Korea’s Online Imported Goods Marketplace

Source: pixabay

The Korean population is very tech savvy and logs one of the highest internet usage rates of any nation in the world. Korean consumers are thoroughly accustomed to online shopping – a move that began long before COVID-19 restrictions - and domestic transactions have largely shifted from brick-and-mortar shops to online platforms. Historically, imported goods in Korea have been quite pricey, as importers must try to recoup their sunk costs for import approvals, certifications, and maintaining inventory while also enjoying good profitability. This has led Korean consumers to become expert product hunters, carefully searching and monitoring the availability, specifications, and prices of desired items in overseas online marketplaces. Although direct purchases from overseas online platforms have been growing steadily for years, this trend received a huge boost from the COVID-19 pandemic. Restricted from travelling internationally, the resulting increased online comfort purchasing by a wider population with more time to browse has caused Direct Overseas Purchasing, or DOP, to become the fastest growing method for imported products.

Entering the Korean market through a traditional distributor involves multiple hurdles and often significant investment. An importer needs a number of approvals, and must handles costs related to providing local consumer services, promoting its business, and managing inventory. All these cost factors increase the domestic sale prices, yet consumers are highly cost sensitive. Often, even with international delivery and customs fees, consumers can purchase products at a lower cost when purchasing directly from overseas. Ironically, this can even apply to Samsung, LG and other products which are made in Korea.

Direct Overseas Purchasing (DOP)

When Korean consumers want something, nothing can stand in the way. DOP often facilitates purchase of products that are not available from official importers. Consumers simply purchase products directly online [from an official webpage of products from all over the world from platforms like Coupang and various individual overseas websites (such as gap.com and have it delivered to Korea. This is fully supported by a highly developed internet and advanced logistics infrastructure. A DOP vendor can also make use of a plethora of available payment methods. Strict domestic banking regulations mandate security protocols that make online credit card purchases somewhat cumbersome. In response to market demands, many private payment schemes (for example, Samsung Pay and Kakao Pay) have sprung up to fill the gap, offering 'one click' authorization services.

This opens the door for a low cost, low risk market entry environment for overseas exporter businesses to flourish in Korea. This Direct Overseas Purchase (DOP) market has created new opportunities for potential exporters, which we discuss more below. 

Social distancing restrictions in response to COVID 19 have made offline shopping less attractive, and at the same time have encouraged people to stay at home in their spare time rather than go to crowded theaters, restaurants or bars. This has freed up more time and budget for browsing the internet and looking for deals. Interestingly, not only has the overall online spending volume increased, but the value per product purchased has also increased.  

Direct Overseas Purchase Amount & Sectors

Units: KRW trillion

Source: 해외 직구 물품 유통 및 안전관리체계 개선방안(www.korea.kr)

The DOP Opportunity

The Korea market is not an easy market to penetrate due to its unique price sensitivity, high levels of competition and the need to keep up with its frequently dynamic changes in consumer trends. Unlike official imports with minimum order quantity MOQ and customs clearance issues, market entry via the DOP method virtually eliminates all Korean requirements and procedures.

Korean customers enjoy using global online platforms such as Amazon, iherb and AliExpress during promotion seasons like ‘Black Friday’ or ‘Singles Day.’ However, a number of Korean major shopping platforms are gaining in popularity due to Korean language, payment systems and easier delivery factors.   

DOP Customs

DOP customers must manage customs clearance themselves, but with the rapid growth in the DOP market, the system has become increasingly simple and effective.

1. Simple Customs Clearance (List-clearance Customs)

Consumers purchasing products for personal use do not need to fill out a customs declaration or pay duties and surcharges, but need only input a personal consumer code, a unique number issued by Korea’s customs authority through a simple online registration process. This clearance process is generally easy, but there is an annual cost ceiling as well as limitations on the types of products that may be imported this way.

The total cost cap, which is calculated inclusive of the product price, delivery fee, and tax, is limited to USD 150. When purchasing from the U.S. the cap is USD 200. The list-clearance customs process requires only an invoice which must include the buyer’s signature, phone number and address, along with the product name, price and weight.

Notably, various medicines, medical devices, functional foods, foods and cosmetics are excluded from the Simple Customs Clearance.  Example of excluded products include the following:

1. Medicines and medical supplies
   1. Hair growth solutions
   2. Aspirin
   3. Fever reducers
   4. Cold medicines
2. Wild animal related products
   1. Animal leather products
   2. Endangered animals
3. Agricultural and stockbreeding products, agro and livestock products
   1. Cat/dog food
   2. Ham Products
   3. Cheese products
   4. Cigarettes
   5. Coffee beans
4. Products which violate trademarks or intellectual property rights
   1. Imitation bags, shoes, apparel
   2. Other imitation products
5. Cosmetics
   1. Most cosmetics products
   2. Steroid-based cosmetic products
6. Others
   1. Guns
   2. Swords

2. General Entry Customs Clearance  

General entry customs clearance applies when the product is purchased for personal use and is not a product that is eligible for the simplified list-clearance customs system mentioned above. The product then must go through the full customs process with a personal consumer code and an import declaration.

It is important to note that when multiple products are purchased, if one item must undergo the general entry customs process, all other items in the same shipment will also be required to go through the general entry customs process.

DOP Related Services

Partnering with domestic companies that provide customized DOP services can provide an opportunity to effectively enter the Korean market, even without additional filings or corporate presence. There are a number of different business models within this sector. Companies that purchase luxury products on behalf of consumers may check the authenticity or quality of the products before repackaging and sending to consumers. Adding to the consumer appeal of this model, overseas online brands that market their products in Korea through an official importer will often refuse to ship directly to consumers in Korea. DOP companies, on the other hand, are able to purchase the products in another market and then send them onward to consumers in Korea.

Another model is through most major domestic online shopping malls, which are eager and able to cooperate with overseas brands within their platforms, due to the continued growth of the DOP market.

IRC Consulting is a Korea-focused business development consultancy that assists international organizations to identify and capitalize on the unique opportunities in this vibrant market. For more information on achieving success in the Korean market, contact IRC Consulting (https://www.ircconsultingkorea.com).