ⓒ YONHAP News

The electronic or e-commerce market in Korea is experiencing a seismic change. Following the successful listing of Korean e-commerce giant Coupang on the New York Stock Exchange, the country’s largest web portal Naver has joined hands with Shinsegae Group, which is the operator of the nation’s biggest discount store chain Emart, to form an alliance against Coupang. Along with Shinsegae, another retail giant Lotte Group, Korea’s No.1 mobile carrier SK Telecom and private equity firm MBK Partners submitted preliminary bids on March 16 to buy eBay Korea, which is Korea’s No.3 e-commerce operator. 

Here is Lee In-chul, director of the Real Good Economic Institute, to examine the intensely competitive e-commerce sector and a structural shift in the retail industry in Korea. 

eBay Korea is the third-largest e-commerce platform in the country, following Naver with a market share of 17 percent and Coupang with 13 percent. At present, Shinsegae’s online shopping mall SSG.com makes up a mere 3 percent of the local e-commerce market, but the acquisition of eBay Korea will raise the figure to 15 percent. 

This will then make SSG.com the second-largest e-commerce player in the country. Lotte, meanwhile, is in desperate need to fend off Shinsegae. If Lotte fails to take over eBay Korea, it is feared to be eliminated from the market altogether. SK Telecom, the operator of online shopping mall 11Street, is enthusiastic about the acquisition of eBay Korea. If this latecomer buys eBay Korea, it will account for 18 percent of the market to become the No.1 operator, beating Naver. Private equity fund MBK Partners also has its eye on the purchase of eBay Korea, as the acquisition will help expand the scope of e-commerce business of its own discount store chain Homeplus. 

Clearly, eBay Korea has emerged as a game-changer in the rapidly-evolving e-commerce market in Korea. Depending on who acquires it, the e-commerce scene will see a new major player. 

Initially, the price of eBay Korea, estimated at about 4.4 billion dollars, was considered too high. But it turned out that multiple companies participated in the preliminary bids for eBay Korea. Apparently, Coupang’s successful debut on the New York Stock Exchange has raised the value of eBay Korea considerably. 

Coupang founder and CEO Kim Bom-suk rang the opening bell at the New York Stock Exchange on March 11. On the first day of listing, Coupang shares closed at 49 dollars, up 41 percent from the initial public offering price of 35 dollars. Based on the closing price of the day, the company’s market cap surpassed 88 billion dollars, making it the second-largest domestic firm, following Samsung Electronics. Through the listing, Coupang was able to raise about 4.6 billion dollars from its initial public offering or IPO, becoming the biggest IPO in the U.S. this year. Coupang’s IPO was also the largest from Asia in the U.S. since China’s Alibaba in 2014. Now, cashed-up Coupang is expected to invest in expanding its delivery centers. 

Coupang was founded in 2010 with a capital of 2.7 million dollars. With a market cap of 63 billion dollars, it made a landmark debut on the New York Stock Exchange, about just ten years after its foundation. The figures show that its corporate value increased 24-thousand times. 

Despite Coupang’s remarkable success, many obstacles still lie ahead. American e-commerce giant Amazon, in comparison, was established in 1994, when people were not familiar with the concept of “online shopping.” Amazon founder Jeff Bezos acquired some companies in the course of expanding the business. Now, Amazon is indispensable to U.S. consumers. In contrast, Coupang has a number of strong rivals, and Korean consumers compare at least four to five online and offline stores when buying things. Also, some local businesses have already forged an anti-Coupang alliance. 

Naver and Shinsegae have agreed on a stock swap deal worth 250 billion won, which is about 221 million dollars. Under the deal, Naver exchanges shares worth 150 billion won and 100 billion won with Emart and Shinsegae International, respectively. As a result, Naver will own 2.96 percent of Emart and 6.85 percent of Shinsegae International, while Emart and Shinsegae will hold a combined 0.4 percent stake in Naver. Annual transactions of Shinsegae and Naver reach about 44 billion dollars. The former has 20 million customers and the latter, 54 million. Their share swap deal is expected to have a major impact on the local retail industry. Obviously, they are aggressively seeking out a partnership in an effort to confront recently-listed Coupang, which is shaking the e-commerce market in Korea. 

According to Statistics Korea, South Korea’s online shopping transactions reached an all-time high in 2020, up 20 percent from a year earlier. The growth is attributable to the fact that many people spent more time at home and consumed online amid the COVID-19 pandemic.  

While Korea’s e-commerce market is becoming larger and larger, the market share of even the No.1 operator does not exceed 20 percent. That means the door is still open to any operator. That’s why companies have joined the fierce e-commerce race. Considering the winner-takes-all nature of the online platform competition, what matters the most is size. It is easy to guess that the companies are making an all-out effort to expand their business. 

South Korea was the fifth largest e-commerce market in the world last year, after China, the U.S., the U.K. and Japan. But it is estimated that Korea will rank third within the next three years, following China and the U.S.  Korea’s e-commerce industry is growing fast, thanks to the nation’s advanced information technology and online infrastructure as well as collaboration between retail giants armed with capital and delivery capacity. Following the acquisition of eBay Korea, major players will lead the market to facilitate high growth. Among the top 10 global e-commerce markets, South Korea and Russia are the only ones that have not been controlled by Amazon and Alibaba. 

The fierce competition among large retailers will allow consumers to purchase things at reasonable prices for some time. But it is questionable if the trend will last. Online platforms tend toward concentration or monopoly, raising concerns over some side effects. 

Many are concerned that a monopolistic market structure might be built once mergers and acquisitions by big-name retailers are complete. The subsequent side effects, including an increase in fees, will affect small businesses and consumers after all. It will also be necessary to address the problem of poor working conditions for delivery workers who have to deal with the increase in delivery volume. 

Labor, management and the government should see the dark side of the e-commerce battle and cooperate to solve the problems over the long term. 

After the e-commerce war is over, one or two players are expected to dominate the market, while those who have fallen behind the competition may find it difficult even to survive. Attention turns to who will be the final winner in the domestic e-commerce market.