Why I use Affiliate Marketing instead of Dropshipping

byGilbert1954

95 followers

4 years ago

Hi everyone,

I'm writing this blog post because I'm at the end of level two of the training modules. But I wanted to put some value in it for you. However, if you are an American living in the USA, this post will merely be an interesting read with little actual value for you. If you are an American living outside the USA, this post can be somewhat more interesting. Still, since I am European, I'm not aware of the American tax system, so I don't know. But if you are an EU citizen living outside the EU and relatively new to e-commerce, then this post can be of real value to you.

I could reveal the plot in one sentence, but writing a story about it is more fun. So here we go.

I'm a retired Belgian living in Thailand for about three years now. My beautiful wife is Thai. She works as a government teacher, so usually, without Covid, I'm 'Home Alone.'
As a retired programmer, I like to surf the internet, and I got interested in e-commerce. I don't really need a second income, but while I'm sitting in front of my computer, why not make some money from it, instead of nagging on Facebook.

I started to look at the possibilities. What could I do? Build a webshop here in Thailand? Nope, impossible, I don't know the language. So it would have to be something in Europe or the USA. The USA is very appealing because you have a market of 300 million customers, all speaking the same language. Easy. But then, I don't know the laws and habits in the USA. So, maybe later.

For Europe, I mean the EU (without the UK now), I know the laws and habits, but you have 26 different countries and about the same number of languages. In my native language, Dutch, there are only about 23 million native speakers, a small base for an e-commerce store. But, hey, building a website is difficult enough without having to do it in a foreign language or with foreign laws. So, in the EU and in Dutch, it will be. I can always expand later; we'll see.

Because I could not choose between Affiliate Marketing and Dropshipping, I did what I always do in this kind of situation: I started with both to see where it would bring me.

Since I'm living in Thailand and not a Thai citizen, I need a work permit. I know, many digital nomads are working illegally in Thailand, using all kinds of visas to stay in the country, and hoping they won't get caught. But I like to be able to sleep at night. I have a friend who was kept in a Thai jail for several months for not having the proper papers for his guesthouse (+ he got into trouble with a police officer), and he told me about his experience. That's not something I would want to go through. The movie "Target Number One," currently on Netflix, can give you an idea about it.

The application for a work permit has to be done by a company that wants to hire you. A company can only apply for your work permit if it has a capital of at least 2 million baths and already 4 Thai employees on its payroll. Unless you are married to a Thai citizen, in this case the company needs only a capital of 1 million bahts and 2 Thai citizens on the payroll. Lucky me, I'm married to a Thai citizen.

But I don't want to work for a company; I want to work as a sole proprietor and keep my freedom. Unfortunately, this is not possible for a foreigner in Thailand. Okay, there is at least one company that is willing to hire you, more or less on your own terms, and provide you with a work permit, but it will cost you about 500$ in fees every month to use their services.

If there isn't a company to hire you, what can you do? You can set up a Thai company yourself, that will hire you. To do this, you need at least three people, and Thais must possess at least 51% of the company.

I have set up a company with my wife and my stepdaughter and it has 1 million baht capital. We hired two Thai employees, for whom I pay social security, but currently they don't contribute anything to the company. And then the company hired me, as the managing director and for whom we've got a work permit.

So far, so good: I'm working legally in Thailand, and I have a ltd. company with a tax id.

At the same time, I started to build a dropshipping webshop and an affiliate marketing website (WA) in Europe. I contacted European government services and specialized companies about rules and regulations.

I also keep gathering information about dropshipping and affiliate marketing. I read about successful dropshipping stores and successful affiliate publishers.
And I read about many problems in the dropshipping model: spoiled, angry, unfair complaining customers, damaged packages, suppliers that mess up and don't give support, transport companies that treat your customers in a rude way, chargebacks, blocking of accounts by platforms, fraudulent accounts and the like. But because with dropshipping, the profit is higher. If you have the right mindset, you can take it. So why not?

But here it comes, if you are drop shipping, you are (usually) selling to customers. And if so, you have to collect the VAT. For an EU webshop, you need a VAT number in the EU. If you don't live in the EU or don't have a business in the EU, you will need a 'fiscal representative.' This fiscal representative will represent your company in Europe, with all the power ànd the responsibilities for your company.

I contacted several companies that claim to provide the 'fiscal representative' service. As long as I was planning to set up yet another company, in the EU this time, everything was ok. Something that would have cost me again about 4,000 euros to get started. But when I started talking about the 'fiscal representative' part of the deal, they shut down. Probably they are not interested in such a small company because they wouldn't get a lot of money and still have the responsibility for my actions. And following this path any further, we are talking about bank guarantees and stuff like that. It's getting complicated and depressing; it prevents me from enjoying the work.

On the other hand, I've also contacted an Affiliate Network about how to handle the VAT administration. And then the answer came: an Affiliate Network is a business, and we are a business. This means that our transactions are business to business (B2B), not business to customer (B2C). Maybe this has been said somewhere in the training or some classroom or blog on WA; I don't know. If so, I missed it, or I didn't grasp it at the moment, or it doesn't apply in the USA. Anyway, with Affiliate Marketing, we are in the B2B business. This means that the Affiliate Networks in the EU will take care of the necessary VAT administration inside the EU. As a foreign company doing B2B business, you don't need a VAT administration in the EU.

That's the reason why I choose Affiliate Marketing over Dropshipping.