In Bali, co-working spaces are packed with remote workers from abroad looking to make serious money— and to do so instantly. Through a business scheme called dropshipping, sellers can target prospective buyers via Facebook and Instagram ads with products they never see or store themselves.
By Hetty Sarinah Samosir
01 June 2020
Have you heard of a relatively modern form of lifestyle, the life of a digital nomad? Digital nomads are location-independent people and leverage technology to work remotely. The digital nomad lifestyle has been made attainable through low-cost Internet access through Wi-Fi, smartphones, and Voice-over-Internet Protocol (VoIP) to keep in touch with customers and employers. Digital nomads can be seen working all over the world. The locations of digital nomads include Bali’s co-working spaces in Indonesia, cafés in France, libraries in Argentina, beach huts in Thailand, net cafes in Tokyo, and office shares in Australia. Those who pursue a nomadic lifestyle tend to be younger people (Hayes, 2020).
However, in Bali, many people refer it to Silicon Bali, inside the coastal town’s co-working spaces, people are establishing business empires selling products they have never seen and handled, from countries they have never visited, to consumers they have never met. Welcome to the world of dropshipping (Kale, 2020). Dropshipping is a business model for a digital nomad and is a retail fulfillment method of selling products in which traders do not physically stock the products and never see those products themselves. Whereas a dropshipper essentially acts as an e-commerce middleman or retailer in a globalized supply chain. The dropshipping method possibly generates a higher profit per unit sold due to cost savings in which the supplier stocks those goods ordered, bears warehouse expenses and distribution expenses. Dropshipping differs from the traditional supply chain. In a conventional supply chain, retailers or middlemen purchase items from wholesalers or suppliers and stock items in their warehouse before sending them to buyers (Zając, 2014). For many digital nomads, conducting a dropshipping business from Bali is attractive because the town offers a very cheap living cost, beautiful beaches, nice weather with paradise ambiance, and good internet speed. Unfortunately, there are no official figures available that could determine the market value of the dropshipping industry conducted in Bali, Indonesia. However, the report by Deloitte University (2015) highlights that dropshipping is a huge business: an estimated 93 percent of Facebook’s $8 billion ad market, made up of over a million advertisers, is comprised of retailers selling by dropshipping.
People do this lucrative business scheme mainly through the Chinese e-commerce platform, AliExpress. As AliExpress offers free shipping worldwide, in this way, dropshippers are confident they can sell the goods to European or American customers. Dropshippers then establish a website utilizing Shopify. To identify and target customers dropshippers typically employ Facebook ads. Dropshippers can also be found on other platforms, including Instagram, or selling through marketplaces such as online homeware store Wayfair (Kale, 2020). If your social media accounts, including Instagram and Facebook, happen to receive ads of a product that you can also find on the AliExpress e-commerce website, this means that someone is trying to advertise their dropshipping businesses to you.
Successful dropshippers often solve so-called “pain points” as defined in marketing as the needs, wishes, or worries (real or perceived) of consumers through products they offer. Here is a sample of how the dropshipping scheme might look. Perhaps in the era of pandemic COVID-19, people need to wash hands more frequently, however finding pressing the soap dispenser a chore. Dropshippers spot the consumer pain and find a hand-free soap dispenser on AliExpress. They then do marketing via Facebook. They will make a video demonstrating its benefits (videos exceed description). Dropshippers then frequently advertise goods, haunt customers on social media with that video aimed to influence customer decisions until the customers finally purchase those dispensers. When customers then place an order, the dropshipper purchases the item through AliExpress and ships it directly to buyers. At this point, customers will wait up to a month for shipping because the item is being shipped from China. Long order processing times are normal for dropshipping. At the end dropshippers pocket mark-up minus marketing cost (Kale, 2020).
Many successful stories in conducting dropshipping businesses are available on websites like YouTube. One of them is the story of Thomas Despin (cited in Kale, 2020). When Despin arrived in Bali in May 2016, he was broke. He was informed about dropshipping and went into a partnership with a friend back home in France, who granted him €3,000 initial cash to begin. Gradually, Despin came across an attractive idea: selling shapewear to French women using a video that he and his partner stole from another online store. Despin found the video awful, however, it worked successfully: $750,000 of turnover, and around $100,000 of profit for Despin, in just eleven months. To this day, Despin has never looked or touched the shapewear.
While this all seems impressive, we would suggest waiting a bit before quitting your job to pursue a quicker way to earn a living and jumping headfirst into the dropshipping adventure. First, because many statements, although less visible than the YouTube tales of overnight success, show that not everybody can be the next Jeff Bezos (European Union Intellectual Property Helpdesk, 2019). Second, many experts raise a lot of questions and call out social, economic, and environmental problems of the dropshipping scheme that will be discussed after closing the dropshipping story of Thomas Despin.
