👠 Here's what you can learn from this article!

1. E-commerce platforms originating from China, such as Alibaba Express and Temu, are experiencing rapid growth. In the Korean e-commerce industry, there's speculation that Alibaba Express might have reached the third spot, following Coupang and Naver. Even Temu, which entered the Korean market slightly later than Alibaba Express, has significantly closed the gap in Monthly Active Users (MAU) with Alibaba Express to just 1 million. How is the domestic e-commerce and logistics industry responding to this foreign incursion?
2. Recently, there has been talk in the logistics industry about Alibaba Express inquiring into detailed conditions for operating a domestic logistics center. Last year, Lei Zhang, the representative of Alibaba Express in Korea, mentioned that operating a domestic logistics center was worth considering. Why would Alibaba Express be interested in operating a logistics center in Korea? We've compiled four benefits Alibaba Express could gain from operating a logistics center in Korea, based on discussions with current e-commerce and logistics industry practitioners.
3. There is one method to secure all four mentioned benefits at once: Alibaba Express acquiring 11st. While there are considerations regarding valuation, the industry widely accepts that 11st is keen on selling itself. If Alibaba Express becomes the acquirer, the synergy could be greater than expected, according to forecasts in the e-commerce sector.
4. One might wonder why Temu, which has grown as rapidly as Alibaba Express, has not been heard to be entering the domestic logistics center market. The difference in the e-commerce business operation structure and the merchant onboarding process between Alibaba Express and Temu provides an answer. We've heard from global sellers who have stores on both Alibaba Express and Temu about these differences.

Alibaba's Interest in Korea: Targeting Warehouses?

One of the hottest topics in the Korean e-commerce ecosystem recently revolves around the Chinese cross-border e-commerce platforms Alibaba Express and Temu surpassing 10 million Monthly Active Users (MAU). According to IGAWorks, as of January 2024, Alibaba Express and Temu's MAUs were reported at 5.61 million and 4.59 million, respectively. Continuing from last year, the number of new installations for these platforms remains the highest in the domestic shopping sector, showcasing their steep growth trajectory.

In the e-commerce industry, there's speculation that Alibaba Express has already surpassed 11st and Gmarket to become the third largest commerce app in Korea. Given that Alibaba Express has declared this year as the "first year of localization in Korea," it seems increasingly likely that the position of the third-largest e-commerce platform in the country will inevitably be handed over to a Chinese platform.

Alibaba Express's recent activities in Korea have been notably aggressive. For example, in October last year, they launched K-Venue, a product channel within the app that promises delivery within three days of ordering in Korea. They are sincerely expanding their network of domestic sellers and brand companies by waiving entrance and sales fees for K-Venue. Efforts to hire domestic practitioners for expanding categories, including fresh food, have also been observed.

The news of Alibaba Express's enthusiasm for enlisting Korean brand companies has already been formalized. Meanwhile, there are whispers within the logistics and real estate industries that Alibaba Express is scouting for appropriate logistics center sites in Korea, considering quite detailed aspects including the location and size of the centers. Lei Zhang, the representative of Alibaba Express in Korea, mentioned at a press conference last year that they are considering opening a local logistics center, making it hard to dismiss these rumors as mere speculation.

There are indeed reasons why Alibaba Express might covet operating a logistics center in Korea. Customs officials have noted that areas like Incheon and Pyeongtaek have long been overwhelmed by the volume of Alibaba Express and Temu shipments. Frequent delivery delays have been a concern for Alibaba Express, as mentioned by industry insiders. According to customs officials, without increasing customs stations or Alibaba Express pre-stocking goods at a domestic logistics center, resolving this issue seems distant. The former option is out of Alibaba Express's sole decision-making ambit, hence increasing the likelihood of operating a domestic logistics center.

This content explores the potential impact of Alibaba Express actually operating a domestic logistics center on the competitive landscape of domestic e-commerce. According to gathered reports, Alibaba Express could gain four major benefits from establishing a logistics center in Korea. The acquisition of 11st, currently eagerly seeking a buyer, was mentioned as a method to secure these benefits all at once.

"Since October last year, Alibaba Express has been operating the K-Venue, a domestic seller channel. Especially from February, they have announced a waiver of fees for sellers entering K-Venue. This move signifies a global commerce platform's effort to not only promote products from Chinese factories but also to guarantee sales opportunities for domestic sellers. Moreover, recent news reports have revealed that Alibaba Express is recruiting personnel in Korea for fashion, beauty, and food sectors. This appears to be an initiative to significantly expand the range of products sold domestically beyond the usual manufactured goods from China" - Logistics Manager A at a Global E-commerce Platform

The Fear of Alibaba Isn't Just Because of Its Low Prices

For those unfamiliar with Alibaba Express, let me provide a brief introduction. Alibaba Express is a C2C cross-border e-commerce platform under the Alibaba Group, which entered the Korean market back in 2018. Initially, it offered extremely low-priced products but didn't receive the same reaction as today due to unpredictable delivery times.

