Amazon's new tune: "O Canada"?

Amazon is in talks with Canada Post, the Canadian equivalent to the U.S. Postal Service, to handle much of the distribution and fulfillment of the planned site, according to a source familiar with the company.

News of the new Amazon.ca site was reported last week by a Canadian paper, which cited unidentified publishing industry sources. The National Post also reported that Vancouver, British Columbia-based Raincoast Books would handle most of the book distribution for the site. The paper cited publishers who said Amazon had asked them not to discuss the company.

Representatives at Amazon, Canada Post and Raincoast Books refused to comment on the reports Wednesday.

"We can't confirm or deny rumors or speculation about what we may or may not be doing," Amazon spokeswoman Kristen Schaefer said.

Partnering with Canadian companies would aid Amazon in avoiding Canada's strict protectionist laws that have prevented the Web retailer from moving into the country sooner. Canada protects its book retailers by restricting foreign companies from establishing a physical presence in Canada by themselves. They are allowed to operate businesses jointly with Canadian companies.

Amazon already has strong sales in Canada through its flagship U.S. site, and Canada is the retailer's largest export destination, Schaefer said.

But establishing an Amazon-Canada site is advantageous for Amazon because it could charge for items in Canadian dollars, and Canadian customers would no longer be required to pay duties, said Safa Rashtchy, an analyst with U.S. Bancorp Piper Jaffray. Amazon could also deliver more quickly if it has warehouses based in Canada.

While a partnership with Canada Post would suggest Amazon is well on its way to launching the Canadian site, the project launch has been postponed several times in the past and could be put off again, said the source familiar with the company's business dealings.

On Wednesday, Amazon European General Manager Thomas Lot did not directly answer questions about whether the company planned to expand to new international markets this year. Lot told Reuters that he was focused on the companywide goals of making Amazon cash-flow positive by the end of the year.

A ripe market
If the company does launch operations in Canada, it would be the first new international site for Amazon since it opened Amazon Japan in November 2000. The company also has sites in France, Germany and the United Kingdom.

But Canada is clearly a ripe market for Amazon: A study by Internet research group IDC has shown that 82 percent of the world's e-commerce revenue and 75 percent of online buyers come from six countries. Amazon operates stores in all of them except Canada.

Amazon is also looking overseas to help fuel the growth needed to reach its goal of becoming cash-flow positive by the end of the year. Despite its billing as the top online retailer, Amazon has largely saturated the U.S. market, while at the same time the U.S. economy has slowed and consumers are spending less.

But the overseas sites, which struggled early on, are still in high-growth mode, reporting both strong sales and growth in recent quarters. On Tuesday, Amazon said first-quarter sales from international operations were $226 million, a 71 percent leap from last year. Amazon said operations in Germany and Britain broke even, but did not disclose how France and Japan are faring.

That strong showing helped the company beat revenue expectations for the first quarter, which in turn lifted the company's stock 18 percent to $16.63 in afternoon trading Wednesday.

Amazon already makes one-third of its sales to overseas customers and expects to increase that to fully half within three years.

Strong international sales and a favorable exchange rate for the euro were cited as key factors in Amazon reaching profitability for the first time in January.

Three keys to success
Analysts credit Amazon's success overseas to a combination of good technology, sensitivity to local customs and a lack of local competition.

"We've learned that consumers, regardless of where they're from, want three things," said Paul Prabhaker, professor of marketing and e-business at the Illinois Institute of Technology. "One is simple navigation, next is timely and reliable delivery, and third is good customer service...Amazon has given customers all three."

And while Europeans and Asians tend to adopt technologies more easily than U.S. shoppers, the U.S.-based companies are generally considered to have superior e-commerce technology and sites, Prabhaker said.

In a survey of almost 10,000 people from Europe, Latin America, North America and Australia, 52 percent of non-U.S. residents said their favorite site is from the United States, according to the Accenture Institute for Strategic Change. A little more than one-third chose a site in their own country as their favorite.

In the United States, hordes of companies vie for customers, who have a wide range of options and easy ways to compare prices between different retailers, Prabhaker said. In other countries, fewer retailers means less competition, which drives prices up and customer service down.

"The same level of customer service and low prices found in the U.S. are tougher to find in Europe and Japan for that reason," Prabhaker said. "In Europe, for example, there are sites that are closed two days a week. You won't find a U.S. e-tailing site closed, ever."

Customers overseas agree.

"Competition is practically nonexistent here in Britain," said Glen Segell, a South African living in Britain. "The online prices are also 10 (percent) to 15 percent less than in stores...the best reason to shop there."

But many U.S.-based companies still struggle overseas, partly due to local Net access issues and widely fluctuating Net adoption rates.

In Britain and elsewhere, the cost of logging on has been more expensive than in the United States and has stifled the growth of online shopping, analysts say. Three-quarters of all global e-commerce occurs on U.S. sites, according to Centaur Communications, a British publishing company that conducted a study of 38 countries.

"In the U.S. the market of online shoppers is large and rich," Prabhaker said. "In places like Europe, the pools of attractive shoppers are smaller and much more fragmented. You might find 2 million customers in this country and 50,000 in the next."