After securing $750,000 sales, Despin and his partner announced shutting down their dropshipping business. Here is why “I’m the opposite of what dropshippers like to say because they like to see themselves as good entrepreneurs because they made money,” Despin says. “I’m completely fine with saying that I made a lot of money, six figures, and still I think I was dumb. I didn’t know what I was doing.” He adds that he dislikes his clients as they complain a lot.
What are the problems inside dropshipping business considering sustainability?
1. Social challenges: “Dropshipping is prominently starred in a work-at-home scam and is overrated.”
During the COVID -19 pandemic, scammers are using a dropshipping scheme to take advantage of the situation. Keller and Lorenz (2020), on New York Times website, report nearly 500 e-commerce sites (with web addresses containing “Corona” or “COVID”) showing up every day on Shopify to sell COVID -19 virus-fighting products. Many of those sites are being closed for generating exaggerated claims or selling fraudulent products. It was discovered that many of the sellers do not own the goods, nor have they verified that the goods are certified. Frequently, the sites’ operators are dropshippers who fulfill customers’ orders by purchasing articles on other websites. One of the new sites marketed as an “oxygen concentration” machine for $3,080. Another offered “Corona Necklace Air Purifier,” which for $59 claimed to provide “All Day Protection.” A third offered a $299 pill that ensured “Anti-Viral Protection” for 30 days. And sites such as CoronavirusGetHelp.com and test-for-covid19.com marketed home test kits for $29.99 to $79, none of which have been accepted by the Food and Drug Administration (FDA).
Before the COVID-19 pandemic, dropshipping was already prominently starred in internet-based home business scams. Already in 2018, the founder of Weebly, Rusenko (cited in Mann, 2018) emphasized dropshipping is the newest scam. “It used to be the Nigerian prince that was emailing you, and now it is the burner brand on Instagram.” The State of Michigan Attorney General (2020) has warned to be on the alert for fake “gurus” promoting dropshipping as a very profitable remote work opportunity. The warning message includes that many dropshippers are trained to fool customers about where a product is originating from. The country of origin may not be revealed, or the dropshippers may post stolen photos of any physical storefronts to make buyers think the company has a physical location or that the product is originating from a particular place. Prospective dropshippers may be lured to pay for high-priced courses intended to teach them how to become a successful dropshipper and these courses may promote prospective dropshippers to trick buyers. Furthermore, dropshippers have neither control over quality as they never saw goods, nor over packaging (they cannot add extra protection). Thus, sometimes, these products do not match the customer’s quality and size expectations and lead to customer disappointments accusing dropshippers practicing scam.
2. Environmental costs: “Lack of transparency on electricity consumption and greenhouse emission data by the main supplier. Consumers and dropshippers have lack of awareness on environmental impacts”
Supplier side: A report by Greenpeace (2020), a non-governmental environmental organization, points out CO2 emission from China’s internet industry is skyrocketing. Power consumption from China’s internet industry is predicted to go up by two thirds from 2019 to 2023. In 2018, China’s internet data centers were powered by 73% by coal. Thus, Greenpeace calls out giant tech companies, including Alibaba Group on the urgency to dramatically scale up clean energy procurement and increase their transparency as Alibaba did not disclose electricity consumption and greenhouse gas emission data. Alibaba Group is the owner of the main supplier of dropshipping businesses, AliExpress. Considering transporting goods from China to buyers overseas, plastic and Styrofoam packaging, coal energy powered internet industry, we could imagine the negative impacts of the e-commerce business on the environment.
Consumer side: Professor Cohen (cited in Evans, 2018) from Columbia University who is teaching courses in Retail Enterprise says, consumers do not care where the goods are coming from, they see it, they desire it, they purchase it, they expect to receive it as promised. He also points out suspiciously cheap articles online are coming to a consumer from a dropshipper and consumers do not care for it. This is also reflected by the result of KPMG’s global survey (2017) conducted with] the 18,430 consumers in the 51 countries about what drives them to buy online or offline in the first place. The top three answers are the ability to shop 24/7 (58%), the ability to compare prices (54%), and the online sale/better prices (46%) respectively. Sadly, from all twelve drivers, sustainability is not part of consumer reasons.
Dropshipper side: Many dropshippers expect to make a lot of money online quickly. Thus, they do not consider long-term impacts on the environment and society and source products they sell from low-cost Chinese marketplaces like AliExpress. Even more, they use the sustainable message to attract buyers. From the interview of Kale and a former dropshipper, “Ellie” (who asked anonymity so that she could talk openly about her experience) describes the journey of her dropshipping business trading eco-friendly, plastic-free homeware almost ended in a catastrophe. Is not dropshipping about the least environmental-friendly method of buying and selling? “Obviously to the outside world” – Ellie says she was interested in selling eco-friendly homeware to make a difference. However, she admits she did the dropshipping business because her parents and she spotted a trend. In the count-down to 2018’s Christmas, Ellie and her partners were placing orders of $10,000 plastic-free homeware. However, their Chinese supplier was unable to cope and discontinued shipping the ordered goods. The goods arrived in poor conditions and covered in plastic packaging. Consequently, their inbox was full of raging emails from buyers, accusing them of committing a scam. One very disappointed customer sent a photograph of this plastic-free product in the trash bin (Kale 2020).
