Comment by alexchamberlain
11 years ago
>> Backpack is a company that arbitrages the cost of goods in different countries by using international travelers as a distribution network
I don't understand this one - with a world focused on security and import taxes, how does this work out?
I love how you can start a smuggling organization (from the description, it's just that, this is not even legal gray area bullshit, it's legally black) and call it a "disruptive startup" these days in Silicon Valley AND get funded by YC, I mean, what the actual fuck?
No kidding it's a $16 billion market in China alone, that's why people risk on getting EXECUTED to be in the smuggling business.
Edit: this is from their site, they call themselves the "only peer-to-peer platform that gives you access to the global market."
I actually bursted out laughing when I read it, I should start a money laundering service and call it the "only secure platform that unlocks the full potential of your earnings"
I remember reading one PG's essays a while ago that concluded
1. YC should fund riskier startups
2. Many good ideas sound bad at first.
Funding a criminal smuggling operation seems to fit both criteria.
Free idea for the next batch (or pivot!): often non-US citizens will be willing to work for lower wages in difficult jobs than US citizens. Why not match them up with people who are already driving across the US border, who can help get them in the country?
Here's the link: http://paulgraham.com/swan.html
Many great ideas do sound bad at first, but that's not remotely the same as "all bad sounding ideas are great ideas in disguise".
Breaking the law seems very much the modus operandi of Silicon Valley startups these days. Just look at AirBnb, Uber, Lyft, Aereo, 23andMe et al.
And rightfully so. Some laws exist to protect the consumer. Most laws exist to extort money and funnel it to a very specific group of people.
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Agree with your comment, but an inundation of these type of comments on HN in the past seem like a very good indicator that the company will succeed to the tune of multi-billion$ valuations.
This is actually quite astute. The problems with ideas like Backpack are obvious, but there is probably a safe way to address all the concerns with the right approach.
Personally I would never use Backpack after reading about people who unknowingly took a package to another country that had drugs and spent years in jail despite their ignorance.
However, if somehow there is a way to do this legally and still capitalize off arbitrage. For example, maybe brands have different MAP pricing in different countries, and even with paying taxes and securing the items, there is a gray market opportunity to exploit.
The simple reality is that this is done on a daily basis already, so finding a way to do it at scale in a legal way has massive potential.
If I was YC, I would consider investing a few bucks to try to tackle this problem knowing that there are hurdles to overcome and some creativity required to make it work.
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In Brazil we have a startup with the exactly same model (www.cabenamala.com.br).
First of all, the math used in the example only makes sense if the individual bringing the laptop doesn't pay the taxes forit. At least in Brazil, this is illegal. Even if you are bringing a laptop for personal use, you must pay some high taxes (~50%). Cabe na mala says in its pitch that all travelers pay the according taxes.
But the difference between USA and Brazil prices are so big that even with the taxes, it makes sense. The cost comes down from mainly two factors: distribution and price strategy from the manufactors. For distribution, a traveler in need of cash might be very cheap to carry a laptop back home. And as price strategy, Sony, Apple and others often position their products as a more "premium" product in Brazil than in USA. So in Brazil you are paying an extra for the brand, for the privilege, for the luxury of having an iPhone or a PS4.
EDIT: For clarifying, i used "we" in the sense of our startup community, as a brazilian or seomthing like that. I am in no way related to this startup, I don't even know the founders. Just listened a pitch from them.
I think a lot of us have been mostly concentrating on Electronics that are easily caught by customs:
Here are a few more things that dont fall into the bucket:
from http://www.techetron.com/11310/backpack-a-new-startup-in-tow...
Ever dreamed owning an original Bob Dylan autographed poster which you see auctioned at eBay? Ever gasped why eBay or Amazon products don’t get shipped to your country? Ever wondered how cool it would have been if you could hold first edition Harry Potter books right after they got published? What about having original jersey of your most favorite superstar?
Many airports only do spot checks on bags and they're specifically looking for their own citizens smuggling locally-expensive luxuries in by the suitcase.
This will be a short-lived company because if you have a significant volume of stuff you don't declare you will either be taxed on the spot or arrested. If you have a discrete amount of stuff then you'd need eg, 5 or 6 people to fulfill an order for 10 iphones, and if 1 of them eats a $1000 customs bill the entire order approaches worthless.
Hmm.. You are right though. Here is an implicit Premise that this works on & and its not being declared verbally.
- "The way airports works in these destinations" - Customs officials don't stop and question everybody ; in most cases - if you are dressed well and speak respectfully , they let you go.
- I have heard Mumbai and Bangalore Customs officials could be unyielding at times ; they stick to the rule book and levy all taxes if caught . Not the case for other airports in India ;
- I m not sure about airports in Bangladesh ; Thailand ; Nepal ; Sri Lanka ; Malaysia and Indonesia - I guess the founders do have a certain insight into how these airports work.
It is encouraging illegal activity, though, correct?
Yes. The entire purpose is to save money by not paying taxes on items by illegally not declaring those items when you enter a country.
It may break US exporting laws and embargos, or international laws too. It's almost certain the founders and everyone near them is going to end up arrested and probably imprisoned like any other smuggling organization.
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This is really interesting -- I had the exact same reaction as the majority of the responses to this comment.
Ignoring the tax issue for a moment, I would expect the arbitrage to fluctuate with shipping costs and currency valuations, which is really interesting.
But unfortunately, it's really difficult to ignore the tax issue. In particular, China and the United States are sticklers for this, and getting caught smuggling a high priced item (I forget the threshold) won't be viewed as innocent arbitrage by customs.
