Shop frontiers: the rise of cross-border buying around the world

http://www.theguardian.com/money/2015/jul/02/cross-border-buying-shopping-bargains-globalisation

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They are the people who take their passports out shopping in search of an international bargain.

Globalisation has been breaking down boundaries for a generation or more, no more so than in the parts of the world where consumers routinely cross frontiers to make their purchases of everything from household goods to petrol and groceries.

From Europeans who buy alcohol and cigarettes over the border, to health tourists popping next door to get medical supplies – or even to get their teeth fixed – the notion of cross-border consumers appears to be here to stay.

In the middle of a Finnish forest not far from the border with their homeland, two Russians are doing a bit of low-level sanctions busting.

Vasily Yermolayev and his friend Dmitry have bought some salmon at a supermarket just up the road from the crossing point. “You can’t get it in St Petersburg, it’s on the EU’s blacklist,” says Vasily, 37.

Vladimir Putin put a stop to salmon imports from Scandinavia last year as a riposte to EU sanctions after Russia annexed Crimea. The two Russian salesmen blame Europe for the lack of salmon in their shops.

In the car park outside, Markku Puhakainen, 62, a Finn, is anticipating his weekly trip to Russia to buy petrol at less than half the Imatra price. The steelworker is an ice-hockey referee in his spare time, so he travels a lot to games and saves thousands of euros each year by making the two-hour round trip to fill up over the border. While he is there, he’ll pick up a block of cigarettes at a fraction of the price charged at home.

Here among the endless pine trees, Russians and Finns are figuring out how to navigate the shifting winds of economics and geopolitics to make their lives better.

Finns made 110,000 journeys across the border into Russia in January alone

The Russians enjoy the assistance of three huge supermarkets that opened 18 months ago at the Imatra border crossing, where Finnish retailers do a brisk trade with Russian consumers prepared to drive 150 miles from St Petersburg and beyond. Almost all the checkout staff speak Russian, the signs and labels are in Russian, and the product range is chosen with Russian tastes in mind. Companies in St Petersburg offer “Finland for an hour” bus tours here for 800 roubles, about £11.

Once, St Petersburg’s aristocracy frequented Imatra to admire its famous rapids and fish for salmon in the Vuoksi river, which joins Lake Saimaa, Finland’s largest, with Lake Ladoga over the border to the east. But now the Russians have other pursuits in mind.

Sergei, 33, is stocking up on washing powder. “Russian brands make a lot of froth but don’t get the dirt out,” he says. “Rather like politicians.”

Stanislav, 40, and his wife have driven 500 miles from Vologda and are breaking their journey at a B&B on the Russian side, giving them more time to load the car with meat, cheese, coffee and jar after jar of trout roe caviar. “Things are more expensive here, but the quality is much better,” he says.

“It’s all down to what the rouble is doing,” says Tomi Törmä, chief customs officer at the Imatra crossing. “When it’s up, the Russians come – when it’s down, the Finns go.”

Currently the traffic is fairly equal each way, with about 1,000 crossings a day, he said. But late last year when the rouble fell off a cliff the queues of Finns were hundreds of cars long. The nearest petrol station is less than 500 metres from the border in the town of Svetogorsk, whose giant paper mill looms over the treetops. The only potential hiccup is the time it can take to get through customs.

Smuggling is a problem. Only last week, Finnish customs bust a car with 100 blocks of cigarettes – only one is allowed. Drivers never know when their car will be singled out for close inspection. Finns are forbidden to make more than one trip every 20 hours.

But with a one-year multiple entry visa costing around €130 (£93), it still makes a lot of sense for Finns living near the border to exploit the petrol price differential. EU law says they can only fill their petrol tanks plus one spare canister, otherwise the volumes would be ever larger.

Imatra is one of five crossing points in Finland’s south-east. Each year, more than 10 million people cross the Russian border in both directions in south-east Finland, and Finland’s interior ministry has predicted that this could more than treble by the end of the decade.

