Korea Cross Border E-commerce Market
The cross border e-commerce market in Korea has been continuously growing, from $2.0 billion in 2017 to $4.5 billion in 2022, resulting in a 23 percent of average annual growth rate. While it has been growing by a two-digit rate, the Korean domestic retail has been growing at only a 3.8 percent rate every year during the same period. Buying from the Korean retail channels can be more expensive than sourcing goods from overseas even after adding-in international shipping fees and tariffs.
‘Jik-gu,’ a Korean term for cross border e-commerce, has now become an everyday purchasing behavior by price-sensitive Koreans. The Korean government encourages cross border e-commerce by simplifying and expediting customs procedures which allows Korean consumers to benefit from the low-priced goods from overseas.
The United States–Korea Free Trade Agreement (KORUS FTA) has also positively impacted the growth of cross border e-commerce. Under the KORUS FTA, express courier service mailed goods, under $200, are duty-free when sourced from the U.S., and U.S. made items under $1,000 are exempt from KORUS FTA documentation. U.S. companies without representatives in Korea can easily export to Korea via cross border e-commerce.
The main ways of selling to Korean consumers are using e-commerce platforms and utilizing U.S.-based warehouse companies. U.S. companies can take advantage of the Korean market via U.S. e-commerce platforms such as Amazon, eBay, and iHerb as well as Korean e-commerce platforms such as Coupang, Gmarket, and Auction. For products not targeted for international shipping on those e-commerce retailers, U.S.-based warehouse companies act as U.S. mailing addresses to help Korean consumers source goods from the U.S. The Korean consumers purchase the products, have the products delivered to warehouse companies, and let the warehouse companies ship the packages to Korea. The warehouse companies have multiple warehouses in different states offering options to pay less sales tax (for DE-based warehouses, for example) and to receive their products faster (for CA-based warehouses, for example).
Buying agents at various Korean e-commerce platforms are also contributing to the growth of Korea’s cross border e-commerce. Many registered sellers at these Korean e-commerce sites source products internationally and send them to Korea. Of all internationally sourced goods sold to Koreans via cross border, 41 percent comes from the United States and the most popular products are health supplements (19.4 %), apparel (17.7 %), electronics (10.4 %), footwear (7.3 %), and handbags and bags (6.8 %).
While cross border e-commerce can be a great way to increase brand awareness and preference, there are entry restrictions for certain products and U.S. companies should be aware of the rules before selling to Korean consumers. In addition, cross border e-commerce can interfere with the sales of goods already sold in the Korean domestic market. Therefore, U.S. companies should learn about the Korean market dynamics and set appropriate global sales and pricing strategies to maximize the sales and profit.