THE CHARACTER AND CONDITIONS FOR DEVELOPMENT OF CROSS-BORDER SHOPPING IN POLAND IN THE PERIOD OF TRANSFORMATION

Halina Powęska
Department of Agricultural Policy and Marketing, Faculty of Economic Sciences, Warsaw University of Life Sciences (SGGW), Poland

ABSTRACT

This paper examines the conditioning factors of development of cross-border shopping in Poland and in Eastern and Central Europe during the period of political and socio-economic transformation at the turn of the 20th century. The author presents similarities and differences of this phenomenon by making reference to other regions of the world. Cross-border shoppers are characterized and the analysis of the difference between cross-border shopping and smuggling is made. The paper discusses a wide range of conditions that are presented here using a model and it highlights diverse aspects of the phenomenon. The main reasons, the basic reasons and the complementary reasons have been distinguished. The basic reasons include political and organizational factors, such as the system of the exercise of power, organization of the manner of crossing the borders, existence of cross-border infrastructure, as well as the manner of the exercise of control. The main reasons indicated in the paper include the economic factors and the security of goods and travelling persons. Complementary factors encompass the organization and environment of shopping, infrastructure and accessibility to shopping places as well as the behaviour of the population. The reasons and the groups of factors indicated in the article are interrelated, which makes the phenomenon more dynamic and constantly evolving.

Key words: cross-border shopping, Eastern and Central Europe, Poland, cross-border areas.

INTRODUCTION

Cross-border areas in Poland, which were characterized by very low levels of socio-economic development during the period of the state-controlled economy, became a place of very dynamic changes in the period of political transformation in the 1990s. One of the main reasons for those changes was the development of cross-border shopping. In referring both to Poland and to other countries of Eastern and Central Europe many researchers pose questions and investigate a research problem why residents of a given country engage themselves in shopping in a neighbouring country, even though this requires appropriate organizational activities, makes them devote more time for shopping than in their place of residence, start logistic and personal preparation, both as regards the covering of a distance and facing a different inter-human communication than that in their home country (language, habits, customs, etc.); in addition, in many a case this means coping with difficulties related to the fact of border crossing (visa problems, organization of crossing the border, including the queues at the border crossing points, possibility of facing the consequences of the lack of interpretation or of different interpretation of the rules of law or other problems). To pose such research issues seems to be justified since the phenomenon of cross-border shopping occurs both in developed and developing economies and it can be observed on almost all continents.

After the year 1990, in Poland, like in other Eastern and Central European countries, shopping done by foreigners was greatly intensified when the limitations regarding the cross-border travel of people were lifted and the differences in prices and the living standards in the neighbouring countries were revealed. It was noted that cross-border shopping was an important factor stimulating entrepreneurship in the border zone and having a favourable effect on the balance of payments of the Polish foreign trade [2]. The study of magnitude of cross-border shopping has been very difficult to estimate since a sizeable proportion of those phenomena was not recorded and sometimes they even occurred on the border of the shadow economy.

MATERIAL AND METHODS

In the present study an attempt was undertaken to show multiple aspects of the reasons for development of cross-border shopping under the conditions of transformation of the socio-economic system and to construct a model of factors determining the development of this phenomenon. The article was based upon the study of literature, observations and research conducted by the author herself or the author's participation in research studies in the years 1992-2004; the statistical data of Poland's Main Statistical Office and the European Statistical Office (Eurostat) were also used.

THE ESSENCE OF CROSS-BORDER SHOPPING
The consumer shopping carried out in a given country by the population residing in the neighbouring country, which is defined as cross-border shopping, has come to be over the years a worldwide phenomenon which is well grounded in economic and social terms [3,10]. Trade turnover has usually been accompanied by mutual acquaintance among the local societies being neighbours across the border, which favours the establishment of trans-border cooperation. For these reasons, attempts are made to construct models and to present theoretical descriptions permitting an analysis and understanding of the nature, character and extent of the phenomenon which can hardly be grasped in statistical reporting [9]. Trade activity is often accompanied by other phenomena, such as, for example, the use of a wide range of material, medical, mechanical, tourist and recreation services.