Russian customers spent €360m (£255m) in southern Karelia in 2013, according to Mika Peltonen, head of the local chamber of commerce. The weak rouble shrank this trade last year, with spending estimated at €250m.

“Still, these are huge figures for a small Finnish region,” Peltonen says, amounting to more than a third of the total spending by Russians in Finland. For purchases over €40, Russians can claim back the VAT at the border.

Last year, Russians made more than 2m shopping trips into south-east Finland. Despite the weak rouble, numbers were only slightly down on the peak in 2013 after Russian visitors soared in the middle of the last decade.

“There is so much more money in Russia nowadays, that’s the simple answer to why they come,”says Heikki Laine, of the Imatra municipality. The local economy benefits greatly from the flow of Russians, he says, and there is consternation whenever the numbers fall.

Finns have been exploiting the rouble-euro exchange rate ever since the border crossing opened at Imatra in 2001, and the local economy has adjusted as a result. But still there is a sense of guilt among Finns that they might be bilking the system, with customs officials embarrassed that their colleagues sometimes nip across the border.

“It’s not for me, I’m not going to Russia – I pay my taxes in Finland,” barks one shopper at a border supermarket.

Sheung Shui has become a booming shopping town. Once a quiet backwater of Hong Kong from where you could peep into the Chinese mainland, it now welcomes thousands of people every day pulling trolleys or laundry bags tied on wheels.

On a weekday afternoon, every few minutes the railway station disgorges dozens of hurried people, who fill their luggage with baby formula, nappies, toilet paper, vitamin pills, over-the-counter drugs, shampoo and some food items.As soon as their bags are full, they are gone – back across the nearby border to China.

They will return with empty trolleys, and start all over again, loading up their bags awkwardly in the middle of the hectic streets, queuing up by the bus station weighed down by luggage, eager to cram yet more journeys in and out of China.

The parallel-trading phenomenon in the small border towns of the northern territories of Hong Kong caught most by surprise, and many residents feel that the disruption is now too great.

Of the 60.8 million tourists who came to Hong Kong in 2014, more than 47 million were from the mainland – of whom about 60% were “parallel traders”.

Half of all visitors to Hong Kong are 'parallel traders'

What these visitors do is not illegal. Nor is it exactly legal, either: taking advantage of Hong Kong’s lower prices for imported goods and stricter quality controls that protect it from the food scandals and counterfeiting common in China, they purchase tax-free goods to resell across the border at a premium, with no custom duty applied.

The demand for baby formula in the mainland is so overwhelming that Hong Kong has seen many shortages in recent years.In 2013, in an attempt to control the problem, authorities forbade the export of more than 1.8kg of formula per person, and stipulated that it be for personal consumption. More recently, the authorities tightened up on cross-border movement, allowing one return trip per week, per person.

Yet a shop assistant at Hang Kin pharmacy, standing in front of piles of milk powder tins, says: “We see repeat customers often. Some are familiar faces.”

The trade has now led to a backlash. Protests have on occasion turned into ugly shouting matches, with protesters and mainland shoppers hurling abuse at each other.Police have intervened heavily, with pepper spray deployed inside shopping malls and the arrests of a few protesters – but not very much has changed.

A shop assistant at another chemist, sporting a red shirt with “Carnation” written all over it (a baby formula brand in high demand in China), says there have been fewer customers recently. “Maybe 30% less? I cannot tell. The weekends remain very active, but the numbers are down,” he says.

A glance at the bags carried by the visitors hopping on the trains to China shows that the formula milk limit is not enforced. Recently, one Chinese clerk was jailed for smuggling 20kg of baby formula in one trip. Smugglers have also been stopped with scores of iPhones strapped to their bodies.

But for every case that ends up in court or on a suspects list, tens of thousands more carry on the practice in plain view, and neither the police, nor the immigration or customs departments, can keep abreast of it.

