Overcharging Domestic Customers No Longer Works

      August 19, 2014 13:09

      Koreans bought around 12,000 TV sets from online retailers based overseas in the first seven months of the year, according to the Korea Customs Service. That is almost four times more than the 3,400 TVs that were brought into Korea in 2013. Surprisingly, most of the TVs Koreans bought from overseas were Korean brands Samsung and LG.

      The reason is that they are 20 to 30 percent cheaper than the same products here, even adding taxes and shipping. A 47-inch LG TV, which costs W1.3 million (US$1=W1,018) from a Korean online retailer, can be bought for half that price on Amazon. A 60-inch Samsung TV is also half price on U.S. shopping sites.

      Even adding the eight-percent tariff, 10-percent surtax and around US$150 in shipping costs, a TV set still costs 30 percent less. The only drawback is that customers have to set up the TV by themselves, but the products are eligible for after-sales service in Korea just like any other electronics purchased here. 

      Purchases from overseas online retailers have risen more than 45 percent annually on average over the past five years. Last year, they surpassed 11 million transactions, amounting to more than W1 trillion. Shopping sites that offer proxy purchases from overseas retailers are seeing business boom, while overseas shopping sites have put up Korean-language services to attract more customers here.

      In the past, when the government slapped exorbitant tariffs on imported products, domestic businesses and distributors were able to get away with selling foreign goods at higher prices. But free trade agreements have lowered tariffs and the Internet has made it possible to buy products from anywhere in the world with the click of a mouse.

      Although online overseas purchases are still equivalent to only one percent of total domestic retail sales, the failure of Korean businesses to deal with this shifting consumption pattern could lead to huge losses.

      Samsung and LG have no choice but to cut the prices of their products here. If they do not, customers will simply buy more products from abroad. The government must further ease regulations on Internet commerce and promote competition so that businesses here cut their prices to a reasonable level.

      Retailers in Korea need to monitor the price tags of Korean products online so that domestic customers can no longer be squeezed for every cent.

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