Double-edged Sword
Chinese ICT companies have grown rapidly in their massive domestic market, and now look to expand to other countries. This year, their influence is expected to begin in Korea as well. As a result, experts are saying that it is urgent to establish countermeasures to utilize Chinese ICT enterprises' expansion as an opportunity to grow local companies and industries.
In particular, Alibaba and Tencent, which have quite a lot of capital due to their listings, are likely to fiercely compete with each other to dominate the Korean market. The two Chinese Internet giants are actively trying to forge a partnership with local online shopping sites or online payment service providers. The phenomenon is attributable to an increased demand for Korean online shipping and online payment services by Chinese consumers resulting from the Korean wave. Alibaba is aggressively seeking to enter the messenger service and content businesses, which are Tencent's core areas. Tencent, on the other hand, is eying Alibaba's retail and digital payment service areas.
Tencent is one of the three shareholders of Daum Kakao with a 9.9 percent stake in the Korean Internet company. In addition, the largest online gaming company in China holds a 28 percent stake in Netmarble Games. The Chinese Internet firm has recently built partnerships with CJ Games and JoyCity, and it is trying to strengthen its competitiveness in game content in China. Furthermore, the company went into a partnership in April of last year with Danal, a Korean online payment service provider, for payment services between the two countries. The move is aimed at expanding its online payment platform Tenpay.
Alibaba, a latecomer in the area, also made a 100 billion won (US$90 million) investment in the Korean content industry. China's leading e-commerce company already forged partnerships with KGInicis and Cafe24. The firm also set up a Korean branch, and started to build relationships with local business operators. In addition, it is trying to introduce its Alipay system to 400 online sites such as Lotte Duty Free and Korean Air.
“I think that the finalization of the Korea-China Free Trade Agreement will lead to more transactions and investment in the Korean e-commerce and content markets by Chinese Internet companies,” said Jun Choon-mi, researcher at the KT Economics & Management Research Center. The researcher added, “It is also easier for Korean companies to penetrate the Chinese market. Since the Chinese government has strengthened its policy to protect intellectual property rights, it is likely to create new opportunities for Korean firms.”
According to market research firm IDC, the Chinese ICT market is estimated at US$412.4 billion as of last year, five times larger than the Korean ICT market worth US$71.5 billion. The Chinese ICT industry is expected to expand 13.7 percent year-on-year to reach US$473.1 billion this year. Hence, many market research firms believe that the size gap between companies in the ICT market will exponentially grow in the future.
“Chinese ICT companies' global competitiveness and innovative capabilities are threatening local firms,” remarked Hong Seung-pyo, an official at the Institute for Information & Communications Technology Promotion. The official added, “To change this challenge into an opportunity, it is necessary for local firms to understand China and change the way we regard the country as a new business partner.”
Oh Dong-hwan, an official at the Korea Internet & Security Agency, said, “The Chinese market, the nation's enormous financial firepower, and its global network will certainly give us opportunities.” He also pointed out, “In the early 2000s, local online gaming companies entered China. But they were robbed of their technology, and Chinese firms got enriched as a result. Tencent is the one that distributed Korean games at that time.”
Therefore, Chinese ICT firms' investment in the Korean market using their massive financial firepower is widely acknowledged to be a double- edged sword. Although Chinese capital can be of great help to money-strapped Korean firms at the moment, the outflow of technology or manpower in the name of investment might threaten local firms.
An associate in the gaming industry explained, “When it comes to Chinese Internet companies' large-scale investments in local firms, we still maintain partnerships with them. However, it is difficult to say how long this kind of relationship will last.” The official concluded by saying, “Chinese financial firepower could intervene in technology and the direction of management of Korean firms.”