{"id":2205007,"date":"2024-05-07T16:35:24","date_gmt":"2024-05-07T07:35:24","guid":{"rendered":"https:\/\/koreapro.org\/?p=2205007"},"modified":"2024-05-08T14:30:45","modified_gmt":"2024-05-08T05:30:45","slug":"how-chinese-e-commerce-giants-are-disrupting-the-south-korean-market","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/05\/how-chinese-e-commerce-giants-are-disrupting-the-south-korean-market\/","title":{"rendered":"How Chinese e-commerce giants are disrupting the South Korean market"},"content":{"rendered":"

Chinese e-commerce platforms, particularly Temu and AliExpress, have gained significant market share in South Korea since last year by offering a wide range of products at competitive prices and employing aggressive marketing strategies.<\/span><\/p>\n

Their entry has the potential to shake up the ROK\u2019s competitive e-commerce industry, at least initially expanding the range of consumer choices and driving down prices.<\/span><\/p>\n

But the rapid rise of these Chinese companies has also raised an array of concerns \u2014 from fears about unfair competition and product safety to possible misuse of customer data \u2014 increasing pressure on the government to take regulatory action that could upset relations with Beijing.<\/span><\/p>\n

DOMESTIC E-COMMERCE CHALLENGES<\/b><\/p>\n

Temu<\/span><\/a>, which entered the South Korean market in July 2023, has seen its monthly active users (MAU) surge from 6.3 million in March to almost 7 million in April. Similarly, <\/span>AliExpress<\/span><\/a> has witnessed a substantial increase in its MAU, reaching almost 9 million in March, up from 7 million in January.<\/span><\/p>\n

This rapid expansion has <\/span>increased competition<\/span><\/a> for domestic retailers and e-commerce companies like Coupang, 11st and G Market, putting them at risk of losing parts of their customer base.\u00a0<\/span><\/p>\n

In March, Temu and AliExpress surpassed the MAU of all domestic e-commerce platforms other than market leader Coupang, which has about 30 million MAUs.<\/span><\/p>\n

Moreover, the aggressive pricing strategies employed by Chinese e-commerce platforms have put <\/span>downward pressure<\/span><\/a> on prices and profit margins for domestic retailers. As consumers increasingly opt for the lower-priced goods offered by Temu and AliExpress, local businesses may be forced to reduce their prices to remain competitive.<\/span><\/p>\n

The expansion of Chinese e-commerce platforms also risks disrupting existing supply chains and partnerships within the domestic e-commerce sector. As these platforms gain a larger market share, they may leverage their position to negotiate more favorable terms with suppliers, potentially displacing existing relationships between domestic retailers and their partners.<\/span><\/p>\n

Further, the increased competition and pressure on profit margins could lead to business closures and job losses within the domestic e-commerce sector. Smaller platforms may be particularly vulnerable, as they often lack the resources and scale to compete effectively with Chinese platforms.<\/span><\/p>\n

This could result in a consolidation of the South Korean e-commerce market, with fewer domestic players able to survive in the face of intense competition from Temu and AliExpress.<\/span><\/p>\n

\"\"

An illustration depicting online shopping | Image: Korea Pro<\/em><\/p><\/div>\n

AGGRESSIVE MARKETING STRATEGIES<\/b><\/p>\n

Chinese e-commerce platforms have employed <\/span>aggressive marketing tactics<\/span><\/a> to rapidly expand their presence in the South Korean market. For instance, Temu has offered discounts of up to 90% on some products, significantly undercutting the prices of domestic competitors.<\/span><\/p>\n

Extensive advertising and promotional campaigns have also played a crucial role in the growth of Chinese e-commerce platforms in South Korea. In 2023, Temu <\/span>reportedly spent<\/span><\/a> $1.7 billion on marketing, with plans to increase this amount to $3 billion this year.<\/span><\/p>\n

Temu\u2019s efforts have also included <\/span>partnerships<\/span><\/a> with popular South Korean celebrities, resulting in increased exposure to a wide audience.<\/span><\/p>\n

These deep discounts and extensive promotional campaigns could result in market distortion, where prices are artificially lowered and domestic competitors are driven out of the market, ultimately reducing consumer choice and potentially leading to higher prices in the future.<\/span><\/p>\n

GOVERNMENT REGULATORY RESPONSE<\/b><\/p>\n

The South Korean government has taken several regulatory actions in response to the rapid expansion of Chinese e-commerce platforms and the associated risks.<\/span><\/p>\n

In March, the Fair Trade Commission (FTC) <\/span>announced plans<\/span><\/a> to strengthen the monitoring of unfair business practices by foreign platform operators to ensure swift punishment for any violations. The FTC also pushed for revisions to the e-commerce act, requiring overseas operators to designate a local agent responsible for customer service.<\/span><\/p>\n

