Deficit in direct-to-consumer online purchases snowball in Korea

[Courtesy of AliExpress, JD.com]

South Korea’s online shopping market are undergoing a significant change as Chinese direct-to-consumer online purchase platforms, including AliExpress, aggressively target the Korean market with ultra-low-cost products. As a result, the amount of overseas goods being imported into Korea via online channels has exceeded that of Korean products being exported.

According to forecasts, the balance of these “jikgu” transactions is expected to be in deficit by more than 5 trillion won ($3.75 billion) in 2023.

This shift in consumer behavior can be attributed to the fact that Korean consumers are increasingly taking advantage of foreign shopping events, such as China’s Singles’ Day and the United States’ Black Friday sales. At the same time, Chinese daigou agents, who were once significant customers for Korean products, have shifted their purchasing channels to places such as the Hainan duty-free zone.

Data from Statistics Korea paint a clear picture of this trend, with a jikgu balance deficit of 2.42 trillion won in the first half of 2023. The first quarter saw a deficit of over 1 trillion won, and the second quarter continued the trend with a deficit of more than 1 trillion won. While Korean consumers spent over 1.5 trillion won in the first and second quarters to buy foreign products directly online, the value of “reverse jikgu,” or online sales of Korean products to foreign consumers, was a mere 737.5 billion won during the same period. If this trend continues, the annual jikgu balance deficit for this year is expected to exceed 5 trillion won.

All eyes are now on the fourth quarter of this year, which is anticipated to witness a significant spike in the jikgu balance deficit as both Chinese and American retailers are gearing up for their largest-ever online discount events. Alibaba and JD.com began their pre-sales for Singles’ Day on November 11, while Amazon and other U.S. e-commerce companies are offering steep discounts for Black Friday on November 24.

The shift towards a jikgu balance deficit is a relatively recent phenomenon, with Korea enjoying a trade surplus in this category, with 2.37 trillion won in 2019 and 1.94 trillion won in 2020. However, the rapid rise of Chinese jikgu shopping platforms like AliExpress and Taobao since 2020 changed the situation. Meanwhile, Chinese daigou agents, who were once key customers for Korean products, decreased their direct purchases of Korean goods online.

Despite concerns about counterfeit and low-quality products, Korean consumers are increasingly turning to Chinese online shopping platforms due to the allure of significantly lower prices. Their resistance to Chinese online shopping platforms has diminished as a result, and China has emerged as the leading country for jikgu in the Korean market.

According to Statistics Korea, in the first half of this year, the total value of overseas jikgu purchases in Korea was 3.16 trillion won, with 44 percent of that amount, or 1.4 trillion won, coming from Chinese jikgu platforms. This marks a more than twofold increase from the first half of the previous year when the figure totaled 680.9 billion won and outpaced the first-half total for the United States, a former leader in this sector, which stood at 939.7 billion won.

Experts believe that the worsening jikgu balance is likely to persist in the near term. Chinese jikgu companies have leveraged their nation’s status as the “world’s factory,” reducing profit margins significantly while also incorporating the strengths of big data and information technology to develop global shopping apps.

Chinese shopping app Temu, for instance, achieved immense success after launching in the Korean market, ranking as the top app in overall downloads on Apple’s App Store as of November 2023.

To address this shift in consumer behavior, experts suggest that Korean companies should focus on improving the convenience of their online shopping platforms and utilize local social media influencers.

A combined effort from the government and private sector is also needed to support strategies to enhance the jikgu balance. Suh Yong-gu, a professor of Business Administration at Sookmyung Women’s University, emphasized that Korean companies often rely on simple website translations to target foreign customers, which could hinder foreign consumers’ ability to make purchases.