Cross-border e-commerce thrives in South Korea

The surge of cross-border e-commerce players has fuelled competition within South Korea's online shopping realm, potentially shaking up the logistics market.

May 24, 2024

The domestic e-commerce groups in South Korea are under pressure from overseas online marketplaces. E-commerce players, notably from China, are expanding rapidly in the country with ultra-low prices. A rising number of budget-conscious customers have shifted to Chinese e-commerce platforms, such as AliExpress, Temu and SHEIN, which pose a threat to their Korean counterparts.

Chinese e-commerce companies’ inroad into South Korea is underpinned by a high e-commerce penetration rate driven by its tech-savvy domestic consumers. Consequently, the import volume of cross-border e-commerce between the two countries saw a remarkable uptick, surging 121.2% y-o-y in 2023, which significantly outpaced a 10-year CAGR of 34.7%.

Figure 1: Cross-border e-commerce import from China to S. Korea

* Source: KOSIS
* Unit: KRW million

The ascent of Chinese e-commerce players in South Korea highlights the importance of strategic partnerships with local logistics and distribution services. Even if overseas e-commerce players ship products immediately after orders are placed, they need to handle domestic customers and delivery processes on time to gain a foothold in Korea.

Local logistics firms, such as CJ Logistics and Hanjin, have upscaled Global Distribution Centers (GDC) in Incheon for cross-border logistics, aiming to increase the processing capacity of the self-clearance facilities. Such high-profile logistics companies in South Korea will be vital enablers for overseas online shopping platforms to stabilise the supply chain and enhance delivery quality, making it seamless.

Meanwhile, cross-border e-commerce companies have pledged a substantial investment in expanding their businesses, which includes scaling up logistics spaces in South Korea. In response, domestic online retailers are likely to demonstrate brisk leasing activity as competition intensifies to protect their market shares. The resulting revival in leasing demand from e-commerce tenants could partially soothe concerns over a supply glut.

While overseas e-commerce players are growing their market presence, it is important to acknowledge that these new market entrants continue to encounter difficulties in penetrating the South Korean market. Foremost among these challenges are the need to establish logistics infrastructure by developing their own centres. Secondly, importing goods through a local entity would result in additional ancillary costs, including corporate taxes and certification expenses for the shipped products. Adding up these increased costs will undermine price competitiveness, which is the primary advantage of these cross-border e-commerce platforms.

Moreover, the Fair Trade Commission (FTC) of South Korea has intensified its scrutiny of the business practices of foreign e-commerce giants. This is in response to mounting concern over overseas e-commerce companies disrupting domestic online retail market. The antitrust agency will regulate monopolistic behaviour and investigate possible abuses of market power.

The government has also stated that it will revise the e-commerce act, mandating foreign online platform operators to appoint local agents to be responsible for handling consumer complaints. Nevertheless, South Korean consumers have continued to flock to these cross-border e-commerce platforms, attracted by steep price discounts. Despite the challenges ahead, this increased market competition will inevitably result in additional logistics demand from domestic and foreign e-commerce players alike.