Concerns mount over AliExpress triggering price war among logistics, retail firms in Korea

 

Korea’s logistics and retail firms are feared to fall victim to what appears to be an incessantly growing influence of AliExpress and Temu, as the Chinese e-commerce firms could leverage their dominant clout to the detriment of local partners and customers, according to industry insiders.

Many critics perceive the outlook as inevitable, as most market-controlling players exert significant pricing power when negotiating with their partners. In numerous instances across various industries, these players demand that their partners lower the unit prices of supplied items or services, often threatening to sever business ties unless the partners comply with the requirements set by dominant platform firms.

In a significant development last month, Alibaba Group, the parent company of AliExpress, announced its intention to invest $1.1 billion (1.5 trillion won) in Korea, aiming to bolster its presence in the region. As part of this initiative, the company plans to establish a logistics center and provide support for Korean sellers to expand their sales abroad.

The vision looks meaningful at first glance as the foreign company is investing a huge fund in Korea. But local platforms remain vigilant over the capital-powered expansion strategy by AliExpress, which could trigger a price war between local logistics and retail companies.

As of now, CJ Logistics stands as the primary delivery partner for AliExpress, following a contract signed by both parties in 2022. The CJ affiliate manages 80 percent of AliExpress's deliveries in Korea, with other players such as Hanjin Logistics and the state-run ePOST covering the remainder.

But the landscape may undergo drastic changes once the Chinese firm expands its presence further, according to officials in the industry.

“If AliExpress continues to widen its user base and becomes an irreplaceable player here, its delivery service contract will be put on a bid, which will trigger competition among local logistics firms to cut prices for their services,” an official at a retail firm here said, asking for anonymity.

The greatest concern is that Korean firms may ultimately be influenced by the growing power of foreign capital, according to the official.

A spokesperson for AliExpress Korea told The Korea Times that no decision has been made regarding whether to initiate a bidding process for the contract in the near future, declining to elaborate.

Experts also voiced concerns that the aggressive expansion of Chinese companies in Korea could potentially impede healthy competition within the parcel delivery service industry.

A Coupang worker moves parcels at a logistics center run by the e-commerce firm in Seoul, Feb. 28. Yonhap

"Mid- to small-sized players will end up being kicked out of the market much faster than before because the Chinese platforms' expansion is expected to accelerate," Park Jin-hee, a professor of transportation and logistics planning at the Korea Maritime & Ocean University, said.

The greater issue lies in the challenge posed by a foreign firm, which is difficult to regulate under the current legal system here, according to the expert.

"We also cannot dismiss the possibility that AliExpress may demand parcel service firms to lower their service fees as it gains more influence here,” Park said.

Others in the industry have also noted that it's not just logistics, but retail firms as well that will feel the impact of the increasing influence of AliExpress, for similar reasons.

“In 2022, CJ terminated its partnership with Coupang after expressing disagreement over the online platform's demand to reduce the unit price of supplied items,” another official at a Seoul-based retail firm said.

AliExpress is extending a friendly gesture to major food and cosmetics companies in Korea, such as CJ CheilJedang and AmorePacific, encouraging them to sell their items on its online platform.

“AliExpress is investing significant resources to attract as many partners as possible, aiming to entice more Korean customers during its initial expansion phase. But it remains doubtful whether the Chinese platform giant will sustain this approach without pressuring Korean firms to reduce the unit prices of supplied items,” the official said, refusing to be named.

As part of its key growth strategy to lower sales prices and attract more customers, AliExpress currently does not charge any sales commission to its sellers. The company has also pledged to continue this no-commission campaign until June.

Some industry experts also argue that AliExpress's investment plan may have a limited impact across the industry, as the amount allocated may not be sufficient to establish diverse logistics facilities nationwide.

"It took almost a decade for Coupang to build its super-fast delivery service across the nation by setting up a number of logistics centers following trillions of won in investments," an official at an e-commerce firm here said. "AliExpress will not be able to emerge as an influential player in the logistics industry simply due to the latest investment plan. We need to wait and see whether the company will keep expanding investments down the road."

A recent poll conducted by the Korea Federation of SMEs revealed that the majority of small business owners in Korea perceive their operations to be threatened by the swift expansion of Chinese platforms. This threat largely stems from the price competitiveness of these platforms, which is often enabled by tax benefits offered to foreign direct purchases in Korea.

More than 53 percent of the surveyed 320 small- and medium-sized companies indicated that Korean firms are losing price competitiveness against their Chinese rivals due to tax benefits. In Korea, no taxes are charged for each foreign direct purchase worth less than $150, with no limit on the annual accumulated purchase. In contrast, China imposes stricter rules, taxing any foreign direct purchases when their accumulated value exceeds 4.8 million won each year.