AliExpress and Temu are suppressing South Korea with low prices, and local e-commerce companies are panicking

On March 25, the Fair Trade Commission (FTC) of Korea announced that it would set up a special inspection team to conduct an in-depth investigation of the domestic e-commerce market. Starting from March 26, the team will launch a four-week comprehensive research plan to fully understand the market landscape.

Xiang Zhuang dances with a sword, aiming at Pei Gong. The Korea Fair Trade Commission is targeting Chinese cross-border e-commerce platforms such as AliExpress and Temu.

It is reported that after Chinese e-commerce platforms such as AliExpress and Temu entered the Korean market, their sales increased by more than 130% in the past six months. Currently, one in five Koreans is using Chinese cross-border e-commerce apps.

The South Korean government began to worry that Chinese e-commerce platforms would gradually erode the market share of local e-commerce platforms such as Coupang and Naver, and launched a number of investigations in an attempt to suppress the rising momentum of Chinese cross-border e-commerce.

Under such heavy pressure, how should Chinese cross-border e-commerce giants, led by AliExpress and Temu, respond?

As emerging e-commerce markets such as Southeast Asia, Asia, Africa and Latin America are rising, South Korea has quietly become the world's fourth largest e-commerce market.

Relevant data shows that in 2022, there will be about 40 million online shoppers in South Korea, accounting for about 80% of the total population. Online shopping has become one of the daily consumption habits of most Koreans. The scale of South Korea's e-commerce market is about 160 billion US dollars, which is comparable to the entire Southeast Asia. However, compared with Southeast Asia, which is a decentralized market with multiple countries, multiple islands, and multiple languages, South Korea, as a centralized market with a unified language, has greatly reduced the difficulty of entering.

▲ Image source: GlobalData

As a mature e-commerce market, South Korea's mobile Internet is highly prosperous, the logistics industry is developed to the point of involution, e-commerce platforms and independent websites are flourishing everywhere, and no large-scale comprehensive e-commerce company can dominate. For foreign e-commerce platforms, this is both a paradise with mature conditions and a hell of competition.

However, in the global map of China's cross-border e-commerce, South Korea, which is close at hand, still has considerable room for growth.

South Korea has a small geographical area, and local materials are relatively scarce, so it has long relied on imports. Under this circumstance, overseas shopping has become one of the long-term consumption habits of Koreans.

In my opinion, South Korea and China belong to the Southeast Asian cultural circle, share similar cultures, and have many similarities in consumers' aesthetic preferences and living habits. The products on the Chinese market are almost "seamlessly connected" with the popular trends in South Korea, and can accurately meet the needs of the South Korean market. This has virtually lowered the market entry threshold, making it easier for Chinese products to gain recognition in the South Korean market. In addition, China and South Korea are geographically adjacent, and it only takes a few hours for a cargo ship to ship goods from Weihai's overseas warehouse to South Korea, making logistics extremely convenient.

South Korea will undoubtedly play a pivotal role in the global development of China's cross-border e-commerce. The frequent actions of Chinese cross-border e-commerce platforms such as AliExpress and Temu, which continue to increase their presence in South Korea, seem to have verified this idea.

South Korea is experiencing a "Made in China" craze.

According to the latest data released by the Korea National Statistical Office on February 1, in 2023, China surpassed the United States for the first time and became South Korea's largest source of cross-border e-commerce imports.

Earlier, according to Korean media reports, South Korea's cross-border e-commerce imports in 2023 will reach 6.75 trillion won. Among them, China accounted for 3.28 trillion won (about 17.1 billion yuan), a year-on-year surge of 121.2%, accounting for 48% of South Korea's total cross-border e-commerce imports. In the same period, cross-border e-commerce imports from the United States amounted to 1.85 trillion won, a year-on-year decrease of 7.3%, and the market share was reduced to 27%.

Under this trend, Chinese e-commerce platforms, led by AliExpress and Temu, have been making great strides in the Korean market.

Data shows that as of March 2024, AliExpress has 8.87 million monthly active users, surpassing a number of Korean local e-commerce platforms such as 11Street, Gmarket, and WeMakePrice, and has successfully become the second largest e-commerce company after South Korea's Coupang.

Temu is also accelerating its expansion in South Korea. Since entering the South Korean market in July last year, Temu has continued to increase its investment and recently established an office in Seoul, South Korea. As of February 2024, Temu has 5.81 million users in South Korea, ranking fourth among South Korean e-commerce shopping apps.

▲ Image from Wiseapp Retail Goods

In fact, there were early signs that Chinese cross-border giants such as AliExpress and Temu would see a surge in market share in South Korea.

