US. Learn more about us at: http://usa.um.dk/da/eksportraadet/ We look forward to supporting you and your company here in the US!

16

Entering all activity from the checking and credit card account including monthly bank reconciliations Preparing monthly sales tax reports by state Filing sales tax returns monthly/quarterly/annually as required Running monthly payroll, including quarterly and annual payroll return filings. Preparing monthly profit & loss statement and balance sheet Maintaining digital files, permanent and annual Page 26 of 34

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AT&T Broadband Properties Summit & FCC Broadband.gov: http://www.broadband.gov/ Euromonitor International FTTH Council: http://www.ftthcouncil.org Forbes: http://www.forbes.com/sites/marcbabej/2013/03/13/forrester-u-s-ecommerce-to-rise-13-this-year/ IDATE, 2011 Internet World Stats: http://www.internetworldstats.com/top25.htm Internet Retailer: http://www.internetretailer.com/2013/04/25/us-e-commercesales-could-top-434-billion-2017 Kissmetrics: http://blog.kissmetrics.com/zappos-art-of-culture/ OECD, ICT database and Eurostat, Community Survey on ICT usage in households and by individuals, November 2011. www.oecd.org/sti/ict/broadband OECD: www.oecd.org/sti/ict/broadband The Globe and Mail: http://www.theglobeandmail.com/news/technology/gadgets-and-gear/hughthompson/with-fibre-internet-the-future-is-here-but-not-for-mostcanadians/article2191744/ Time Magazine: http://www.time.com/time/specials/packages/article/0,28804,2026474_2026675 _2078442,00.html Time Magazine: http://business.time.com/2011/08/25/customer-service-doneright-when-an-actual-human-being-answers-the-phone/ US Bureau of Census Wired: http://www.wired.com/epicenter/2011/07/rural-fiber-internet/

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19.1. List of the Largest Online Retailers in the US

Source: The Top 500 Guide.
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Company Name Amazon.com Inc. Staples Inc. Apple Inc. Walmart.com Dell Inc. Office Depot Inc. Liberty Interactive Corp. (QVC) Sears Holdings Corp. Netflix Inc. CDW Corp. Best Buy Co. OfficeMax Inc. Newegg Inc. Macys Inc. W.W. Grainger Inc. Sony Electronics Inc. Costco Wholesale Corp. L.L. Bean Inc. Victorias Secret Direct & Bath and Body Works J.C. Penney Co. Inc. HP Home & Home Office Store Gap Inc. Direct Target Corp. Williams-Sonoma Inc. Systemax Inc. HSN Inc. Overstock.com Inc. Kohl's Corp. Toys 'R' Us Inc. Amway Nordstrom Inc. BarnesandNoble.com Inc. Walgreen Co. Redcats USA Vistaprint NV Buy.com Inc. Avon Products Inc. Saks Direct PC Connection Inc. Symantec Corp. Neiman Marcus Group Inc. Home Depot Inc., The Cabela's Inc. Musician's Friend Inc. Abercrombie & Fitch Co. Fanatics Inc. Lowe's Cos. Inc. Urban Outfitters Inc.
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49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Gilt Groupe Wayfair LLC 1-800-Flowers.com Inc. Peapod LLC Shutterfly Inc. Foot Locker Inc. GameStop Corp. J. Crew Group Inc. PC Mall Inc. Estee Lauder Cos. Inc. Crate and Barrel Ancestry.com Inc. Weight Watchers International Inc. YOOX Group Scholastic Inc. Recreational Equipment Inc. American Eagle Outfitters Inc. Zones Follett Higher Education Group Deluxe Corp. Ralph Lauren Media LLC Market America Blue Nile Inc. Nike Inc. Chico's FAS Inc. Microsoft Corp. 1-800 Contacts Inc. U.S. Auto Parts Network Oriental Trading Co. Inc. FTD Group Inc. Disney Shopping Inc. FreshDirect LLC Build.com Inc. Bluestem Brands Inc. Green Mountain Coffee Roasters Inc. RueLaLa.com Hayneedle Inc. Vitacost.com Inc. Net-a-Porter LLC CVS Caremark Corp. Northern Tool + Equipment Co. Shoebuy.com Inc. ShopNBC.com Ann Inc. Nutrisystem Inc. Sierra Trading Post Inc. Bass Pro Outdoor Online LLC Army & Air Force Exchange Service Edible Arrangements International LLC Eddie Bauer LLC Orchard Brands Corp. Hudson's Bay

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19.2. Growing Internet Access Driving US E-Commerce Sales