In 2020, Alibaba Express took a significant step by setting up a logistics center specifically for Korea in Weihai, China, reducing the delivery time from several weeks to just 3-7 days. An unintended boon came when the post-pandemic economic downturn and rising inflation increased interest in ultra-low-priced products, bringing Alibaba Express back into the spotlight.

Aligning with this timing, Alibaba Express established a dedicated customer service center for Korea in November 2022 to actively manage deliveries, exchanges, and refunds. In March 2023, Lei Zhang, the representative of Alibaba Express in Korea, held a press conference announcing an investment of 100 billion KRW in the Korean market. They also partnered with CJ Logistics to offer delivery services within 3-5 days, expanding and reorganizing their logistics center in Korea to guarantee this service. This was the point when Alibaba Express's market share in Korea began to noticeably increase.

On the other hand, Alibaba Express has also been a favorite sourcing site for domestic purchasing agents. Many sellers scrape product information from Alibaba Express and list it on domestic marketplaces like Naver, adding a markup to the selling price for their profit. Alibaba Express strengthening its direct sales to Korean consumers has undoubtedly become a significant threat.

Four Good Reasons for Alibaba to Establish a Logistics Center in Korea

Should Alibaba Express start operating a domestic logistics center, the e-commerce industry might experience a significant upheaval. Currently, Alibaba Express operates dedicated logistics centers for Korean-bound goods in Weihai and Yantai, Shandong province. Though stocks are strategically placed close to Pyeongtaek Port, international logistics and customs clearance times inevitably extend the delivery window to within 5 days.

However, imagine if a logistics center were established in Korea, with stock pre-positioned domestically. The most immediate benefit would be faster delivery. It becomes feasible to manage D+1~2 day delivery through domestic logistics centers and courier services, akin to Coupang Rocket Delivery or Naver's Guaranteed Arrival service for orders placed by midnight.

E-commerce industry insiders anticipate that Alibaba Express's Korean logistics center would play a significant role in four key areas beyond the obvious enhancement of service competitiveness and customer loyalty through increased delivery speeds:

① Expansion of Fulfillment Services for Korean Sellers
The introduction of Alibaba Express's Korean seller sales channel 'K-Venue' isn't arbitrary. The push to actively recruit domestic sellers and brands with zero commission fees is significant. Alibaba Express has stated that K-Venue currently operates by having sellers and brands ship domestically, with most products delivered within 3 days of ordering.

By aggregating these sellers in Alibaba Express's dedicated logistics center to provide fulfillment services, not only can delivery speeds be ensured, but new revenue models in logistics, akin to Coupang's Rocket Fresh or Naver's Guaranteed Arrival, could also be developed. This logistics center could attract both Chinese products and domestic seller volumes.

② Product Range Expansion
Operating a logistics center implies internalizing physical inspection processes. One of the reasons Alibaba Express has been criticized as a hub for counterfeit and defective goods distribution is its open C2C marketplace structure. By adding inspections through the logistics center, Alibaba Express could address issues of counterfeit and defective goods distribution, expanding its range of trustworthy products.

Some sellers speculate that Alibaba Express might target the apparel and food categories for expansion in Korea. This poses a concern for sellers importing and selling Chinese apparel and food. Recent reports have indicated Alibaba Express is hiring personnel in Korea for beauty, fashion, and food sectors. By recruiting related sellers through K-Venue, Alibaba Express could naturally expand its product categories beyond China, potentially transforming from a platform known for Chinese manufactured goods to a comprehensive commerce platform handling both domestic and international apparel and food.

③ A Reverse Export Hub
Lastly, e-commerce industry insiders, including domestic sellers, view Alibaba Express's Korean logistics center as potentially serving as a hub for strategically selling reverse-imported products to the global market. According to Alibaba Group, Alibaba Express has expanded into over 200 countries worldwide, particularly achieving success in Russia, Latin America, and Europe.

The Korean logistics center could be utilized as a base for introducing products from Korea and neighboring countries to these markets. The aggressive recruitment of Korean sellers and brands and the expansion of product categories by Alibaba Express could be partly motivated by this strategic intent.

The Impact of Alibaba's Potential Logistics Center in Korea on the Local Market

The post-pandemic period has seen Dongdaemun's clothing cluster become somewhat lackluster. One reason for this is that Chinese consumers have started to bypass Dongdaemun, opting instead to consume apparel produced in their own country's factories. The substantial buying power of these consumers means there's less stock coming into Dongdaemun.

Particularly, domestic female consumers might have noticed that many Dongdaemun clothing malls now often operate on a pre-order basis for popular items, taking anywhere from two weeks to a month to fulfill. This situation arises from a shortage of stock. Sellers in apparel malls would undoubtedly prefer to import popular items in large quantities for immediate sale, but that's currently not feasible due to sourcing delays from China. However, what if Alibaba Express builds a domestic logistics center and starts immediately bringing in recently produced apparel from China?

"It would be game over. Chinese factories or wholesalers would naturally choose Alibaba Express as a partner if they can fully capitalize on their margins without going through Korean Dongdaemun wholesalers and retailers. It's possible that the entire import apparel market could shift to Chinese platforms," said Seller C, who operates an open market store and a women's apparel website.