With its homely riverside cafes, elegant Habsburg facades and beguiling baroque churches, Mosonmagyaróvár is at first glance just another one of the sleepy towns near the western Hungarian border in which Magyar folksiness blends with Austrian grandeur.

But one thing sets the town apart from its peers. Mosonmagyaróvár’s secret is hinted at by the signs and hoardings on the sleepy high street that direct visitors to Laserdent, Eurodent, 5Dent and sundry other related businesses. With about 350 dental surgeries, Mosonmagyaróvár – population 30,000 – can claim to have more dentists per head than anywhere else in the world.

The draw for foreign customers is the cost. “Implants here are half or even a third of the Vienna price; compared with Denmark or Switzerland it can be four times cheaper,” says Zoltán Veress, a specialist in implant treatments who has worked in Mosonmagyaróvár for 12 years. “We mainly treat one-day patients from Vienna – which is only 60km [40 miles] away – and its surroundings. I guess around 90% of the patients are from ‘the neighbourhood’.”

One visiting dental patient, Werner Ubl, who works in fashion textiles in the Austrian capital, says he has been visiting Mosonmagyáróvar dentists for three years. He adds: “It is a lot cheaper here, but that’s not the only reason I come. In Vienna I always have to wait: sometimes it can be quicker to drive to Hungary.

Mosonmagyaróvár has more dentists per head than any other town in the world

“It’s a short holiday and in the meantime I can get my teeth done. For this price I could only spend a night or two in Austria, and without the dental treatment. In times like this everybody has to hold their money close.”

The global financial woes of recent years have not affected Mosonmagyáróvar’s dental surgeries. Veress says: “We didn’t lose patients from the financial crisis because more and more people want treatment that is a little cheaper but still good quality. In fact our numbers have slightly risen.”

He adds: “We have customers from countries other than Austria: mainly Switzerland and Denmark, but other places too, even from Greenland – real Inuits. For these clients we have a minibus that picks them up at the airports in Vienna and Bratislava, which is half an hour away by car. They fly here for a week, we do some extractions and they come back later for the surgery.”

“When we fit a bridge or crowns they stay for a week, the minimum timeframe for such procedures. A front tooth implant with a ceramic crown on it can cost €4,000 in Denmark, or €3,000-€4,000 in Austria. Here we can do the procedure for around €1,000,” he said.

Word of mouth is the main motor for new customers in the town. Heinz Singer, a Vienna resident who has been visiting Mosonmagyaróvár for dental implants, says: “I first heard about Mosonmagyaróvár from friends in Vienna who come here every year.”

The historical roots of Mosonmagyaróvár’s dental tourism industry lie in the relative liberalism and freedom of entry that Hungary enjoyed in the goulash communism era of the 1980s. “As a young dentist 27 or 28 years ago, I saw that Germans and Austrians holidayed in the resorts around Lake Balaton because it was one of the only meeting points with their relatives living in the eastern bloc,” says Tibor Koltai, 65, who employs about 40 people at KG Dental in Mosonmagyóvár.

“These tourists also visited dentists, and I had the idea to found this business, mainly for Austrian patients. There were 30-40 dentists when I first opened a dental surgery here,” he said. Now that number has increased tenfold. “There are 2 million people in greater Vienna and this is enough to support so many dentists here,” Koltai adds.

After years of sending patients to local hotels, Koltai decided to build a hotel of his own. Szilvia Husz manages KG Dental’s Hotel Lajta Park. “We offer a complete service: as well as rooms, we have a restaurant with a special menu – there’s always a soup or salad – and a new menu being devised by a celebrity chef.” Born and bred in Mosonmagyaróvár, Husz says the dental industry has helped counter Hungary’s brain drain trend.

“Hungarian doctors often want to leave, but the dentists can stay. There are only 350 dentists in Mosonmagyaróvár, but each one employs two assistants, plus receptionists and marketing managers. The bigger clinics also employ drivers, chefs and apartment managers too,” says Husz.

