[Analysis of China's Ali] "Smartwatch 4990 Won" Shocking Move, Impact on 6.5 Trillion Won Domestic Direct Purchase Market

Domestic and Overseas Direct Purchase Market Expected to Reach 6.5 Trillion Won This Year
Rapid Growth and High Expansion Potential Draw 'Interest'
Domestic Companies Rely on Trust for Delivery and Assortment vs. AliExpress's Dramatic Prices
Counterfeit Issues and Changes in Direct Purchase Consumer Preferences Are Variables

A smartwatch costs 4,990 won. It offers free shipping within 5 days and free returns. There are about 49,000 reviews. The top displayed review said, 'I ordered it to use as a toy for kids, and it's excellent at this price.'

The aggressive moves by the Chinese online direct purchase platform AliExpress (Ali), led by its shocking prices, have drawn significant industry attention on how it will change the landscape of the domestic overseas direct purchase market. It is expected that the 'stone thrown by Ali' will cause ripples and intensify the battle for dominance in the domestic direct purchase market, which currently lacks a dominant player with overwhelming scale.

What Does '6.5 Trillion Won' Mean in the 200 Trillion Won E-commerce Market?

Last year, the size of the domestic overseas direct purchase market was $4.725 billion (about 6.1425 trillion won), according to the Korea Customs Service. Compared to the entire domestic e-commerce market, which reaches 200 trillion won, its share is not large, but the industry shows particular interest in this market. This is because the market is growing rapidly and has great potential for expansion. Last year, due to factors such as exchange rate increases, the growth rate of overseas direct purchase import amounts remained in the single digits (1.4%), but from 2018 to 2021, import amounts rose sharply by 14-24%. This year, it is expected to exceed $5 billion (about 6.5 trillion won) for the first time ever.

The industry's keen interest in the overseas direct purchase market is also influenced by the fact that with the widespread use of social networking services (SNS), trends have no borders, so products popular among overseas consumers are reflected in real time, and unique brand products that are hard to find domestically can be easily purchased. Especially, the e-commerce industry is increasing consumer accessibility by adding direct purchase services to existing platforms and expanding market share within this sector.

Strengths Highlighted by Players: Experience, Trustworthiness, Delivery

Currently, there is no absolute leader in the domestic direct purchase market. Each platform holds a market share of around 8% at most. The major domestic e-commerce players closely watching Ali's aggressive moves are Gmarket, Coupang, and 11st. They emphasize their long-standing presence in the domestic distribution market and brand trust, along with fast delivery and low member prices.

Gmarket, which started overseas direct purchase services in 2007, leverages its experience to offer a solidly built system, vast accumulated data, and appraisal services. It particularly emphasizes that it is a 'direct purchase where even luxury brands can be trusted and bought.' As an open market, it offers a selection of 160 million products from 15 countries, and it has introduced a 'direct overseas purchase shortcut' on the existing e-commerce home screen, so no separate app installation is required for direct purchase, which is another strength Gmarket promotes.

Coupang highlights that its paid Wow Membership includes benefits such as free shipping for Rocket Direct Purchase (ultra-fast delivery). Even if you buy just one item, shipping is free and delivery is fast within 3-5 days. Coupang started U.S. direct purchase in 2017 and has expanded its service areas to China in early 2021 and Hong Kong in March this year. Selling 8 million overseas products based on direct purchase, Coupang focuses more on trust than product variety. Its main customers are those aged 30 and above with children, and popular items include protein bars, baby formula, and apple cider vinegar.

11st, which officially launched its domestic direct purchase business in partnership with Amazon U.S. in 2021, is expanding its loyal customer base by offering free shipping and additional discounts when subscribing to its paid membership, Woozoo Pass. It emphasizes the ability to purchase Amazon U.S. products directly, relatively short average delivery times of 4-8 days, and a selection of about 60 million products from 45 countries. Based on this, 11st Amazon saw a surge in direct purchase sales centered on cost-effective external hard drives and computer parts last year despite high exchange rates, achieving its best performance in Q4.

An industry insider said, "Fast delivery using domestic and overseas infrastructure is a strength not only of Ali's guaranteed delivery within 5 days but also of 11st Amazon and Coupang Rocket Direct Purchase. However, if the selection of overseas direct purchase products with same-day or next-day delivery expands significantly, delivery time could become a threat."

Ali's Pricing Policy Is Threatening... 'Counterfeit Issue' Is a Painful Point

The industry points to Ali's pricing as its most threatening aspect. There is no way to keep up with its product offensive, which boasts shocking prices and discount rates through '1,000 won mart' and 'first-come, first-served 50% discount' promotions. Ali features about 150 million products, including accessories like phone cases, as well as high demand for small electronics and camping goods such as earphones, robot vacuum cleaners, semi-automatic coffee machines, and camping chairs.

However, the biggest weakness linked to this is the 'counterfeit risk.' Cases vary from selling products that copy designs to delivering poorly made items that differ from the product page after stealing model photos. Ali claims to have established a counterfeit prevention system based on big data and conducts proactive monitoring, but critics say it is limited in eradicating counterfeit issues across all products handled by the platform. Although consumers can report counterfeit products and submit evidence for review and compensation, it is not easy to take follow-up action on every cheap product purchased, so this is not a fundamental solution according to industry and expert evaluations.

Ultimately, it is analyzed that trust sufficient to offset such concerns must be built through experience. Professor Eunhee Lee of Inha University's Department of Consumer Studies said, "Resolving counterfeit issues is a specialized area requiring continuous investment and a meticulous system. Not only prevention but also compensation when damage occurs, exchanges, refunds, returns, and consumer experiences regarding promised delivery times all influence the overall trust in the platform through accumulation."

Growth in Chinese Direct Purchase and Male Consumers... Another Variable in the Battle for Dominance

The increase in Chinese direct purchase volume and the growing share of 'men in their 30s and 40s,' who tend to purchase based on price rather than counterfeit concerns, are also variables. Chinese-origin overseas direct purchase market share became number one by amount (36%) for the first time last year since the Korea Customs Service began managing overseas direct purchase statistics in 2005. Even considering exchange rate variables last year, it is a meaningful result that China surpassed other countries such as the U.S. in both transaction count (in 2020) and amount. It is also noteworthy that men's purchase share (52.1%) was higher than women's (47.9%) last year. The largest group of overseas direct purchase consumers was men in their 40s, accounting for 17.4%. Ali's main domestic customers are men in their 30s and 40s.

Experts evaluate that it is impossible to know who will take the lead in the domestic direct purchase market without a dominant player, depending on how consumers' platform experiences regarding product variety, price, delivery, and after-sales service accumulate. Ultimately, Ali's success or failure will depend on how disruptive the products it offers are, how aggressively it moves, and the initial reactions of domestic consumers to this. Professor Yonggu Seo of Sookmyung Women's University’s Department of Business Administration said, "Consumers consider trust in the platform they use to purchase products and trust in the brands they buy. Considering this, trust in direct purchase platforms, especially channels like Ali, must be established, and trust in the products sold by each platform must also be built through experience." He added, "Trust issues, including counterfeit problems, will be judged by consumers in the mid to long term, and the market structure will be established accordingly."