Shinsegae Group and Alibaba International are set to establish a joint venture (JV) this year. The two companies plan to incorporate Gmarket and AliExpress Korea as subsidiaries of the JV. A new e-commerce company will be created with equal investment from both Korean and Chinese capitals. The retail industry is paying attention to the background of the bold move by Chung Yong-jin, chairman of Shinsegae Group. Just four days after returning from a visit to the United States at the end of last year, Chung officially announced the joint investment with Alibaba, a leading Chinese corporation.
According to related industry sources on the 2nd, Shinsegae Group will establish a joint venture with Alibaba International this year and embark on joint management. This seems to be a strategy to enhance competitiveness in the e-commerce market by collaborating with Alibaba, which has proven global competitiveness, to turn around the struggling Gmarket. Gmarket's financial situation has not improved from its deficit position. After investing 3.44 trillion won to acquire Gmarket from eBay Korea in June 2021, Gmarket reported an operating loss of 5.9 billion won that same year. In 2022, it recorded an operating loss of 65.4 billion won, and in 2023, it had a deficit of 32.1 billion won.
There are many discussions in the industry regarding the background of the alliance between the two leading South Korean and Chinese retail corporations. This is because it is the first move that Chung made after meeting with then President-elect Donald Trump and returning home on the 22nd of last month. Prior to this, on the 16th of last month, Chung stayed for six days and five nights at the Mar-a-Lago Resort in Palm Beach, Florida, at the invitation of Trump Jr., the President-elect's eldest son. It is reported that during that time, Chung met not only with the President-elect but also with Elon Musk, CEO of Tesla, to discuss various matters, including business. Some in the industry speculate that Chung, who is expanding business in the United States, may have discussed investments in the U.S.
◇Alibaba preparing for a second Trump presidency... possibility of Shinsegae playing a bridging role
First of all, the industry views this collaboration as a meeting of the needs of both companies. In a situation where direct entry to the U.S. market is blocked, the Korean market has emerged as an attractive alternative for Alibaba. There are expectations that Shinsegae will serve as a bridge connecting the U.S. and Alibaba. From Shinsegae's perspective, establishing a joint venture with massive Chinese capital could lead Gmarket out of poor performance. An industry insider noted, "With the U.S. sanctions on Chinese products, it seems that one of the purposes of this alliance is for Alibaba to partner with Gmarket to establish an indirect route."
There is also a possibility that China may use South Korea as a forward base for overseas expansion to evade U.S. regulations under the second term of a Trump presidency. The President-elect has indicated that he plans to impose a 60% tariff on Chinese goods. There is also the possibility that he may re-examine sanctions on Chinese-owned corporations that were considered early in his first term. During his first term, President Trump mentioned Alibaba and ByteDance, the company behind TikTok, as corporations subjected to sanction review. An industry insider said, "It’s a strategy similar to that of Chinese automotive companies setting up production facilities in Mexico to indirectly evade U.S. tariff barriers and enjoy duty-free benefits," adding, "This joint venture establishment serves as a countermeasure against tariff barriers."
Some suggest that Shinsegae may let Gmarket, which has a significant financial burden, follow an independent path before going through what is referred to as "Gmarket exit (recoupment of investment)." This is because Shinsegae Group has stated that they will only form a partnership with Alibaba for the e-commerce business among their various entities. An industry insider stated, "If there was a will to support Gmarket, they wouldn’t have established the joint venture with Alibaba on a 50:50 basis," and added, "It is possible that they will gradually erase the linkages with the group's e-commerce businesses, such as Emart and SSG.com, before exiting instead of immediately pursuing acquisitions or mergers."
Shinsegae has maintained that the meeting with the President-elect and the joint venture with Alibaba are separate matters. A Shinsegae Group official stated, "On the timeline, it may appear as though the establishment of the Gmarket-Ali joint venture took place after Chairman Chung's visit to the U.S.," but emphasized, "It is impossible to reveal the exact dates, but each matter has progressed independently. The joint venture has been in the works for a considerable amount of time prior to the visit to the U.S." The official also denied the possibility of a Gmarket exit.
◇Though an alliance of 'retail giants'... "A plan to counter negative public opinion against Chinese corporations must be prepared"
The industry believes that the impact and synergy effects of the joint venture between the two companies need to be observed further. With no specific plan for synergy strategy disclosed, negative public sentiment towards collaboration with Chinese corporations has begun to take shape. Gmarket is a major subsidiary of Emart, which recorded a closing price of 63,400 won on December 30 last year. It fell by 6.90% (4,700 won) compared to the previous trading day.
The announcement by Shinsegae Group on the 26th of last month regarding the strategic alliance with Alibaba essentially acted as a negative factor. An industry insider said, "The backlash against Chinese capital in our society has been reflected in this result,” adding, "There are no consumers willing to take risks, such as personal information leaks or the delivery of cancer-causing products that occurred during the use of Chinese (C) e-commerce. It is reported that among Gmarket sellers, three out of ten are known to be switching platforms."
You Byung-jun, a professor of business administration at Seoul National University, stated, "It remains to be seen whether the fusion of Gmarket's and Alibaba's strengths will change the domestic e-commerce landscape. However, since negative public sentiment began to take shape even before the establishment of the joint venture with a Chinese corporation, measures must be prepared to reverse this sentiment."