Chinese e-commerce giants AliExpress and Temu are expanding their presence in South Korea with ultra-cheap products and free shipping, posing as a potential threat to Korean online retailers such as Coupang.
AliExpress was the second most used shopping app in Korea with 8.18 million users, while Temu ranked fourth place with 5.81 million users as of last month, according to app analytics firm Wiseapp·Retail·Goods on Mar. 18. The two apps boast 14 million users, trailing only behind Coupang, which leads with 30.1 million users.
The core appeal of AliExpress and Temu lies in their ability to offer products at low prices. Some products are up to ten times cheaper than those on Korean online retailers.
China’s economic downturn is one of the reasons AliEpress and Temu can sell products at significantly lower prices. China is grappling with overcapacity across various sectors, leading to excess inventory. This surplus and weak domestic demand mean goods are offered at bargain prices. Additionally, deflation and the yuan depreciation have driven the export price index of Chinese goods to its lowest point since the 2008 financial crisis.
The sheer scale of AliExpress and Temu grants them considerable bargaining power over pricing. Temu, for instance, sets product prices directly, bypassing traditional retail markups. Chinese e-commerce companies also receive benefits such as exemption from customs clearance, tariffs and certification requirements such as the KC certification for electrical appliances.
AliExpress and Temu use the UN Universal Postal Union’s postal service, which provides favorable postal rates for China. This allows Chinese e-commerce companies to offer free shipping to customers despite longer delivery times. AliExpress and Temu also negotiate with over 1,500 logistics companies in China to further reduce shipping costs. This is how a $5 product can be delivered from China to Korean consumers without shipping charges.
Aliexpress and Temu’s aggressive strategy involving ultra-low prices and free shipping is based on the idea that initial financial losses are acceptable in exchange for a broader market presence and achieving overall profitability.
China’s Alibaba Group, the parent company and operator of AliExpress, announced plans to invest $200 million to set up a logistics hub in Korea this year. The logistics center will cover an area of 180,000 square meters, which is half the size of Coupang’s fulfillment center in Daegu.
AliExpress aims to drastically reduce delivery times from the current span of five days to 3-4 weeks to 1-2 days with a logistics hub in Korea.
With a logistics center in Korea, Chinese e-commerce platforms can also purchase and sell products directly in Korea. This strategy positions these platforms to compete head-on with local e-commerce giants like Coupang. If AliExpress implements a next-day delivery system akin to Coupang’s Rocket Delivery, Korean e-commerce companies risk losing consumers to their Chinese competitors.