For most, visiting Estonia’s capital, Tallinn, means a day trip or perhaps a night or two wandering the cobbled streets of the picturesque old town, a place of gorgeously preserved buildings from the high middle ages. Others, though, have different touristic quarry: inexpensive liquor.

Though prices have increased in recent years, many Scandinavians, frequently travellers by boat from Stockholm and Helsinki, are taking home cartloads of discount beer and spirits and making Tallinn a port of choice for just such shopping sprees.

Alcoholic beverages in Scandinavia are highly taxed. In Sweden drinks are taxed by alcohol content with weak beers taxed the least and vodka and other hard liquor taxed at 40%. Likewise, in Finland taxes are based on strength. The price for alcohol in Finland is 75% above the EU average. All of this makes Estonia an attractive destination in which to stock the home bar.

Eva ­Lena Svensson, a special education teacher from the small city of Kristinehamn in central Sweden, admits that part of the reason she and her husband come to Tallinn is to stock up on discount alcohol.

“We take the night boat from Stockholm and it’s fun,” she says. “We arrive in the morning and enjoy the old town which is great for the day. Then at night we can load up on beer and vodka at the shop and take the boat back. The amount we buy isn’t a lot but for us it’s enough to last for many weeks. The prices are so much lower here than in Sweden.”

Just 5% of Finnish visitors account for more than half the alcohol taken back to Finland

In Sweden there are no limits on how much alcohol travellers can return home with, as long as it is for personal consumption and not resold. Finns are allowed 110 litres of beer, 90 litres of wine and 10 litres of other alcoholic drinks tax free. Greater volumes brought to Finland and resold illegally have been a problem in recent years.

“Yeah, we Finns like to shop for liquor in Estonia,” says Janne Mattila, a salesman from Pori, as he sips a cocktail in a swanky old town bar. “I always bring home some because of the great price difference. But not the crazy amounts you see at the port.”

Whereas Sweden to Estonia is an overnight trip on what is in essence a cruise ship, Finland is only two hours away by ferry. And though most Finns such as Mattila shop for modest sums on planned holidays, a small but determined number of Finnish shoppers bring home a staggering amount of booze.

A recent survey of nearly 4,000 Finns who had travelled by ferry to Estonia over the past year has shown that just 5% of Finnish visitors account for more than half the alcohol taken back to Finland. The study, undertaken by Finnish market research company TAK Oy and published in the newspaper Keskisuomalainen, also underscores the immense volumes purchased by so-called “alco­tourists”. The results show that last year, tourists took 64m litres of alcoholic beverages back to Finland, including 32m litres of beer, 9m litres of cider, 11m litres of long drinks and 4.5m litres of spirits.

“Of course, we bring back loads of alcohol when we come to Tallinn,” says Karsten Jonsson, a worker for a Swedish defence contractor living in Stockholm as he sips an A Le Coq, Estonia’s popular lager, at the port of Tallinn. “They tax the hell out of us for liquor at home. But really, we don’t bring back so much. We’re not like the Finns you know.”

In the Romanian industrial port city of Galati, on the border with Moldova, locals know where to go to get cheap cigarettes: a place known as the Moldovan’s Market.

“You can taste the quality difference between the cigarettes that come from Romania and the ones from Moldova, but then again they are less than half the price,” says one local, who often goes to the market to buy his cigarettes.

The Moldovan’s Market is primarily a place to sell fruit and vegetables, but do a quick lap and you’ll soon be approached by various sellers offering the chance to buy a few packs of bargain-priced cigarettes brought in from across the border.

There is a reason for this. A packet of 20 in Romania costs on average the equivalent of £2.57, according to the Tobacco Manufacturers’ Association. Across the border, and just outside the EU, a pack is as little as 57p.

Smugglers, taking advantage of the price difference, go back and forth across the border and though Romania has tried to crack down on the trade it does not seem to have made much difference: the black market for cigarettes accounted for 15.9% of cigarette consumption in Romania in 2014, with Moldova the source of about a fifth of those – though with 46% of illicit cigarettes of uncertain provenance that number could be far higher.