"When asked what kind of Chinese food products we sell, I usually say 'everything you need for hot pot.' People immediately understand. We handle various imported food items necessary for making hot pot, including spices and ingredients like dried tofu and glass noodles. The reason why it's somewhat difficult and cumbersome for individuals to import food directly is due to customs issues. Wholesalers source sellable food products, formally import them after investing time and money, and then distribute them domestically. From a consumer's perspective, the limited range of officially permitted products can be disappointing. However, what happens if Alibaba Express starts importing a large quantity of Chinese food products, storing them in a logistics center, and selling them, especially focusing on products already proven to sell well domestically? Domestic sellers would be devastated in terms of pricing, and the range of products sold on Alibaba Express is expected to increase rapidly. That's why I believe the only way for me to survive is to join Alibaba. Entering early and securing a category seems like the best strategy," stated D, who sells imported Chinese food products and domestic agricultural goods through an open market.

If Alibaba Acquires 11st: A Complete Entry Scenario into Korea?

There's speculation that Alibaba Express's acquisition of 11st could complete a series of strategies for entering the Korean market. Recent media reports have indicated that 11st is considering halving its sale price and is pushing for a sale to either Alibaba Express or Qoo10.

Industry insiders in e-commerce and logistics have suggested that a synergy could indeed exist between Alibaba Express and 11st. This is because 11st not only has a network of domestic sellers that Alibaba Express is keen to recruit rapidly but also possesses a logistics center network for its fast delivery service, Shooting Delivery. With the investment in logistics centers, expanding seller networks, and broadening product categories could all be achieved in one move by acquiring 11st.

"Alibaba Express might not be particularly interested in 11st's current market share in Korean e-commerce. However, 11st's direct purchase-based fast delivery service, Shooting Delivery, is a different story. If Alibaba Express is preparing to establish a domestic logistics center, acquiring 11st to absorb its Shooting Delivery logistics infrastructure and expertise could be a smart move. Shooting Delivery, which processes orders placed by midnight for next-day delivery, could become Alibaba Express's fastest last-mile delivery option in its history. Moreover, Shooting Delivery could smoothly handle deliveries for beauty and food categories, which Alibaba Express has recently shown interest in. If they can also keep the product prices as low as before, it would indeed be disruptive," said Logistics Manager A from a global e-commerce platform.

But Why Isn't Temu Building a Logistics Center?

This is an appendix for those curious readers. Despite being slightly behind Alibaba Express in terms of MAU, there's a commerce platform that has surpassed Alibaba Express in growth rate – Temu. As introduced earlier, Temu has been ranked first in the number of new app installations in the shopping category from September last year to January this year. As a result, by January, Temu had rapidly closed the gap in MAU with Alibaba Express to just a million difference.

This means that the volume of direct purchases coming into Korea through Temu has also increased tremendously, suggesting that Temu might also have a demand for operating a logistics center in Korea. But why isn't there much mention of Temu operating a domestic logistics center like Alibaba Express? A seller, who has storefronts on both Alibaba Express and Temu through a Chinese corporation, shared their insights.

"Alibaba Express is an open market platform. Any Chinese business can register as a seller and upload their products relatively freely, similar to entering Naver Smart Store, 11st, or Gmarket. Temu, on the other hand, is different. It's more like entering Coupang Rocket Delivery, where products go through various stages of review for specifications, weight, volume, price, etc., before being approved for entry. Once approved, Temu directly purchases the contracted volume, and sellers have little say in how or at what price their products are sold. As a result, Temu tends to contract directly with producers rather than distributors, on a factory scale. This makes Temu a much lower-engagement, product-centric platform compared to Alibaba Express, struggling to handle high-value electronics or bulky furniture due to the significant inventory burden. For Temu to operate a domestic logistics center, it would have to bring in goods it has purchased into Korea, right? It's challenging to onboard domestic sellers like Alibaba, and contracting with Korean factories is also difficult. Thus, the efficiency of a Korean logistics center for Temu could be compromised. Maybe Alibaba Express is moving quickly, seeing this as an opportunity to gain a competitive edge over Temu," said Seller F, operating sales on both Alibaba and Temu through a Chinese corporation.

As cross-border e-commerce platforms from China stir the somewhat stagnant domestic commerce market, domestic logistics companies are both hopeful and concerned. An increase in volume could mean profit, or they could lose their footing to the sales volume of Alibaba and Temu and their logistics partners. The future landscape will undoubtedly depend on the timing and method of Alibaba Express's entry into the domestic logistics market.

Meanwhile, with Alibaba and another giant of Chinese B2B e-commerce platform, 1688, eyeing entry into the Korean market, extreme claims such as "Korean sellers are doomed" are emerging across media, including YouTube. In the following content, we'll explore how domestic purchasing agents, consignment sellers, and brands large and small are standing up to the onslaught of Chinese platforms from a micro perspective.

Contact us and we'll help you learn more and connect your business. cs@beyondx.ai

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