However, the increased regulatory scrutiny could lead to trade tensions and diplomatic consequences between South Korea and China. The Chinese government may view the regulations as a barrier to trade and a targeting of Chinese companies, potentially leading to retaliatory measures or straining bilateral relations.<\/span><\/p>\n

There is also a risk of regulatory overreach and unintended consequences for the e-commerce sector as a whole. Stringent regulations could lead to increased compliance costs and reduced competitiveness for both domestic and foreign e-commerce companies, ultimately limiting consumer choice and benefits.<\/span><\/p>\n

PRODUCT SAFETY CONCERNS<\/b><\/p>\n

The detection of harmful substances in products sold by Chinese e-commerce platforms has raised serious concerns about product safety and consumer protection.<\/span><\/p>\n

In recent months, several unsafe products have been sold on platforms like Temu and AliExpress. In April, the Seoul Metropolitan Government found that <\/span>five out of nine<\/span><\/a> children\u2019s products sold on these platforms contained harmful substances, such as phthalates and lead, at levels exceeding safety standards.<\/span><\/p>\n

The report also indicates that some products had lead levels up to 158 times higher than the permitted limit. Similarly, the Korea Customs Service discovered harmful substances, including cadmium and lead, in 38 out of 252 children\u2019s products sold on Chinese e-commerce platforms, with levels up to 3,000 times above the safety standards.<\/span><\/p>\n

These incidents have significantly impacted consumer trust and confidence in Chinese e-commerce platforms.\u00a0<\/span><\/p>\n

The presence of harmful substances in products sold on these platforms also poses a risk to brand reputation and long-term growth prospects. As consumer trust erodes, Chinese e-commerce platforms may struggle to attract and retain customers.<\/span><\/p>\n

The South Korean government has taken steps to strengthen the monitoring of foreign e-commerce platforms. In May, the FTC <\/span>announced plans<\/span><\/a> to sign a product safety agreement with AliExpress and Temu, requiring them to block the entry of harmful products into the country, immediately suspend sales and notify consumers when harmful substances are detected.<\/span><\/p>\n

\"\"

An illustration of consumers\u2019 personal data being collected | Image: Korea Pro<\/em><\/p><\/div>\n

DATA PRIVACY RISKS<\/b><\/p>\n

The alleged collection and use of <\/span>South Korean consumers\u2019 personal data<\/span><\/a> by Chinese e-commerce platforms have raised significant concerns.<\/span><\/p>\n

In April, the Personal Information Protection Commission launched an investigation into how these platforms collect and use consumer data following reports of extensive personal information being gathered without proper consent or transparency.<\/span><\/p>\n

For example, Temu has been <\/span>criticized<\/span><\/a> for its terms of service, which allow the platform to access and use a wide array of consumer data from linked social media accounts.<\/span><\/p>\n

There are concerns about the potential misuse or unauthorized sharing of personal data collected by Chinese e-commerce platforms. Given the vast amounts of data these platforms have access to, including purchase history, location information and social media activity, there is a risk that this data could be exploited for targeted advertising, profiling or sold to third parties without consumers\u2019 knowledge or consent.<\/span><\/p>\n

The collection and use of personal data by Chinese e-commerce platforms also have implications for consumer rights and regulatory compliance. South Korea\u2019s <\/span>Personal Information Protection Act<\/span><\/a> requires companies to obtain explicit consent for the collection and use of personal information and to provide clear information about their data practices.<\/span><\/p>\n

If Chinese e-commerce platforms are found to be violating these laws, they could face significant fines and legal consequences.<\/span><\/p>\n

Further, there is a risk of data breaches and cyber threats from these platforms. As Chinese e-commerce platforms expand their operations in South Korea and collect increasing amounts of personal data, they become attractive targets for cybercriminals.<\/span><\/p>\n

The cross-border nature of these platforms may also make it challenging to investigate and prosecute cybercrime, as it involves multiple jurisdictions and legal systems.<\/span><\/p>\n

CONTINUED VIGILANCE<\/b><\/p>\n

As Chinese e-commerce platforms continue to gain market share in South Korea, the government will likely take a cautious approach to regulating them and preventing the displacement of domestic companies.<\/span><\/p>\n

As the ROK continues to evolve and adapt its regulations, Chinese e-commerce platforms and those from other countries will likely adjust their practices to maintain consumer trust and remain competitive.<\/span><\/p>\n

Additionally, as such platforms expand in other countries, Seoul will likely seek international cooperation and coordination to address these issues. Failure to do so could result in significant market disruptions.<\/span><\/p>\n

Edited by Alannah Hill\u00a0<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Inter-Korean & Foreign Relations<\/span><\/a>Technology & Cyber<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

Chinese e-commerce platforms, particularly Temu and AliExpress, have gained significant market share in South Korea since last year by offering a wide range of products at competitive prices and employing aggressive marketing strategies. 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