China’s ecommerce groups make inroads in South Korea with lure of low prices

South Korean diving instructor Park Soo-hong has been a customer of AliExpress, Chinese tech giant Alibaba’s online shopping service, ever since he went bargain-hunting for car parts five years ago.

The 54-year-old regularly compares the platform’s prices with South Korea’s dominant portal Naver and US rival Amazon. An oil level gauge he recently bought for Won86,000 ($64) on AliExpress was advertised for about Won540,000 on local online retail sites.

“Most products on these Chinese platforms are unbelievably cheap,” he said. “Delivery is slow, but I can put up with it if prices are 70-80 per cent cheaper.”

An increasing number of budget-conscious South Koreans are turning to Chinese online marketplaces such as AliExpress and Temu as China’s biggest ecommerce companies aggressively expand abroad amid weaker domestic consumption. The China-founded fast fashion group Shein is also making inroads.

Their breakthrough in a country that has led in high-speed internet connectivity and creating a mature, digital-savvy consumer is a worrying development for incumbents in the world’s fourth-largest ecommerce market. It is worth nearly Won200tn, with almost half of the country’s retail spending made online, according to Euromonitor International. South Korea also has the world’s second-highest level of online spending per capita after the US.

Purchases from Chinese platforms surpassed those from US competitors including Amazon for the first time last year. One in four South Koreans now use Chinese sites, raising concerns among local players.

“They are growing faster than expected here, selling products at rock-bottom prices,” said Lee Seung-jin, a spokesperson for South Korea’s leading fashion platform Musinsa. “We are worried that we may lose our market share. There is not much we can do about their volume offensive, which is threatening.”

AliExpress and Temu, the low-priced marketplace owned by China’s PDD Holdings, were the fastest-growing online retail platforms for South Korean consumers last year, although they still trail the dominant player Coupang, a South Korean company despite being listed and domiciled in the US.

Chinese ecommerce players have been pushing into overseas markets as growth sputters at home, undercutting the competition abroad with cheap Chinese goods. Temu, which only launched two years ago, has muscled into new territories with an aggressive marketing campaign and heavy subsidies to attract users and merchants to the platform.

Temu told the Financial Times its “entry into Korea offers consumers quality, affordability and a wealth of choices”, adding: “Shoppers gain direct access to top manufacturers, avoiding the mark-ups imposed by middlemen.”

Analysts noted that AliExpress was enticing South Korean companies to sell on its platform with a “zero commission” offer until the end of March, meaning they did not have to pay the 10-20 per cent on sales usually charged by ecommerce platforms.

The Chinese company is also offering “delivery guarantees” for South Korean consumers and quicker delivery times by expanding warehouse capacity in China’s eastern Shandong province, which is close to the Korean peninsula.

“We are an emerging player in the South Korean ecommerce space, devoted to offering South Korean brands and SMEs access to expanded markets, and local shoppers [a] diverse choice of quality products,” AliExpress said in a statement.

Wi Jong-hyun, a business professor at Chung-Ang University in Seoul, said: “Our ecommerce market will likely come under China’s control as Chinese product quality has improved in recent years and their prices get lower with economies of scale. You can’t win a price war with China.”

But some analysts said such concerns were overblown. Angela Hong, an analyst at Nomura in Seoul, noted that “most Korean purchases on Chinese platforms are confined to the low-priced product category”. Chinese sites account for only about 2 per cent of South Korea’s ecommerce market in terms of gross merchandise value, according to Nomura estimates.

AliExpress Korea has also been dogged by complaints over late deliveries and the wrong products being sent, as well as concerns about counterfeits on the platform.

The Korean Fair Trade Commission is looking into the alleged lack of consumer protection from AliExpress. In addition, the country’s personal data protection watchdog is investigating consumer data processing by major overseas shopping platforms, after a parliament audit last year raised concerns over potential personal information leaks to China through AliExpress and Temu.

Alibaba plans to invest $1.1bn over the next three years to build a logistics network in South Korea in order to shorten delivery time, according to Korea’s state news agency. Alibaba also announced a string of consumer protection measures in the country including setting up a call centre, after the Korean authorities said the country’s ecommerce laws would apply equally to Chinese platforms.   

While AliExpress has said it will spend Won10bn over three years to screen for counterfeits using artificial intelligence, many South Korean consumers still only trust the Chinese platforms for a limited range of items.

“I would never use a Chinese platform to buy products to eat or apply to my body because of health concerns,” said YS Chung, a 23-year-old university student who uses AliExpress to buy low-end electronic parts such as smartphone cases, chargers and electric cables.

On the regulatory front, new antitrust rules being considered to improve competition are creating concern among some South Korean platforms. They fear the market’s biggest players would be targeted, allowing Chinese rivals to expand their market share.

Sunny Moon, research manager at Euromonitor International, said it would take a long time for the Chinese platforms to increase their share at the higher end of the market. “The Chinese companies are now sacrificing margins to build a user base here,” she said, “but how long can they maintain such a business model?”

She added that if Alibaba were to move into the South Korean wholesale market, “it would deal a blow to many small Korean merchants who source their cheap products in China and resell them on Korean online marketplaces”.

Additional reporting by Eleanor Olcott in Hong Kong

Video: The rise of Pinduoduo and Temu: profits and secrets | FT Film

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