This model would work equally well for drugs and human trafficking, so I would assume that most governments will/should have a problem with this form of tariff evasion.
Note: I'm not trying to imply that the founders have anything but the best intentions here. I'm simply pointing out that the very existence of a viable distribution network such as this might be of concern for authorities.
Basic rule of thumb: If your startup's profit model is based off completely screwing over the governments around the world, then even in the ever so small chance it's not illegal everywhere yet, it will be very soon.
Furthermore, it looks like the traveler takes on all the risk for damage/theft during transport.
Even with the risks and paying all applicable duties, there should be some products where this idea can help to cap the maximum-possible regional differential pricing schemes; the invisible hand made visible.
> with a world focused on security and import taxes, how does this work out?
Pretty much like Airbnb -- do it till someone notices and hope that you're big enough by then to fight back.
Backpack is basically a network for tax evasion and smuggling stuff. sounds ... fishy.
Airbnb is also a network for (hotel/business) tax evasion too.
I think you are over simplifying the complexities involved with this analogy . Backpack seems to break a lot of laws explicitly. I would rally love to see what the founders have researched about different destinations and airports.
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well at least in germany you are supposed to declare this income. but that is the same with any form of rent that you gain based on your property. so it doesnt matter if i rent out a property that i own for the whole year via a classified ad in the newspaper or for 1 week via airbnb.
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I'm pretty sure bringing new goods with the intention of selling need to pay taxes in many/most countries, I wouldn't put my name/face as a testimonial on this site.
Hah! I had the exact same idea. I created a landing page, posted it on HN and asked:
1. "Is my startup idea legal?" https://news.ycombinator.com/item?id=7166333
Interesting discussion ensued. Read more about my tiny non-existent precursor to Backpack :) I am so intrigued by the fact that they actually went ahead, launched and executed! Hats off. I never progressed beyond just thinking about it.
The founders are from Bangladesh, where this is becoming a very common practice, although the practice is rather informal. Usually you'd ask your friends and family to find out if anyone they know will be traveling from US to Bangladesh and then you ask them to buy whatever you want.
In the last two years I have also seen facebook groups pop up to expand the network beyond family and friends so its incredibly smart of them to formalize the process and make it more accessible to everyone.
While it's technically breaking the law, its no more so than AirBnb and Uber/Lyft. And the demand is just as high if not more.
"While it's technically breaking the law, its no more so than AirBnb and Uber/Lyft. And the demand is just as high if not more."
That's is absolutely not correct. Please do not compare individual countries' custom law to your local city's taxi law or hotel code. Lying on custom declaration form is an imprisonable offense in most countries.
When it's an informal practice it works because it's hard to prove and there is no paper trail. But when it's a real company doing the service all the customers data has a paper trail to it with financial records for each transaction, involving the monetary amount paid by the customer, received by the carrier, earned by the company, etc. It's literally a prosecutor's wet dream.
At least in China, these kind of organized smuggling rings do exist, but they exist very much underground with no paper trail, because if caught, the ring leaders (founders of Backpack in this case) would be subject to from prison terms to execution depends on the amount of tax they evaded.
You are right. I suppose I meant to say its no more unethical (in my opinion) than Airbnb or Uber.
Besides the point already made about "avoiding taxes" the other big problem is that this service is perfect for... drug traffickers; so yeah, I don't give it more than 3 months before they pivot.
Also, a lot of airports ask you directly if you are carrying something as a favor for someone else; so "backpack" has to tell its users to lie about it, otherwise the item gets confiscated.
- Well,I have a partial understanding of this. Its typical for people travelling back to South East Asian countries to buy stuff that are super expensive there ( like mentioned in the original explanation , MacBooks are expensive ; Xbox , Playstations , Premium Watches , Booze (due to local taxes) ; mostly electronics and high end fashion stuff.
- With respect to import taxes : You wont be stopped by the customs unless you are carrying a crazy amount of electronics ; Like if you carry a couple of laptops - and justify it as one for personal and one for work ; they let you go. With respect to this service , I guess its upto you to be cautious & decide how much to carry.
- And there are a lot of Duty free airports; And the purchase made at Duty free airports are mostly overlooked at the destination airport.
What you've pointed out is what people do, but not what they are theoretically allowed to do :)
Transporting a MacBook, Xbox, PS4, etc. from the United States back to a South East Asian country (as you suggest), is illegal. For the casual traveler there probably isn't a great risk, since they can always claim it was an accident. But for the recurrent backpacker, the risks are potentially higher.
you dont know the german BGS ... if you dont have a receipt for anything electronic that doesnt look like its 5 years old you are basically fucked. additional to the tax you have to pay you get a hefty fee because its treated as tax evasion. you can do a lot of stuff ... but not tax evasion.
Hmm .. This is expected though! The customs in developed countries are far more stringent . But I m not sure if this is targetted at European customers at all . Is the price difference between USA and Europe big enough for any one to try this service ?
But thats not the case in developing countries. Products priced at an affordable cost in USA , could be insanely expensive in developing countries.
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If backpack's team is crazy, many more are crazy as you check out our non exhaustive list http://blog.piggybee.com/2014/08/delivery-by-travelers.html
It seems most of the answers and discussion here revolve around "smuggling" good which are available in both countries. What about goods which are only available in the country of origin? For example, there's a lot of Godzilla and other niche toys only available in Asia which I would love to add to my collection. I don't see why these toys aren't available in the US besides the market size.
I don't see why Backpack would be a "smuggling ring" at that point.