Chinese e-commerce companies are intensifying their expansion into the South Korean market through a ‘Koreanization strategy.’ This involves setting up logistics centers in Korea to facilitate shipping and returns and implementing unique policies such as zero commission fees to entice Korean businesses. The push, known as ‘C-commerce,’ a blend of China and e-commerce, resulted in Korean consumers making 67.75 million cross-border purchases of Chinese goods from January to October last year. This represents a 64.9% increase from the previous year, averaging 2.6 orders every second. For the first time, China has overtaken the U.S. as the leading source of cross-border purchases for Korean consumers.
In Korea, there is a growing unease regarding the ‘C-commerce advance,’ primarily led by platforms like AliExpress (Ali), Temu, and SHEIN. Given the market’s tendency to be monopolized by a single platform business, analysts predict that well-funded Chinese e-commerce entities will eventually dominate Korea’s retail sector.
Alibaba Group’s international dropshipping arm, Ali, is particularly proactive, having adapted its business strategy specifically for the Korean market this year. Last year, Ali invested $74.7 million (100 billion won) in marketing and logistics and plans to expand its operations in Korea this year, including supply, logistics, and customer service. China’s Temu and SHEIN are adopting similar approaches.
Three main strategies underpin C-commerce’s focus on the Korean market. The first is the ‘Koreanization of supply,’ aimed at reducing delivery times by increasing the number of products shipped directly from Korea through local vendors. Alibaba supports this by offering a ‘zero commission’ policy to Korean sellers until March, a move distinct from the discounted listing fees Korean e-commerce companies typically provide.
The second strategy involves the localization of logistics infrastructure. Ali established a returns center at Incheon Airport and introduced a free return service in November last year, shifting from the previous practice of sending returns to China. This change significantly shortened the return and refund process by handling them within Korea. Ali plans to open a logistics center in Korea this year and introduce an instant delivery service, aiming to rival local e-commerce companies with next-day delivery options.
The third strategy focuses on localizing after-sales service. According to the Voice for Consumers of Korea (CUK), in 2023, complaints about Ali surged fivefold to 465, mainly due to difficulties in reaching customer service or communicating in Korean. Since the latter half of last year, Ali has been expanding its customer service in Korea and recruiting more Korean employees.
Temu, affiliated with China’s Pinduoduo, has also introduced free returns and a full refund within 90 days of purchase. SHEIN, a Chinese fashion platform, automatically translates international customer reviews into Korean and provides a ‘Koreanized’ returns and refunds process.
Chinese firms are poised to penetrate the Korean market further. Alibaba plans to launch its retail platform, Ali.com, and its wholesale platform, 1688.com, in Korea. Many Korean online retailers, including major players like Coupang and G-market 11STREET, earn products from 1688.com via Chinese shipping agents. This raises concerns that Ali could target the Korean retail sector, and 1688.com could target the wholesale market.
However, Korea currently lacks specific measures to counter such incursions. The CUK has noted the absence of definitive regulations governing foreign e-commerce operators under Korean law.
