AliExpress’s Expansion in Korea Raises Concerns Over Potential Market Disruption
Korean logistics and retail sectors are increasingly alarmed by the expansion of Chinese e-commerce giants AliExpress and Temu, fearing that their dominance might lead to unfavorable terms for local partners and consumers. This anxiety stems from a common practice among market leaders who often leverage their position to pressure partners into reducing prices, sometimes under the threat of ending business relationships.
In a notable development, AliExpress’s parent company, Alibaba Group, announced plans to invest $1.1 billion in Korea, aiming to boost its market presence through the establishment of a logistics center and support for Korean sellers. While this investment initially appears beneficial, there’s concern it could ignite a price war among local companies due to AliExpress’s capital-driven expansion strategy.
Currently, CJ Logistics is AliExpress’s primary delivery partner in Korea, handling the majority of its deliveries. However, industry insiders speculate that the landscape might change drastically as AliExpress grows, potentially leading to a bidding war among logistics firms to offer the lowest prices.
The fear extends beyond logistics to retail companies, which could also be pressured by AliExpress to reduce prices. In 2022, CJ ended its partnership with Coupang over disagreements related to pricing demands.
AliExpress is courting major Korean companies, offering them a platform to sell their products without charging sales commissions. This strategy aims to attract both partners and customers during its initial expansion phase, but there are doubts about whether AliExpress will maintain such favorable terms without eventually pushing for lower prices from Korean firms.
Experts suggest that AliExpress’s investment might not significantly disrupt the industry due to its insufficiency for establishing a comprehensive logistics network across Korea. It’s also noted that AliExpress’s influence in the logistics sector may be limited without continued investment.
The expansion of Chinese platforms like AliExpress is seen as a threat by many Korean small business owners, primarily due to the price competitiveness these platforms can afford, partly because of tax benefits for foreign direct purchases in Korea. A survey by the Korea Federation of SMEs highlighted concerns over losing price competitiveness against Chinese counterparts, exacerbated by Korea’s tax policies that favor foreign direct purchases.
Over half of the small and medium-sized businesses surveyed expressed concerns that Korean companies are at a price disadvantage compared to their Chinese counterparts due to favorable tax regulations. In Korea, foreign direct purchases under $150 are exempt from taxes without any cap on yearly total purchases. Meanwhile, China has more stringent policies, imposing taxes on foreign direct purchases once the annual total surpasses 4.8 million won.