Furthermore, before the Pandemic COVID-19 began, dropshippers in Bali were environmentally unfriendly as they flew around the world non-stop (Neubauer, 2019). There is a potential risk that dropshippers will return to old habits “flying around the world non-stop” when the COVID-19 virus over.
3. Economic problems: “Despite making a lot of money, dropshippers do not pay any taxes and take off. And the dropshipping model raises a lot of questions and risks related to intellectual property rights.”
People look for an exotic place with cheap living cost where they can apply their technology and expertise to quickly make a lot of profit and avoiding income taxes, and not put back anything into the community. The immigration office in Bali does not have enough resources. As per the Ministry of Immigration’s statement in 2019, only ten immigration investigators are working in Bali and thus they cannot oversee so many people (Neubauer, 2019).
The analysis of Google Trends on how frequently the “dropshipping” search term is entered into Google’s search engine relative to the total search volume from over a period in the past five years may be used to see the significant increasing trend and interest in dropshipping. Particularly in the era of the Pandemic COVID-19 from March 2020 to May 2020, dropshipping became a significant increasing topic in search interest. It might be due to the economic crisis where a lot of people have lost their jobs so that people are looking for a way out to generate money and a more flexible way of work. Malaysia and Indonesia are the two top countries with the highest interest in dropshipping followed by Ukraine. In Indonesia, Bali is the hub of the dropshipping business. Looking at this, there is an urgency for the local authority to increase their immigration investigators to tackle income tax avoidance in Bali, Indonesia not to miss the opportunity as more and more people are interested in dropshipping.
The European Union Intellectual Property Helpdesk (2019) points out the dropshipping model raises a lot of questions and risks related to intellectual property rights. Just because these goods are available on renowned websites such as AliExpress does not assure that they have a license to be sold in the country of prospective customers, or to be sold in the European Union. IP protection is territorial: a product may be legally sold in China (for instance, if no patent was filed there) but infringing IP rights in Europe (if one of its components is protected by patent in European countries). Hence, importing this product to Europe may imperil dropshipper in patent infringement claims. With this, the EU IP Helpdesk mostly refers to the fact that many “dropshippers” utilize third-party pictures on their websites, to advertise the goods sold. Rather than taking pictures of the products by themselves (which may be difficult when you have no stocks and never see them), dropshippers tend to utilize the product pictures made available by the manufacturers, or by global platforms such as AliExpress. The outcome? You have imagined it – copyright infringement claims from the owners of the pictures.
What are my lessons learned (personal reflection)?
In the past, I read some articles highlighting many startups leaving Silicon Valley for Bali, and people began to rename the coastal town “Silicon Bali” making a pun of “Silicon Valley” and an increasing trend of the digital nomadic lifestyle and co-working spaces in Bali. I was assuming that people moved to Bali to do some sophisticated computer programming aimed to develop e-commerce while spending their free time surfing, attending yoga classes, or enjoying marine biodiversity through diving. However, after discovering many digital nomads in Bali employ the dropshipping scheme, surprisingly via AliExpress, I am sort of disappointed.
The first time in 2016 I heard about AliExpress. I was surprised at how expensive prices of study supplies in Switzerland that are generally ten times higher than in Indonesia. Several former colleagues at the BFH Business School then suggested I checked on AliExpress to find more affordable study supplies. I came up with the dropshipping topic because out of curiosity as I often receive ads on personal Facebook and Instagram accounts from sites selling products that can also be purchased on AliExpress’s website. I received even more ads during the COVID-19 stay-at-home than before. I discovered there are many YouTube videos, articles, even more, online courses from self-declared successful dropshippers on how to start dropshipping and how to make six-figure sales in less than a year. However, when I was looking for dropshipping statistics and academic references on the internet, it was a bit challenging as the outputs of Google’s search and other search engines were dominated by dropshipping ads. It may be also because the dropshipping topic is relatively new, unlike avocado or shrimp production issues in which a lot of academic papers available to support data. This blog writing focuses only on the dropshipping model of the digital nomad and analyzing dropshipping impacts socially, environmentally, and economically. Writing solutions and analysis of effective measures to tackle dropshipping challenges are suggested.
To conclude, taking all this new information into account, I have become more aware of the negative consequences of the dropshipping model and will try to become more mindful of products I consume in regards to sustainability, for instance, product origins and supply chain. And I will look at a more sustainable way to generate income and will try not to go into dropshipping thinking, “I will get rich quick”.
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