Korea's e-commerce market under siege by AliExpress, Temu

 

By Lee Min-hyung

• Published Apr 7, 2024 4:54 PM KST
• Updated Apr 8, 2024 10:47 AM KST

Chinese e-commerce companies are posing a growing threat to Korea's retail ecosystem, as their Korean counterparts lose price competitiveness due to the ultra-low pricing strategy of Chinese players.

Besides price competitiveness which is backed by the enormous amounts of capital they possess, Chinese companies enjoy less strict regulations here than their local rivals according to the applicable laws and thus, have advantages in expanding their business here. This has led to calls from local e-commerce platforms for the government to introduce appropriate countermeasures.

In recent years, Chinese companies, including AliExpress, Temu and Shein, have exponentially expanded in Korea.

According to data from market tracker, Wiseapp Retail Goods, AliExpress is the nation’s second-most visited e-commerce platform with monthly active users (MAU) registering at 8.87 million in March, up 114 percent from a year earlier. The MAU of Temu soared to 8.29 million, up 1,508 percent since August last year when it started offering its services here.

Coupang, the unwavering leader in Korea's e-commerce market, kept its top spot but its MAU as of March, 30.86 million, was only 5 percent up from the previous year.

The robust growth of AliExpress is driven by its cheaper product sales strategy than its Korean counterparts. For example, Maxim Mocha Gold instant coffee sells at $30.51 (41,000 won) for 360 packs on AliExpress, but the same product is priced at 47,200 won on Coupang.

For this reason, Coupang and a group of other local retailers such as Shinsegae and Lotte, are paying close attention to the rapid rise of Chinese e-commerce firms here.

“The influx of Chinese low-priced products is weakening the competitiveness of Korean firms,” said Jun Bo-hee, senior researcher at the analysis & forecasting department of the Korea International Trade Association.

Experts say the current relevant regulations are rather favorable to the Chinese newcomers than Korean companies.

“Many global platform firms are not obliged to abide by several domestic laws – such as rules on corporate tax – because of legal loopholes, so local firms face reverse discrimination when doing business here,” Lee Yang-kee, professor of international trade at Pusan National University, said.

Some also raise the possibility that the Chinese companies may adopt a strategy used by other global firms: opening a limited or limited-liability company here. This allows them not to provide public notices on their sales, revenues and dividend plans, so there's no legal way to grasp their exact sales and revenue performance although many such companies release dubious sales data here. Korean counterparts argue this is reverse discrimination, as they have to pay an enormous amount of corporate taxes and other taxes transparently under the local acts.

"We do not have to release any official earnings data since it has been less than a year after we set up a branch office here," a spokesperson at AliExpress Korea told The Korea Times.

Experts and industry insiders warn that these legal loopholes threaten to erode the foundation of fair competition, leaving Korean firms vulnerable as the primary casualties in the face of expanding Chinese e-commerce giants.

In response, the government is stepping up regulatory pressure against the Chinese firms by establishing a task force to monitor any illegal acts conducted by them here. The Fair Trade Commission is also moving to introduce a regulatory measure by mandating them to designate local agents who can respond promptly to any customer complaints here.

However, experts said that this is not enough to put the brakes on the growth momentum of Chinese players here.

“The Korean government and regulatory authorities cannot slap tighter sanctions just like those from the European Union, due to Korea’s strong trade reliance on China,” Lee at Pusan National University said. “There stands a possibility that the Chinese government offers subsidies to AliExpress and other platforms, so they can tap deeper into the Korean market until they can exhibit dominant influences.”

Some urge the government to revise rules on foreign direct purchases, in a bid to protect local firms and slow down the rapid inroads of cheap Chinese products here.

“Korea has lax taxation rules on individuals’ foreign direct purchases,” Jun at the trade association said. “Korea charges taxes for each foreign direct purchase worth over $150. But there is no rule as to accumulated annual purchases, so individuals can engage in a buying spree of Chinese imported products, which is not the case for China. The country has a tighter rule of imposing taxes on any foreign direct purchases whose accumulated value tops 4.8 million won each year.”

Others call for the need to toughen tariffs.

“AliExpress will start charging service fees to customers after expanding its user base here with its super-cheap sales strategy,” Kim Dae-jong, professor of business administration at Sejong University, said.

“My suggestion is to impose more tariffs on Chinese goods,” the professor said. “If we leave the status quo unchanged, more Korean companies will fall prey in the end.”

Industry officials say Korea should also focus more on easing complex regulatory hurdles against local players, rather than taking steps to tighten regulations on Chinese companies.

“If we step up regulations on foreign firms, this may create a side effect in other parts of the industry or even diplomatic circles,” an official at a major retail firm here said on condition of anonymity. “A more realistic countermeasure is to deregulate existing rules on Korean e-commerce firms, so they can gain more competitiveness amid the escalating rivalry against the Chinese platforms.”