REASONS FOR CROSS-BORDER SHOPPING IN DEVELOPED COUNTRIES
In the study of the conditioning factors of cross-border shopping in developed economies the most frequently mentioned factors are: a per capita income, price relations in the neighbouring countries and the tax system [5]. Cross-border travel for shopping purposes is also influenced by a wider choice of goods and better service. Also, some interrelation between trans-border movement for shopping purposes and demographic features was found. Furthermore, study findings revealed that there were different factors which stimulated cross-border shopping along the same border depending on the direction of movement. Residents of one of the border countries travel across the border to do shopping due to low prices, whereas the inhabitants of the neighbouring country make their cross-border shopping trips because of a greater diversity of goods and of their better quality. The range of goods in cross-border trading is strictly connected with an economic factor and in some cases it is confined to one item. For example, on the Swiss-Italian border gasoline is the main commodity being the object of the trade turnover.

Some surveys indicate that the development of cross-border shopping is also affected by the size of a country. It is assumed that cross-border shopping develops at the border of the countries characterized by a certain asymmetry regarding the area they occupy or differences in respect of the number of population. Cross-border shopping trips are said to occur mainly from large to small countries. These models show that the most important reason for cross-border shopping are differences in the system of taxation. It is assumed that the external participants of cross-border shopping have a greater percentage share in the structure of shoppers in small countries than in large countries and that is why small countries tend to attach greater weight to attracting border crossers than large countries. Small countries thus set a lower tax rate on goods and services, which leads to price reductions. Thus, arrivals of cross-border shoppers from large countries to small countries exert a considerable influence on the improvement of economic conditions in a small country. This theoretical approach is confirmed, for example, by the phenomena occurring on the German-Belgian or German-Dutch borders. However, there are such situations when the direction of cross-border shopping runs from a small to a large country, for example at the border between Canada and the United States and between Denmark and Sweden. In this case, residents of small countries go shopping to large countries due to a better quality of goods. Generally, one may say that in the cross-border areas of countries characterized by a certain asymmetry trans-border trading runs in two directions: residents of large countries, for example Germans, do their cross-border shopping in small countries, for example in Denmark, due to lower prices, whereas residents of small countries, for example Danes, make their cross-border shopping trips to a large country (Germany in this case) due to a better quality of goods. The above-mentioned examples indicate that the reasons for cross-border shopping taking place between developed countries go beyond economic factors [1].

SPECIFICITY OF CROSS-BORDER SHOPPING IN POLAND AND IN EASTERN AND CENTRAL EUROPE
In Poland, like in other Eastern and Central European countries, where differences in commodity prices during the period of transformation depended on the rate of introduction of market rules in the economy, cross-border shopping was marked by a wide range of reasons and conditioning factors. It was observed that in the case of post-socialist economies undergoing transformation of their socio-economic and political systems there occurred specific conditions for the development of cross-border shopping which were characteristic of the given area. The most intensive cross-border shopping was observed at the meeting points of the developed and developing economies [6]. Two groups of factors affected those remarkably large price disproportions. The first group comprised differences in the systems of taxation, and these phenomena were identical to those existing in the developed countries of Western Europe and the U.S.A. The second group of reasons for cross-border shopping encompassed the phenomena which characterized only the Eastern and Central European region.

In addition, specific conditions for the development of cross-border shopping in Poland and other Eastern and Central European countries were reflected, for the most part, in the fact of co-occurrence in the same place and time of the two inseparable phenomena, that is to say cross-border shopping and smuggling (see Fig. 1). Cross-border shopping as well as smuggling take place in cross-border areas when travellers carry across the border the commodities they bought in a neighbouring country. The items bought, that are an element of cross-border shopping, may be brought across the border legally, even though field observations show that they are not always recorded; for example when residents of the separated towns on the Oder and Niese rivers cross the border with foodstuffs and necessities, customs officers and border patrols do not record those one-time purchases. Purchases are legal since cross-border shoppers carry the amounts which are accepted in customs rates, yet they are not recorded; they may be estimated, if need be. Some items purchased, however, are recorded, specifically technical appliances, construction equipment, building materials, etc. Smuggling, however, which also takes place at the border, concerns attempts at illegal and unrecorded transportation of goods across a customs frontier. It is entirely illegal.

