Alibaba’s Alipay and Tmall Shake Up Korean E-commerce: The Rise and Challenges

The Rise of Alibaba’s Alipay and Tmall in the Korean Market

Alibaba’s Alipay and Tmall, two prominent e-commerce platforms from China, have been making significant strides in the Korean market, attracting attention with their rapid growth. The success of these platforms can be attributed to the popularity of affordable products, even during an economic downturn. The influx of Chinese e-commerce giants has created a complex situation for domestic platform giants like Naver and Kakao, who are now grappling with the influence of their Chinese competitors.

The Impact of Alipay and Tmall on the Korean Market

According to data from iGAWorks, Alipay took the lead in the Korean shopping sector, recording 720,000 new installations and an 8.52% market share in August of last year. However, Tmall quickly surpassed Alipay, demonstrating a remarkable growth trajectory. From September 2021 to January 2022, Tmall consistently recorded the highest number of new installations among major shopping apps. Monthly new installations, which were only 420,000 in August, skyrocketed to a staggering 2.22 million in January, showcasing exponential growth.

The Allure of Competitive Pricing

Tmall, in particular, has captivated Korean consumers with its remarkably low prices, unique products, convenient payment options, and free shipping support. To further incentivize new sign-ups, Tmall offered points that could be used as cash, with some users receiving up to hundreds of thousands of points. Similarly, AliExpress has been strategically expanding its presence in the Korean market by recruiting sellers for its dedicated section, K-Benu, and exempting them from entry and sales commissions.

Challenges Faced by Domestic E-commerce Platforms

The rapid growth of Tmall and AliExpress has posed challenges for domestic e-commerce platforms in terms of price competitiveness. Domestic platforms find it difficult to match the low prices offered by Chinese platforms. In response, the Ministry of Trade, Industry, and Energy organized a meeting in February with experts from the domestic e-commerce industry to discuss the impact of foreign platforms on the Korean online market.

Response from Naver and Kakao

Naver and Kakao, as leading domestic platform companies, are closely monitoring the activities of Chinese e-commerce giants. Given that e-commerce is a core business for both companies, they cannot ignore the presence of Chinese competitors. During the Q4 2021 earnings conference calls, Naver and Kakao fielded questions about the impact of Alipay and Tmall on their businesses. Naver’s CEO, Soo-Yeon Cho, acknowledged the vast product information and range provided by Alipay and Tmall, making it difficult to quantitatively evaluate their direct impact on Naver Shopping. On the other hand, Kakao’s CEO, Eun-Tak Hong, emphasized their focus on value-based consumption rather than price-based consumption, stating that it does not have a direct impact on the market.

Potential Benefits as Advertising Partners

Despite the challenges posed by Tmall and AliExpress, Naver and Kakao see potential benefits through partnerships with these Chinese platforms as advertising partners. Naver’s CEO, Soo-Yeon Cho, expressed optimism, stating that Alipay is currently integrating databases through Naver’s platform for advertising execution, and an increase in Tmall’s advertising spending is expected to have a positive impact. Similarly, Kakao’s CEO, Eun-Tak Hong, anticipated that the participation of new players would lead to an increase in marketing demand and subsequent increase in advertising spending.

Long-Term Outlook

While Naver and Kakao may initially benefit from partnerships with Alipay and Tmall as advertising partners, concerns have been raised about the long-term effects. The high market share of Chinese platforms in the Korean e-commerce market is inevitable and could lead to a decrease in the influence of domestic platforms. Additionally, changes in the dynamics of the e-commerce market could potentially result in a decrease in traffic and advertising.

The Impact of Alibaba’s Alipay and Tmall on the Korean Market

The rise of Alibaba’s Alipay and Tmall in the Korean market has had significant effects on various aspects of the e-commerce landscape. These effects have reshaped consumer behavior, challenged domestic platforms, and prompted strategic responses from industry leaders.

Shift in Consumer Behavior

The success of Alipay and Tmall in offering affordable products has led to a shift in consumer preferences. Korean consumers, attracted by the competitive pricing and unique product offerings, have increasingly turned to these Chinese platforms for their online shopping needs. This shift has disrupted the dominance of domestic platforms like Naver and Kakao, as consumers seek out the better deals and variety offered by Alipay and Tmall.

Challenges for Domestic Platforms

The rapid growth of Alipay and Tmall has presented significant challenges for domestic e-commerce platforms. The competitive pricing and attractive benefits provided by the Chinese platforms have made it difficult for domestic platforms to match their offerings. This has put pressure on platforms like Naver and Kakao to find ways to retain their user base and compete with the expanding influence of Alipay and Tmall.

Strategic Responses from Naver and Kakao

Naver and Kakao, as leading domestic platform companies, have been forced to respond strategically to the rise of Alipay and Tmall. They have closely monitored the activities of their Chinese competitors and acknowledged the need to address the impact of these platforms on their businesses. Naver has emphasized the need to evaluate the direct impact of Alipay and Tmall on its platform, considering the vast product range and information they provide. Kakao, on the other hand, has focused on value-based consumption and emphasized its commitment to delivering unique value to users.

Partnerships as a Potential Solution

Despite the challenges posed by Alipay and Tmall, Naver and Kakao see potential benefits in forming partnerships with these Chinese platforms. By collaborating as advertising partners, Naver and Kakao can tap into the extensive user base and advertising spending of Alipay and Tmall. This strategic move allows them to leverage the reach and influence of these platforms while maintaining their own unique value propositions to users.

Long-Term Concerns and Uncertainties

While partnerships with Alipay and Tmall may provide short-term benefits, there are concerns about the long-term effects on the Korean e-commerce market. The high market share of Chinese platforms and their ability to offer competitive pricing may lead to a decrease in the influence and market share of domestic platforms. Additionally, changes in the dynamics of the e-commerce market, such as shifts in traffic and advertising, could impact the overall landscape and create uncertainties for both domestic and foreign platforms.

Continued Evolution of the E-commerce Landscape

The rise of Alipay and Tmall in the Korean market is indicative of the dynamic nature of the e-commerce landscape. As consumer preferences and market dynamics continue to evolve, it is crucial for domestic platforms to adapt and innovate to maintain their competitiveness. The influence of Chinese platforms serves as a catalyst for change, prompting domestic platforms to reassess their strategies, enhance their value propositions, and find new ways to meet the evolving needs of Korean consumers.