C-Commerce Threatens to Disrupt Korean Manufacturing Ecosystem

C-commerce is ‘offensive waves’

Domestically manufactured / officially imported products

Unable to compete on price with Chinese direct buyers

If the distribution market falls under hegemony,

Concerns over the collapse of Korea’s mid-term manufacturing ecosystem

RC (remote control) model car. Naver on the left, Temu on the right.

“Indoor slippers sold for 10,000 won in Korea are sold for 2,000 won in Ali. Compared to shoes made in Korea, shoes made by Ali are about 70-80% cheaper. “If this continues, most small business owners are at risk of going out of business.”

Mr. A, the CEO of a shoe manufacturing and importing company in Busan for 20 years, has trouble sleeping at night these days. Recently, the number of domestic users of Chinese e-commerce companies AliExpress and Temu have exceeded 8 million each, encroaching on the online distribution market at an alarming rate, reaching a point where it is no longer possible to do anything . “The sales of most shoe companies are down more than 20 to 30 percent,” he said “This is the biggest crisis in the 20 years since we entered the shoe industry.”

While domestic consumer use of C-commerce like Ali and Temu is increasing rapidly, domestic small business owners selling very low-priced products such as fashion, sundries, home appliances and industrial products have been hit hard . Most of the products sold by Alina Temu are low priced products priced from 1,000 won to less than 10,000 won. Sellers who have been selling items at a price of less than 5,000 to Daiso, a daily necessities store, or selling items at a price of about 10,000 won through online distribution channels such as Coupang and Naver, in a situation of survival crisis.

This is because small business owners who import from abroad, such as China, have to consider customs clearance costs, tariffs, logistics costs, etc., making product prices two or three times more expensive than those purchased in direct from China. Given the high labor costs in Korea, it is noted that it is almost impossible to produce Ali-like quality ‘Made in Korea’ products in low-priced items in the 10,000 to 20,000 won range.

Indoor slippers. Coupang on the left, AliExpress on the right.

On the 25th, Maeil Business Newspaper compared the selling prices of Chinese e-commerce such as Ali and Temu and Korean e-commerce such as Coupang, Naver and G Market for five major industrial products, and found that the selling price of Korean e-commerce was lower than Chinese e-commerce. It was found to be 3.5 times higher.

In the case of the RC toy car, the same product costs 39,900 won including shipping fees at Naver Store in Korea, but it is sold in Temue for 12,750 won, which is a third of the price. The double-ended stand light costs 9,730 won on Ali, but a similar product is sold for 35,780 won on G Market. The same goes for cell phone jelly cases and car cushions. In the case of indoor slippers to prevent noise between floors, the same product costs 1,800 won on Ali and 9,950 won on Coupang, a difference of more than 5 times.

The reason for this price difference is complex regulations such as taxes, certification and payments. Domestic sellers usually pay a tariff of about 8% and a value added tax of 10% when importing the same product from China, and the cost to obtain ‘KC (Korea Certification)’ certification, which guarantees the quality of cosmetics and baby products, is at least 1 million won It costs more than that. Electronic products must receive electromagnetic wave certification, and products containing plastic must also pay a plastic waste fee. If you add these costs together, up to 5 million cost per item can be earned. If the sales volume of the item in question is 1,000 units, this will result in a cost increase of 5,000 won per unit.

KC certification received from domestic toy import company. KC certification costs millions of dollars earned per item.

On the other hand, direct purchase transactions are tariff-free up to $150 per day, and there is no need to obtain KC certification or pay waste fees. In addition, China is still classified as a developing country in the international postal rate system, so even items worth a few thousand earned abroad can be shipped at a very low cost. This is why free shipping is available for products that cost only 1,000 to 2,000 won. An industry official said, “No matter how many products are sold domestically through direct overseas purchases, Chinese manufacturers like Ali and Temu do not pay a single penny of tax to our country.”

In addition, domestic manufacturers and distributors are subject to various government regulations on various issues, such as product quality and safety (Ministry of Food and Drug Safety, Korea Technology and Standards Agency, Korea Consumer Agency), unfair trade (Fair Trade Commission ), and the protection of small and medium-sized businesses (the Ministry of Small and Medium-sized Businesses and New Businesses regulated by the agency). However, foreign direct purchasing companies are exempt from these regulations.

Seo Yong-gu, professor of business administration at Sookmyung Women’s University, said, “Not to mention products manufactured in Korea, even when importing and selling Chinese products, it is impossible to compete on price with direct purchases from China. problem.”

Currently, Coupang, the number one e-commerce company in Korea, buys and sells most of its products directly from domestic SMEs. On the other hand, most of the very low-priced products sold by Ali and Temu are made in local factories in China. It is noted that the problem is even more serious in the sense that if the leadership of the Korean e-commerce market is transferred to Chinese companies, not only the survival of domestic distribution companies, but also the small and medium manufacturing ecosystem may collapse. . Jeong Yeon-seung, a professor at Dankook University, said, “If we give up leadership in online distribution, it could affect manufacturing, logistics, and the service industry in the medium to long term.”

Small business owners agree that the Korean government needs to take urgent action before Chinese apps completely dominate the Korean market. Their voices call for at least easing excessive regulations on domestic companies if it is difficult to impose equal regulations on direct purchases from China. A representative example is the plastic waste levy regulation that plastic importers have to bear. Mr. A, the CEO of a shoe company, said, “If you import 100 pairs of slippers made of plastic, you have to pay a fee of 2 to 3 million won a year If you compete with Chinese direct buyers under these conditions, it’s no different than telling you to close your business.”

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