At Polish borders, as well as at the borders of other Eastern and Central European countries, there are cases of the interlinking of cross-border shopping and smuggling. The well-known example of this trading in Poland is the phenomenon called 'mrówki' (in English – 'ants'), i.e. small-scale (petty) cross-border traders, consisting in border crossings repeated daily by one person to purchase goods in the amounts allowed by the tariffs and customs norms. This form of trading was observed with various intensity on all Poland's border sections throughout the entire period of transformation. For example, on the Polish southern border it ran in the following manner: in Slovakia and in the Czech Republic a much cheaper alcohol was purchased and carried across the border and then it was resold to Polish shopkeepers and wholesale stores located most frequently in a convenient place in the vicinity of the border crossing points. Although the carrying of alcohol and other goods across the border takes place using the current tariffs and customs norms, one should stress that the norms specified by the law are envisaged for a period of one month and that is why the phenomenon of petty traders, who are popularly called 'mrówki', should be viewed as illegal.

Like on the Polish southern frontier, one could observe the carrying of excise goods, i.e. cigarettes and alcohol, across the Polish-Russian border for the purpose of later resale. A more interesting example of bringing of small amounts of goods for the improvement of one's own provision and small-scale resale is the purchase of gasoline and other liquid fuels across the border. One could observe the refuelling in Poland by the residents of the cross-border districts of Germany and the import of gasoline by the residents of Poland's eastern neighbours, which was subsequently resold at the Polish bazaars located mainly in cross-border areas.

Sometimes it is difficult to make a clear-cut distinction between cross-border shopping and smuggling, and many researchers hold that cross-border shopping also consists of part of illegal foreign turnover carried out by the individual travellers at the border in connection with an unrecorded conveyance of goods. One should note, however, that there is a need to distinguish between these two phenomena which differ in character and consequences. The income acquired from the turnover within the framework of cross-border trade is included in GDP as a non-classified current turnover and the entities upon which cross-border shopping is based operate in a legal manner. Shops, bazaars or other posts of retail and wholesale trade display a larger turnover due to the occurrence of the phenomenon of cross-border shopping, which has a positive impact on the increase in the turnover of the entire trade sector, creation of new jobs, development of entrepreneurship and other similar phenomena. Smuggling, however, is an illicit and criminal activity which is carried out by omitting the trade chain. In Poland and in Eastern and Central Europe, with the opening of the frontiers and with a rise of the possibility of unrestricted movement of persons after the year 1990, the two phenomena grew in intensity.

RESULTS AND DISCUSSION

CROSS-BORDER SHOPPERS IN POLAND
Findings of the field observation of the border crossing-points, cross-border areas, and towns and villages located along the access roads to the border crossing-points and marketplaces in the territory of the country [7] show that two types of cross-border shoppers may be distinguished: (1) natural persons who purchase cheaper goods across the border in order to improve the living standards of themselves and of their families, and (2) natural persons who cooperate with other entities and who are commissioned to buy and sell for them (see Fig. 2). The field observation showed that the first of the above-mentioned groups was more numerous. The group included private persons, most frequently residents of cross-border areas, who carried certain amounts of commodities across the border in an unrecorded way in order to make savings in a family budget. Some persons in this group carried goods which were later resold by themselves or by their relatives (family members or friends).

The commodities they brought in were usually sold directly, for example in the place of their residence or in marketplaces and at bazaars. Cross-border shoppers of the second type distinguished on Polish borders were individual agents cooperating with corporate entities. This group encompassed private persons who carried goods not only for personal and family needs; they also brought in commodities ordered by other entities, both private persons and corporate bodies which sometimes operated illegally. Here is another example of how difficult it is to distinguish between cross-border shopping and smuggling, and, first of all, to disclose the activity which is contrary to the law.

CONDITIONS FOR DEVELOPMENT OF CROSS-BORDER SHOPPING IN POLAND: A MODEL APPROACH
In Poland and in the remaining Eastern and Central European countries the major reason for a dynamic development of cross-border shopping are great differences in the prices of commodities of similar use. Price differentiation is a reflection of the rate of introduction of the market rules into hitherto state-controlled economy [8]. However, political and social transformation which is under way, and the appearance of differences in the development of infrastructure cause that cross-border shopping is marked by a wide range of reasons and conditioning factors (Poweska 2008). In the article, the author has undertaken an attempt to systematize those reasons and conditioning factors. The main, basic and complementary reasons have been distinguished (see Fig. 3).

