Striving for Foreign Money
Industry insiders warn that excessive investment and price competition with mammoth businesses like E-mart may turn out as a big risk.
According to a source of distribution industry, sales of social commerce industry increased to 8 trillion won in 2015 from 790 billion won in 2011. That amount has reached some 60 percent of on and off-line sales (14 trillion won) of E-mart.
However, due to their strategy of selling more with less profit, their profit level is not so impressive. The labor cost, securement of logistic centers, facility maintenance, and so on can be burdens on their individual business.
The situation can be exemplified by 500 billion won deficit of Coupang, and 100 billion won deficit each of both Ticket Monster and WEMAP. In such settings, social commerce businesses are betting life and death on inducing investments from abroad. It is for the strategy to enlarge their business scope as well as gradual getting out of their deficit and capital impairment.
The battle was commenced by Coupang that successfully attracted 300 million dollar investment from Black Rock of the U.S., in addition to 100 million dollars in May 2014 from US-based Square Capital. In June last year, Coupang additionally succeeded in securing US$1 billion from the Soft Bank.
The total investment that Coupang has attracted reaches almost twice as much as 636 million dollars that Korean major start up businesses induced for the past one year. Coupang is now planning to create 40 thousand jobs with the investment of 1.5 trillion won by 2017.
TMON is also taking an active move. They have gotten the investment of some 500 billion won from the consortium of Private Equity Fund (PEF) and Anchor Equity Partners in April, last year. Thereafter, TMON has been more aggressive in carrying out its strategy of growth. With the pronouncement of ‘the lowest price policy’ initiated by both Coupang and E-mart, they are making increased sales.
Additionally, on April 11, TMON attracted US$40 million as investment from NHN Entertainment. TMON and NHN Entertainment have made an agreement to cooperate in the fields of sales and payment, e-commerce solution, etc based on the mobile flat form.
WEMAP is also active in expanding its business. They induced some 100 billion won investment in August last year from NXC (the holding company of NEXON) headed by Kim Jeong-ju. Recently, they selected Morgan Stanley to draw domestic and overseas investment of some 300 billion won.
The reason that social commerce businesses are struggling to secure investments is to get the No. 1 position in the industry. Once they get the position, they expect that it won’t be difficult to retrieve the investment.
Some people in the industry state that eight trillion won in sales last year in the industry may be a sign of high growth. They also warn that excessive investment and self-destroying price competition with mammoth businesses like E-Mart may turn out as a big risk.