“Our data shows that in 2014 the illicit trade of cigarettes recorded the highest share in the total cigarettes market in the past four years,” says Marian Marcu, managing partner of Bucharest-based research firm Novel Research.

Cigarettes are five times cheaper across the EU border in Moldova than in Romania

Much of the smuggling is larger in scale – in February, border police caught one truck driver crossing to Galati with 624 packets of cigarettes – but the chance to make a quick profit is not lost on those who regularly cross the border.

Late last year while crossing the border from Moldova into Romania on a night bus, this correspondent was, along with other passengers, optimistically handed two packs of cigarettes by the driver who was hoping to get around the two-pack maximum when crossing by land from a non-EU country. Once across he went back around the bus collecting the packets from those who had been willing to take them. From the reaction of everyone onboard it was not even close to the first time they had been asked to be temporary mules.

During the golden days of sky-high oil prices in the 1970s, Venezuelans would cross over the border to Colombia to snap up clothes, jewellery and anything their then-strong currency could buy. A common phrase heard by Venezuelan shoppers in Colombia was “that’s cheap, give me two”.

When the Venezuelan bolivar took a dive and the government of the late Hugo Chávez set price controls for basic goods, it was Colombians who crossed into the neighbouring country to take advantage of prices they could not even dream of at home: just pennies for cooking oil, corn flour and milk.

But as the Venezuelan government tightened restrictions on the purchase of such items to try to stem contraband – shoppers must now be fingerprinted at the cash register – Colombians left it to smuggling organisations to bring the goods across the border. The Venezuelan goods go for higher prices than inside the country but are still far cheaper than the Colombian equivalents.

Today, Venezuelans who cross over to Colombia no longer look for Colombian-made luxury items. On their market list is soap, detergent and toilet paper made in Venezuela but impossible to get there.

One resident of San Cristobal, a Venezuelan city 20 miles from the border, says he recently bought Venezuelan detergent in a Colombian border town. He paid 1,300 Colombian pesos, equivalent to about 130 bolivars on the black market. The official Venezuelan price for the product is 70 bolivars.

The Táchira state government reckons as much as 40% of the food sent to the state ends up smuggled into Colombia. At the Cenabastos central market in Cúcuta workers unload packs of Venezuelan corn flour, rice, soap, oil, powdered milk, selling wholesale to shops in the city centre.

40% of food sent to the Venezuela border region ends up in Colombia

A kilo of corn flour, very popular in the region to make arepa corncakes, costs just Bs 14 (about 20 US cents). The same package fetches five times as much as in Colombia, putting it out of reach for most people in Venezuela, where the minimum monthly wage is just US$51 pesos at the black market exchange rate.

For as long as anyone can remember, Colombians on the border have taken advantage of their neighbour’s dirt cheap petrol prices. At about 7 US cents a gallon Venezuela has the cheapest petrol in the world. Figuring that if authorities can’t beat the smugglers they might as well join them in the profits, last year the Venezuelan government established a special price for gas stations near the border with Colombia at the equivalent of 37 cents a gallon and in April increased it to $1.48 a gallon.

Still, when you can sell it at $2.75 per gallon in Cúcuta, taking it over the border makes sense.

Every day dozens of motorcycles coast down the steep, windy road from the town of Capacho in Venezuela to San Antonio, their tanks filled with the cheap petrol to sell in Colombia. To avoid checkpoints, drivers walk their motorbikes across the thin, shallow waters of the Táchira river that serves as the border between the two countries. And to add to the profits, often the young motorcycle drivers stuff their pockets with bath soap and strap cuts of beef to their chests with plastic wrap to sell in Colombia.