As early as the Double 11 shopping event in 2022, AliExpress topped the list of shopping apps in the Korean App Store. As soon as Double 11 ended, a large number of overseas packages flooded into the customs. The Korean Customs Service had to set up 6 special teams to support local customs and work overtime at night and on weekends to handle import and export business. Since then, Koreans have experienced what "Double 11 warehouse explosion" is for the first time.

▲ The picture comes from Guanchazhe.com

The 2023 Double Eleven shopping festival also allowed AliExpress to break records again. According to statistics from Wiseapp Retail Goods, a Korean application software analysis service provider, in October 2023, the number of AliExpress users in South Korea soared to 6.13 million, surpassing the old Korean shopping website GMarket to become the third largest e-commerce platform in South Korea.

Today, Chinese cross-border e-commerce platforms such as AliExpress and Temu are relying on China's high-quality industrial supply chain and are expanding aggressively in South Korea with strategies such as ultra-low prices and free shipping, launching a dimensionality reduction attack on Korean e-commerce platforms.

With the support of China's cross-border e-commerce platforms, more and more "Made in China" products are selling well in South Korea.

Data released by the Korea Customs Service on March 28 showed that the total value of goods directly purchased by South Korea from China in 2023 reached US$2.359 billion, a year-on-year increase of 58.5%; the number of imported goods increased by 70.3% year-on-year to 88.85 million pieces.

At the same time, under the fierce offensive of Chinese cross-border e-commerce companies, South Korea's local e-commerce platforms seem to have felt unprecedented pressure.

Relevant surveys show that nearly 70% of South Korean retailers say they feel a sense of crisis due to the rapid expansion of Chinese e-commerce platforms, and 80.7% of South Korean small and medium-sized enterprises have been affected by China's cross-border e-commerce platforms and have shown signs of declining sales.

In response, the Korea Federation of Small and Medium Enterprises (KBIZ) warned: "If the government fails to intervene in time to export deflation from China through cross-border e-commerce platforms, it is likely to trigger a domino effect of collapse, with daily chemical product manufacturers with limited financial capacity bearing the brunt first, and eventually radiating to all small and medium-sized enterprises."

Under this circumstance, the South Korean government took action.

Since the beginning of 2024, the South Korean government has frequently sent signals to strengthen supervision of e-commerce platforms such as AliExpress and Temu.

▲ Image from Business Korea

On March 25, the Fair Trade Commission (FTC) of Korea announced that it would set up a special inspection team to investigate AliExpress’s suspected violations of consumer protection regulations.

On March 26, Temu and many other cross-border e-commerce companies received a notice from the Korea Fair Trade Commission (FTC), requiring foreign e-commerce companies operating in Korea to designate agents in Korea to be responsible for consumer damages, dispute resolution and investigation in accordance with relevant domestic laws.

Recently, there was news that South Korea’s data protection regulator will launch an investigation into the data security of platforms such as AliExpress and Temu.

There is no doubt that the Korean market's compliance requirements for cross-border e-commerce are constantly tightening, which will be a huge challenge for Chinese cross-border e-commerce.

Behind this series of policies is actually the South Korean government's helpless move due to the restructuring of the global industrial chain caused by the upgrading of China's manufacturing industry.

After decades of development, China's manufacturing industry has transformed from labor-intensive to technology and capital-intensive, especially in the fields of electronics, home appliances, food, etc., which have a high degree of overlap with South Korea's industries and form a direct competitive situation.

The rise of China's cross-border e-commerce has undoubtedly accelerated the pace of China's high-quality products pouring into the Korean market, which has had a huge impact on Korea's local manufacturing and retail industries. The survival space for local companies has once again been compressed.

In this regard, Kim Min-seok, head of the KCCI retail policy department, said that since it is difficult for local companies to find countermeasures to cope with the rapid development of Chinese e-commerce platforms in South Korea, government support policies are imminent.

In this light, it is not difficult to understand why the South Korean government has frequently tightened compliance requirements for Chinese cross-border e-commerce and even launched a number of investigations.

It is undeniable that in the short term, Chinese cross-border e-commerce companies may face stricter regulatory scrutiny and higher tax costs in South Korea, and their business expansion may slow down. But in the long run, this will force Chinese cross-border e-commerce companies to improve service quality, gain a deep understanding of and comply with local laws and regulations, and achieve deep integration with the South Korean market.

Looking back at the recent "TIK TOK ban storm", it is not difficult to see that the challenges faced by Chinese cross-border e-commerce platforms overseas are just a microcosm of the many complex factors intertwined in the context of globalization. How to find a mutually beneficial and win-win solution on the basis of protecting each other's interests will be a challenge and opportunity that Chinese cross-border e-commerce platforms must go through in the process of globalization.