The growth of e-commerce, online and mobile, is driven partly by access to highspeed internet. Therefore, this section of the report will provide some insights into Internet usage and broadband expansion in the US. First, a definition: Broadband refers to the bandwidth of a channel; the wider the bandwidth, the greater the information-carrying capacity. This is why optical fiber has been used for a long time to provide the major long distance wiring which enables communication on the Internet. Service companies sell a connection to this optical Internet highway to end consumers and businesses, by the last mile connection. During the 1990s, the most common way to connect to the Internet was through traditional telephone wires. When replacing the metal wiring for the last loop / the last mile of telecommunications (e.g. copper infrastructure such as telephone wires and coaxial cable) with optical fiber, this is usually called Fiber to the x (FTTx). The USA has trailed behind Asia and even Europe in the deployment of FTTx networks.
100 90 80 70 60 50 40 30 20 10 0 Korea (*) Iceland Norway (*) Sweden Denmark Netherlands Finland Germany Canada (2009)(*) Switzerland (2008) Luxembourg (*) Belgium United Kingdom (2009) United States France Israel (2009) (*) Estonia Austria Japan (*) New Zealand (2009) (*) Slovenia Australia (2008) (*) EU27 Ireland Spain Poland Czech Republic (*) Hungary Portugal Slovak Republic Italy Greece Turkey Chile (2009) Mexico (*) Figure 2: Broadband penetration in percent total population. Figure 1 - Broadband Penetration in Percent of of Total Population

Today, it is estimated that about 70 % of Americans have broadband access (corresponding to 90 million connections or about 200 million people), making the

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US only number 15 in the world (South Korea have 95 % broadband coverage). 17 Other estimates put the US even farther behind.18 The same OECD study put countries like Denmark, Sweden and Switzerland well above the OECD average. The broadband subscription price in the US ranges from USD 25 to USD 145 per month, and average monthly price of broadband (according to the report Broadband Adoption and Use in America) stands at 41 USD. 19 Newer estimates put the US at a somewhat higher rate of 95% broadband access, but these numbers include wireless access.20 The below table shows the subscription price ranges for broadband in various countries. It shows that the US prices are slightly more expensive than the average price range.

In mid-2011, it was estimated that AT&T had 29 million21 North American homes passed with FTTN+VDSL and some 21 million households had access to FTTH 22 served almost exclusively by Verizon. In addition another estimated 65 million homes were passed with FTTLA/DOCSIS 3.0 Very High Speed Cable networks by the Cablecos in the US. It should be noted that according to the FCC some 18 million Americans living in rural and remote areas are without access to high speed broadband. The US has some 115 million households23 which lead to the fact that a number of households are passed by more than one of the solutions above.

Source: OECD, ICT database and Eurostat, Community Survey on ICT usage in households and by individuals, November 2011. www.oecd.org/sti/ict/broadband 18 http://www.internetworldstats.com/top25.htm 19 www.oecd.org/sti/ict/broadband andhttp://www.ftthcouncil.org 20 AT&T Broadband Properties Summit & FCC 21 IDATE, 2011 22http://www.theglobeandmail.com/news/technology/gadgets-and-gear/hugh-thompson/withfibre-internet-the-future-is-here-but-not-for-most-canadians/article2191744/ 23 US Bureau of Census
17

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The below data is from 2009, but gives an idea of the FTTH/B household availability.24

In March 2010, the US Federal Communications Commission unveiled the National Broadband Plan.25 Its goal is to secure that 100 million American households will have access to 100 Mbit/s connections by the year 2020 (100 Mbit/s download, and at least 50 Mbit/s upload). Further, the goals also state that e.g. every American should have affordable access to robust broadband service. Furthermore, the goals outline that schools, hospitals and governmental institutions have at least 1 GB/s broadband service, and that broadband should be used to track and manage real-time energy consumption (smart grid technologies). President Obama has said earlier that boosting Internet speeds around the country is important to increasing the U.S.'s global competitiveness.26 In February 2009, the US Congress approved a US$ 787 billion economic stimulus package. It earmarked US$ 7.2 billion in grants and loans to bring broadband to rural and urban areas. According to the FCC (The Federal Communications Commission), the projects will bring broadband to over 2 million Americans. Still, according to the FCC, at least 18 million people still cant order fixed-line Internet connections faster than 3 Mbps down.27 The US is only about the 20th in the world when measuring broadband penetration. The Federal Communications Commission (FCC) is in charge of the countrys largest program for investing in broadband access for the 18 million unserved Americans today. The Connect America Fund (CAF) carries an annual budget capped at US $4.5 billion and is expected to help 7 million Americans to get access to high-speed internet and voice over the period 2012-1018. CAF is directed at
24 25 26

www.oecd.org/sti/ict/broadband http://www.broadband.gov/

http://www.time.com/time/specials/packages/article/0,28804,2026474_2026675_2078442,00.htm l 27 http://www.wired.com/epicenter/2011/07/rural-fiber-internet/
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spurring carriers to invest and build out their infrastructure in the currently unserved rural areas.

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The Trade Council is a part of the Ministry of Foreign Affairs and is the official export and investment promotion agency of Denmark. The Trade Council benefits from around ninety Danish Embassies, Consulates General and Trade Commissions abroad. The Trade Council advises and assists Danish companies in their export activities and internationalization process according to the vision: Creating Value All the Way. The work in the Trade Council follows specific procedures and quality guidelines. In this way our partners are secured the best possible quality under the varying working and market conditions at any given point of time.

Ministry of Foreign Affairs of Denmark Consulate General of Denmark, New York One Dag Hammarskjold Plaza 885 Second Avenue,18th Floor New York, N.Y. 10017-2201 USA Tel: + 1 212 223 4545 Fax: + 1 212 754 1904 E-mail: nycgkl@um.dk www.gknewyork.um.dk