Even currency gets smuggled. In March Venezuelan authorities seized 3m bolivars in cash hidden in the doors of a pickup truck bound for the border. The Venezuelan border patrol agency says Colombians will pay a premium for the bills of as much as 10% either to pay for Venezuelan goods in cash to then smuggle over the border, or to bleach them clean to make counterfeit dollar bills.

Gambling became a multimillion-dollar industry in Russia after the fall of the Soviet Union. But after it banned casino gambling across most of the country in 2009, many began going abroad play.

Minsk quickly became the hotspot for Russian gamblers, who enjoyed its accessibility and cheap prices. Belarus is an eight-hour car ride from Moscow through an open border, and everyone speaks Russian there.

Glittering casinos such as the Shangri La and the Grand Bellagio opened in the still very Soviet city, many of them catering to well-heeled clients who could afford to come for a weekend of poker at tables with a minimum $200 bet.

According to a 2012 report in the newspaper Komsomolskaya Pravda, wealthy players were visiting Minsk so often that many found local girlfriends and installed them in their own apartments.

But the number of gamblers from Russia and the amount of money they spend has reportedly fallen after the value of the rouble plunged late last year.

“For a lot of people it’s getting too expensive, so the number of those wanting to go somewhere and gamble has gotten three to four times less. For all destinations, not just Belarus,” says Ruben Yakubov, whose Moscow-based company organises such tours. “Tour costs are calculated in foreign currency, and now the sum in roubles has increased by a lot. Plus airfares have gone up.”

Staying home to play is still not an alluring alternative. Although the government had set up four official gambling zones within Russia, only one – in Krasnodar region – managed to become a viable gaming centre. However, as of this year, the casinos will reportedly be closed down with an eye to moving them to nearby Sochi.

In January the Swiss National Bank made a surprise decision to stop pegging the Swiss franc (CHF) to the euro.

In the chaotic days that followed, the Swiss discovered their money could buy an awful lot more over the borders in the eurozone, as the franc soared from buying around 85 cents to being on a par with the euro.

So they jumped in their cars and headed for neighbouring France and Germany as well as Austria and Italy for a shopping frenzy.

Even before the SNB sent the Swiss franc soaring, Swiss shopping tourists were spending around 10bn francs (£6.8bn) abroad every year. A survey in 2013, the first of its kind, found that one in four Swiss consumers went shopping in neighbouring countries at least once a month.

The most popular foreign purchases were clothes and shoes, followed by food, then toiletries and home furnishings. According to the survey, carried out by the GfK market research institute and commissioned by a group of Swiss retailers, shoppers in the Italian-speaking region of Ticino were most likely to cross the border to shop.

The attraction was not only lower prices, but more attractive opening times and a wider range of products.

Frenchman Jean-Christophe Boudot, who comes from five generations of wine dealers and who runs the Vinotheque du Leman, just 100 metres from the Swiss border at Ferney Voltaire, says sales have increased between 5% and 8% since the beginning of the year, and this is helping to offset a collapse in sales to China.

“It’s difficult to say if the cross-border boom will continue because Swiss customs have clamped down to slow it down and reduced the amount people can take back,” Boudot says.

While retailers in Switzerland have launched more aggressive marketing campaigns to keep shoppers buying at home, customs officers have increased random searches for Swiss residents bringing back goods worth more than 300 francs or €200.

Swiss Netto, a major Swiss car dealer, told Euronews that its outlets have been deserted since the beginning of the year, and a number of companies had suspended orders for new vehicle fleets. Suppliers are being forced to agree aggressive discounts.

“It’s clear for every car we sell we get 15% less revenue, and we have to sell more vehicles to make up for this loss,” says Sergio Protopapa, director at AMAG Fribourg.

When the euro was introduced in 2002, it led to a boom in the French-Spanish border town of Le Perthus as French shoppers rushed from nearby Perpignan into Spain to snap up cigarettes and alcohol that were about a third cheaper. At the height of summer, an estimated 70,000 visitors cross the border to shop every day. French consumers also shop in Andorra, where VAT is only 4%.