An increase in direct purchases on overseas websites is threatening small and mid-sized manufacturers in the nation due to the fact that the weight of domestic demand for those manufacturing companies reaches 80 to 90 percent.
According to the Korea Chamber of Commerce and Industry (KCCI), products made by small and medium-sized enterprises (SMEs) captured 86 percent of the local market in 2012, up from 81.8 percent in 2003. In contrast, the proportion of exports has decreased from 18.2 percent to 14.0 percent over the last ten years.
Direct purchases on overseas websites are expected to amount to 1.6 trillion won (US$1.4 billion) this year, a year-on-year growth of more than 50 percent from the 1.1 trillion won (US$993 million) of last year. The exponential growth is attributable to the fact that price differences in locally-made products and foreign goods are too large.
In a survey of direct purchases from overseas websites conducted by the KCCI in 2013 involving 1,650 people, 96 percent of respondents said that they would continue to purchases goods on overseas websites.
The most favored items were clothes (41.5 percent), followed by fashion accessories (40.8 percent), health food (34.5 percent), baby products and clothes (29.3 percent), bags and wallets (28 percent), cosmetics (26.8 percent), food (14 percent), and electronics (11 percent).
Aside from electronics made by large companies, directly-purchased goods are mostly manufactured by SMEs in other countries. Most of them are low-cost products, since people have to pay about a 10 percent duty for products over US$150 (US$200 for clothes), including delivery costs.
In the meantime, direct purchases can be an opportunity for local companies. Thanks to the Korean wave, clothes or cosmetics that Korean stars wear are popular among online shoppers in other countries. Locally-made products sold on eBay last year were estimated at 210 billion won (US$189 million).
The government has also stepped up efforts to promote the “reverse purchases” (exports) of products made by local SMEs, as shown by the opening of Kmall24, where online shoppers in other countries can easily buy Korean products.
CJ O Shopping has started the reverse direct purchase business in China by opining an online store on the largest B2C site in the nation, Tmall, operated by Alibaba. Lotte.com is currently selling 700,000 kinds of locally-made products to 20 countries in partnership with Alipay, the largest online payment service provider in the country.
Korean social commerce site Wemakeprice has already introduced its overseas delivery service WeMakeBox. Gmarket, which became the first online auction and shopping mall website to provide instructions in English and overseas delivery in 2006, has also created a Chinese version.
Reverse direct purchases are mostly made in Chinese-speaking countries, but an increasing number of people in Russia, the Middle East, and Latin America are directly buying Korean products via Korean websites.