“Is this the reason why slippers cost 10,000 won on Coupang and 2,000 won on Ali?” China is ‘no wind’, Korea is ‘typhoon’

“Indoor slippers sold for 10,000 won in Korea are sold for 2,000 won at 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 has 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 have decreased by 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 consumers’ use of C-commerce such as Ali and Temu is rapidly increasing, domestic small business owners who sell ultra-low-price products such as fashion, miscellaneous goods, 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 priced at less than 5,000 won to Daiso, a daily necessities store, or selling items priced around 10,000 won through online distribution channels such as Coupang and Naver, are in a situation of survival crisis.

This is because, considering customs clearance costs, tariffs, logistics costs, etc. for small business owners who import from overseas, such as China, the prices of products are bound to be two to three times more expensive than those purchased directly from China. Considering the high labor costs in Korea, it is pointed out that it is close to impossible to produce ‘Made in Korea’ products of similar quality to Ali in low-priced items in the 10,000 to 20,000 won range.

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

In the case of a toy RC car, the same product costs 39,900 won including shipping fees at the Naver Store in Korea, but is sold at Temue for 12,750 won, which is one-third of the price. The double head 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 due to complex regulations such as taxes, certification, and charges. Domestic sellers usually pay a tariff of around 8% and a 10% value-added tax 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, the cost per item can be up to 5 million won. 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.

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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. Additionally, China is still classified as a developing country in the international postal rate system, so even items worth a few thousand won can be shipped overseas at a very low cost. This is why free shipping is available for products costing only 1,000 to 2,000 won. An industry official said, “No matter how many products are sold domestically through overseas direct purchase, Chinese manufacturers such as 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 Agency for Technology and Standards, Korea Consumer Agency), unfair trade (Fair Trade Commission), and protection of small and medium-sized businesses (Ministry of SMEs and Startups). regulated by the agency. However, overseas direct purchase companies are exempt from these regulations.

Seo Yong-gu, a 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. The tilted playing field is the problem.” .

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Currently, Coupang, the number one e-commerce company in Korea, purchases and sells most of its products directly from domestic small and medium-sized businesses. On the other hand, most of the ultra-low-price products sold by Ali and Temu are made in local factories in China. It is pointed out that the problem is even more serious in 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-sized 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 mid- 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 voice is that if equal regulation of Chinese direct purchases is difficult, excessive regulation of domestic companies should be relaxed. A representative example is the plastic waste levy regulation that plastic importers must 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 per year. If you compete with Chinese direct buyers under these conditions, it is no different from telling you to close your business.” .

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