The basic reasons encompass the factors which permit a cross-border flow of goods and persons. As regards the former socialist countries which remained within the Soviet sphere of influence until 1989, this factor came into existence at the time of a wider opening of borders and lifting of the restrictions on cross-border movement, when formal barriers precluding contacts among residents of the particular countries were lifted. In addition to political conditioning factors, the basic reasons in the present model comprise the elements which, regardless of the country's political system, have an impact on the extent and intensity of the movement of people across the border and which are connected with the organization of movement and the manner of border crossing, provision of frontier infrastructure, mode of carrying out border checks, flow of information between countries and the like.

The basic reasons for the appearance of cross-border shopping in Poland and other Eastern and Central European countries are, like in other regions of the world, economic factors [4]. Together with the security of goods and persons they have been defined as the main reasons. Among the most important reasons are: differences in the level of economic development of the neighbouring countries, as well as differences in prices, tax systems, levels of market supplies, behaviour of large trading companies in the particular domestic markets, as well as disparities in production costs due to labour value and indirect expenses. As a result of the interplay and the chain of the above-mentioned factors, specifically in the 1990s, in the post-socialist countries transforming their economies one could observe even multiple differences in commodity prices and nearly tenfold disparities in population income (Germany – Poland, Poland – Belarus, Poland – Russia). Great income disparities, which were reported in the early 1990s, have now decreased, and yet they can still be observed. An issue of great importance for taking the decision to become involved in cross-border shopping is the security of persons and commodities, which could be observed on Poland's eastern border in the 1990s. Despite great disparities in the prices of goods, Polish residents, in fear of the security of their lives and the goods they purchased, rarely travelled across the eastern border. More frequently, those goods were brought to Poland by the residents of the neighbouring countries and were sold to the Poles for profit. Those were the activities bordering on cross-border shopping and smuggling and it was difficult to find out the extent and boundary between the two phenomena since it was practically impossible for an interviewer to penetrate into a group carrying goods due to its hermetic character. One should note, however, that this mode of transporting goods across the border was not always tantamount to smuggling since there were also cases of bringing goods in amounts allowable by the customs duty rates and norms.

The third group of reasons comprises factors which have smaller impacts on the emergence of the phenomenon of cross-border shopping, although they play an important part in its further development. In the present model they have been defined as complementary reasons. They include: (1) organization and environment of shopping, including the level of customer service, price flexibility, development of the sphere of services, forms of trade existing in the cross-border zone, opening hours of shopping centres, etc.; (2) technical, road and social infrastructure ensuring a good spatial access to trading activity; and (3) behaviour of the population, including entrepreneurship of both cross-border shoppers and persons involved in the selling activity, shoppers' readiness to start cross-border travel, and difficult inter-human relationships that may arise due to the operation under different social and political systems.

In practice, there is an interplay between the factors indicated and the groups of factors, thus making this phenomenon extremely dynamic and constantly evolving.

The complexity of the phenomenon of cross-border shopping has manifested itself in particular in a large number of administrative units located close to the border as well as in the areas located at a greater distance from the border, which are characterized, however, by good transport connections with the border crossing points. It was demonstrated, among other things, through the increase in intensity of trade at bazaars and in marketplaces and the emergence of a specific system of the supply of necessities, which was frequently used in particular by the lower-income population; that is why cross-border shopping was a phenomenon which played a very important part in the levelling of adverse effects of transformation in Poland and in other Eastern and Central European countries. Today, due to political changes related to the accession of some of those countries to the European Union and to the Schengen zone and due to decreasing economic disproportions the intensity of cross-border shopping in the region under discussion is declining.

CONCLUSIONS

The article examines some conditions influencing cross-border shopping in Poland and in Eastern and Central Europe during the period of transition from the centrally planed economy to the market oriented one. Three groups of reasons have been distinguished, among which economic aspects and security of commodities and persons were defined as the main factors, have the biggest effect on this phenomenon. The basic group were political and organizational factors, while the group of complementary factors includes elements such as: organization of trade, infrastructure, and behaviour of the population. The research also demonstrates that cross-border shopping in Poland and in Eastern and Central Europe has manifested certain special features which are characteristic of this region only. It is also worth stressing that in Poland and in Eastern and Central Europe cross-border shopping in the period of transformation was of greater social and economic importance comparing with other regions of the world (e.g. in Western Europe) due to a significant extent of poverty in cross-border areas of these countries.

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Accepted for print: 17.10.2008

Responses to this article, comments are invited and should be submitted within three months of the publication of the article. If accepted for publication, they will be published in the chapter headed 'Discussions' and hyperlinked to the article.